Saudi Oil: A Crude Awakening on Supply?

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Three industry analysts in the U.S. said the document's overall conclusion—that the Saudis cannot sustain higher than 12 million barrels a day maximum production for the next few years—appeared to be reasonable. "My view is that when they finish their expansion program they are unlikely to be above 12" million barrels per day, says Roger Diwan, a Middle East energy expert with PFC Energy, a consultancy in Washington, D.C. Lawrence Goldstein, an analyst with the Energy Policy Research Foundation, an industry-funded research group, said that uncertainty about Saudi production remains a problem for the market. "The only ones who know could be the Saudis," Goldstein says, "and they might not know because they haven't tested the deliverability system in as much as a decade."

A principal reason for the dramatic surge in world oil prices has been a tight balance of global supply and demand, combined with a lack of spare capacity to produce more crude in a pinch. So that what previously might be considered a barely consequential guerrilla attack in oil-rich Nigeria, or an empty Iranian threat to close the strategic Strait of Hormuz, results in a far more dramatic oil market reaction than ever before.

Once again Saudi Arabia has emerged as the central energy player, the only oil producer on the planet seen as having the spare capacity to rapidly boost crude exports. The kingdom also has close ties to the West, and until 1980 the precursors of Exxon (XOM), Chevron (CVX), and Mobil were partners with the Saudi state oil company. Now most of the major oil giants are hoping to get back in, and one way they have suggested is by helping the Saudis maintain the fields, an overture that has been rejected.

"A Bunch of Empty Boasts"

On oil matters, the kingdom's credibility has been clouded by intense secrecy. The Saudis, for instance, refuse, unlike Russia, Venezuela, and Norway, to release detailed assessments of their oil reserves, which has made many skeptical. "They are just a bunch of empty boasts," Matthew Simmons, chairman of Houston investment bank Simmons & Co. International, says of the kingdom's recent promises of 12.5 million barrels a day. He is also skeptical of Saudi reserve estimates.

One dramatic part of the data concerns a site called Ghawar, which has been the kingdom's workhorse field for decades. It shows the field producing 5.4 million barrels a day next year, but the volume then falling off rapidly, to 4.475 million daily barrels in 2013. "That's why Khurais is so important—to make up for that decrease," said the oil industry executive who released the data. He was referring to a supergiant field that is to come online later this year and produce an estimated 500,000 barrels a day of crude. In last month's gathering in Saudi Arabia, officials of the kingdom told journalists that Ghawar had produced just under 5 million barrels a day from 1993 through 2007.

Mainly the data show flat production; apart from the addition of Khurais and a heavy oil field called Manifa, no increases appear in any of the fields during the next five years. Production at Manifa is to begin in 2011 with 125,000 barrels a day, according to the data, and rise rapidly to 900,000 barrels a day two years later. Though 2014 is not included in the data, one of the fields listed—Shaybah—is to have a volume increase to 1 million barrels a day that year, from 750,000 barrels a day from 2009 to 2013, according to the oil executive.

Still, despite its enormous reserves and bullish statements, Saudi Arabia appears likely to fall well short of the daily production it has targeted in the near term.

LeVine is a correspondent in BusinessWeek's Washington bureau.