Wednesday, September 24, 2008

The World’s Oil Reserves

In his book, Twilight in the Desert, Matthew R. Simmons makes the case that Saudi Arabia’s oil production will soon peak as the most easily recovered oil is depleted. His extremely detailed analysis contrasts sharply with the Saudi assertion that they can satisfy world demand for another 50 years. Much of his technical information comes from Saudi technical papers that seem to contradict their public statements.

Simmons provides mountains of technical information that amounts to circumstantial evidence that oil supplies are dwindling. However, as he points out, it is up to the Saudis to prove their claims about how much oil is still in the ground and how quickly it can be supplied to the world.

Assessing the nature of oil fields and how much oil they contain is very difficult. As much as anything this could account for the seeming lack of reliable information about oil reserves.

Even if we knew how much oil is in the ground, it’s not clear how much of it can be recovered economically. And even if we could tell how much oil can be recovered, the Saudis and western oil companies seem to have an interest in projecting a message of stable oil supplies into the future. All this leaves little hope for the average person to know when oil supplies will begin to dry up.

The main way that this book has changed my thinking is that I no longer believe any reports of the size of oil fields. It’s not that I necessarily think that the report writer is lying; I just think that they likely don’t really know. In this sense, I put them in the same category as pundits who make short-term stock market predictions.

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