Is Saudi Arabia Running Low on Oil?

Acknowledging that the worldwide oil supply is running out seems to be a big 'no-no' for leading politicians and industry executives.

However, an increasing number of industry analysts feel that this indeed might be the case. Those who believe this to be true point to the state of affairs in Saudi Arabia, the largest oil producer for the past three decades. It has been rumored for years that its largest oil field, Ghawar, is in permanent decline.

If you don't know anything about Ghawar, it is by far the biggest conventional oil field in the world, measuring an estimated 175 miles by 20 miles. Currently, the huge field is said to produce between 4.5 and 5 million barrels of oil per day by outside observers, more than 6 percent of global production. The officially stated maximum sustained crude production capacity is 8.5 million barrels per day, though actual daily output is a closely-guarded state secret. Thus far, approximately 60 billion barrels have been pumped out of Ghawar since production began back in 1951.

Ghawar's total proven reserves, also known as 'recoverable' oil, still left in the ground, have been pegged at just over 70 billion barrels by Saudi Aramco, which is the largest nationalized oil company in the world. The word 'recoverable' is extremely relevant, as the entire amount of oil in the ground is much less important than the amount that can easily be pumped out at a given level of extractive technology. While modern techniques can certainly boost the amount of oil that can be extracted per oil field, the question of how expensive the operation turns out to be remains extremely pertinent. Once oil extraction becomes too difficult, and therefore expensive, it becomes economically infeasible to attempt to remove the remaining supply.

Saudi Arabia comes under particular scrutiny because of its importance in the worldwide oil markets. It has long been acknowledged as the world's biggest producer of oil, and has acted as a 'swing producer,' increasing and reducing oil extraction rates to balance to the global market in concert with the other OPEC members.

A number of worrying signs clearly indicate that Ghawar might be in permanent decline. In April of 2006, a Saudi Aramco spokesman shocked listeners by making the observation that its older fields are now declining at a rate of 8 percent per year. This, of course, implies that Ghawar may have 'peaked.' The spokesman continued that measures were being taken to offset the decline, but that the only valid solution to declining crude oil supplies is to locate new fields, and it has been documented that oil field discoveries have not kept pace with burgeoning worldwide demand.

If it becomes clear that Ghawar is indeed in decline, it likely means that the rest of the world is as well. Of the 'super-giant' oil fields, four are officially past their peak production: China's Daquing, Mexico's Cantarell; Russia's Samotlor; and Kuwait's Burgan. Though Ghawar has not officially been so declared, the implications of the facts noted above are clear.

Matthew Paolini is a consultant with Citybook.com for the Orlando, FL online Yellow Pages division.