The idea that we may be headed for an oil supply crunch got a boost from a Wikileaks release revealing that Saudi Arabia's oil reserves may have been exaggerated by as much as 40%, or 300 billion barrels.
The basic theory of “peak oil” is that we have reached—or will shortly reach—the point when oil extraction cannot be expanded. We’re drawing as much oil out of the ground as we ever will—oil extraction has “peaked.” The typical follow up to this is the prediction that we’ll decline from this peak—perhaps rapidly—creating a spike in oil prices or a huge demand for alternatives.
Ariel Schwartz at Fast Company points to the recent Wikileaks cable stating:
In a presentation, Abdallah al-Saif, current Aramco senior vice-president for exploration, reported that Aramco has 716bn barrels of total reserves, of which 51% are recoverable, and that in 20 years Aramco will have 900bn barrels of reserves.
Al-Husseini disagrees with this analysis, believing Aramco's reserves are overstated by as much as 300bn barrels. In his view once 50% of original proven reserves has been reached…a steady decline in output will ensue and no amount of effort will be able to stop it. He believes that what will result is a plateau in total output that will last approximately 15 years followed by decreasing output."
Other cables from the U.S. embassy in Riyadh go on to express fears that "Saudi Aramco is having to run harder to stay in place—to replace the decline in existing production," and that "Clearly they can drive prices up, but we question whether they any longer have the power to drive prices down for a prolonged period."
Kevin Drum points out the significance:
There's always Iraq, of course, which certainly has more production capacity if it can develop it, but Saudi Arabia increasingly looks like it's peaked already. And if that's true, it probably means that the global peak in production, which was delayed a few years by the 2008 recession, is most likely not too far away. Our future is going to be increasingly oil free whether we like it or not.
Questions? Comments? Email us atNetNet@cnbc.com
Follow John on Twitter @ twitter.com/Carney
Follow NetNet on Twitter @ twitter.com/CNBCnetnet
Facebook us @ www.facebook.com/NetNetCNBC