Does Saudi Arabia have enough oil?

The years between 2005 and 2009 were tough ones for former oil minister Ali Al-Naimi. 

In addition to the financial meltdown in 2007/2008 and the sharp fluctuations in oil prices in 2008 when they skyrocketed to a record and then fell to very low levels, the former oil veteran had to deal with another major issue: To dismantle the belief that Saudi oil fields were close to hitting a peak.

Ever since Matthew Simmons published his book “Twilight in the Desert” in 2005, the oil industry has been doubtful that Saudi oil fields are as healthy as officials projected. 

The doubts started to recede from 2009 when Saudi Aramco completed its massive capacity expansion plan and the Kingdom declared that its total maximum oil production capacity reached 12.5 million barrels per day. The issue of “peak oil” was put to rest in 2013 when the world saw how drilling technology revived the aging oil fields in the US. 

Saudi Arabia is the world’s central bank of oil. Many in the oil industry, therefore, want to know how much oil there is in the Kingdom to calculate future risks. 

In its recent annual review published this month, Saudi Aramco declared that it holds until the end of 2017 around 260.86 billion barrels of crude oil and condensates (256.74 billion barrels of crude and 4.12 billion barrels of condensates). That’s slightly higher than the 260.8 billion reported in the previous year.

Saudi Arabia is the world’s central bank of oil. Many in the oil industry, therefore, want to know how much oil there is in the Kingdom to calculate future risks. Next year the number of Saudi Aramco’s crude oil and condensates reserves reported in the 2018 annual review should be surprising.

Wael Mahdi

It was unusual, however, to see Aramco report its total oil and gas reserves in barrel of oil equivalent this year. For the first time the company reported it has 333.9 billion barrels of oil equivalent to include natural gas and natural gas liquids. This change in reporting methods is believed to be the result of its switching to global standards in preparation for the initial public offering. 

Next year the number of Saudi Aramco’s crude oil and condensates reserves reported in the 2018 annual review should be surprising. That’s because Saudi energy minister Khalid Al-Falih said in Vienna in June that the Kingdom’s proven reserves would be higher than previously published at 270 billion barrels.

There are two reasons which may explain the increase in the total reserves numbers. First, Aramco’s own reserves may have gone up as it completed the external audit of reserves that is mandatory for IPO purposes this year. Second, although less likely, the boost in the reserves of the country is coming from the shared fields with Kuwait. 

Not much is known about the reserves situation in the neutral zone between the two countries. According to the latest figures of ministry of energy, industry and mineral resources in Saudi Arabia, the Kingdom’s total proven oil reserves stood at 266.5 billion barrels at the end of 2015. So there is an additional 4.5 to 5 billion reserves to be reported next year unless the source of that is the neutral zone and not Aramco.

As the company keeps producing three billion barrels of oil per annum, the question many ask is will Saudi oil reserves fall in the future since there are no more super giant fields to be discovered in the country or to be brought online?

The potential for Saudi proven reserves to go up is more likely. This is due to many factors. First and foremost, Saudi Arabia is trying to apply all modern technology to bring its proven reserves up. Proven reserves, or P1, are the oil resources that can be produced with a probability greater than 90 percent under present technical and economic conditions. Probable or P2 has a percentage of 50-89 percent, while possible (P3) are those with 10 to 49 percent probability to be extracted based on today’s conditions. Oil originally in place is the sum of all of the three Ps.

Saudi Aramco, according to its own records, has about 802.2 billion barrels of oil resources, including about 261 billion barrels of proven reserves; 403.1 billion of probable, possible and contingent reserves. The company has produced up to 138 billion barrels of oil to date out of the 802.2 billion barrels.

It plans to raise oil resources to 900 billion barrels from the 802.2 billion over the long term as its also plans to increase recovery rate of reserves to 70 percent from the current 50 percent. The efforts of Saudi Arabia didn’t stop at Saudi Aramco. A unit of Chevron Corp., which operates the Saudi share of the onshore shared oil fields with Kuwait, was planning to invest billions of dollars to produce an extra 5 billion barrels from Wafra oilfield by injecting steam underground to make it liquid enough to pump. Wafra full field development plans have been on hold due to the halt of production of oil in the area since 2015. But the potential is still there and if Chevron resumed operations there, the lifespan of Wafra field is expected to increase.

Many are curious to know how much there  is in every oil field in Saudi Arabia. Again there is not much detail on that because Aramco stopped publishing field-by-field figures a long time ago.

The last credible estimates were made by the Center of Global Energy Studies (CGES), which was established by former oil minister Sheikh Ahmad Zaki Yamani, who shut it down in 2014. In a study in 1993, CGES estimated that Saudi total proven reserves were 232 billion barrels with Ghawar, the world’s largest onshore oil field, holding about 70 billion barrels of oil left to be produced by end of 1992. 

The world’s largest offshore oil field, Safaniya, was estimated to hold 36 billion barrels and Zuluf 26 billion barrels by the end of 1992. Khurais, another giant field, held about 15 billion barrels and Manifa about 17 billion barrels. Two other interesting fields, Shayba and Marjan, held 13 billion barrels each.

Assuming that these figures are still the same with improved recovery over the years — as Aramco is using horizontal drilling and advanced water injection techniques — it is obvious that the increase in Saudi production in the future should come from its original super giant fields. 

The recent Saudi Aramco annual review showed that the company will complete the expansion of Khurais oil field this year, and that it demothballed one of the facilities in Zuluf after 23 years to maintain the capacity of the field at 800,000 barrels a day.

The company is also expected to complete the demothballing of its famous Dammam field, where Aramco first struck oil in 1938, to produce 25,000 barrels a day in 2021, raising it later to 75,000 barrels a day in 2026.

What’s crucial now is that Saudi Arabia is becoming a major gas producer as output hit a record last year. That will free more oil to meet future demand. So there should not be any worry about Saudi supplies to meet demand for the next three decades at least. 
 

• Wael Mahdi is an energy reporter specializing on OPEC and a co-author of “OPEC in a Shale Oil World: Where to Next?” He can be reached on Twitter @waelmahdi