The International Energy Agency needn't bother exhorting OPEC to pump more oil to fuel a global economy that now burns a record 87 million barrels a day. Confidential cables from the U.S. embassy in Saudi Arabia released recently by WikiLeaks confirm what others have long suspected: OPEC's kingpin producer, Saudi Arabia, has little more to give.
The cables from the U.S. embassy in Riyadh cite a number of conversations between embassy personnel and Sadad Al Husseini, a geologist and former executive vice-president of exploration and production with Aramco, the Saudi oil monopoly. The former Aramco exploration head contends neither the kingdom's reserve estimates nor future production targets can be believed. According to Mr. Husseini, Aramco's estimates of its world-leading reserves are inflated by 40 per cent.
More important, Mr. Husseini acknowledged Saudi production is never likely to get to Aramco's 12.5 million barrel per day target. Instead, the country is struggling to produce even 10 million barrels a day and it may soon encounter a production peak after which flow rates will inevitably decline. Yet the International Energy Agency is counting on Saudi Arabia to produce no less than 14.6 million barrels a day by 2035.
Mr. Husseini's revealing assessment of the Saudi oil industry goes a long way to explaining why President George W. Bush's personal pilgrimage there in 2008 during the height of the last oil crisis was only able to elicit a token 300,000 barrel a day production increase. Other than a limited amount of heavy oil that many of the world' s refineries can't process, the kingdom has little more to offer today.
Chronic delays in new development and over-reporting of reserves by Aramco paint an illuminating picture of an oil industry that has struggled merely to keep up with depletion. Production is still below the levels reached in the 1970s. And thanks to the Saudi economy's voracious appetite for its own massively subsidized oil, less of its near-peak production is available for export every year.
While the U.S. embassy cables acknowledge Saudi Arabia still has the capacity to raise prices should it withhold supply, it no longer has the capacity to prevent prices from rising because it can't boost production sufficiently to meet world demand.
If Saudi Arabia no longer has an ability to raise production, who does?
Still, one way or another the global oil industry will have to produce six million barrels per day more oil than last year to offset the four million barrels per day that is lost to depletion each year, and the nearly two million barrels per day of new crude demand that another year of global economic growth will generate. (Last year, Chinese oil demand alone increased by almost one million barrels a day.)
If that supply can't be found, there is only one solution: Higher oil prices will be needed to ration the ever-growing global fuel demand.