Is Saudi Arabia Still The King Of Oil?

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"The scare that drew the Saudis to Washington this week began two months ago, when the world's largest private energy banker, Matt Simmons, began loudly voicing his concern about the state of the Saudi oil reserves to the media. Simmons said then that "the entire world assumes Saudi Arabia can carry everyone's energy needs on its back cheaply. If this turns out to not work, there is no Plan B, and the world will face a giant energy crisis." The happy tune hummed on Tuesday was that while people have been warning that we will run out of oil since the 1880s, the market has always proved them wrong. In an effort to calm fears, Saudi and American officials joined ranks to get their stories straight. Saudi Petroleum Minister Ali Naimi told the packed house of bankers, diplomats, economists and media that "Saudi Arabia's oil reserves are real," and guaranteed that there would be "no shortage of oil for the next fifty years."

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The Saudis countered by suggesting that the U.S. could lower gas taxes if it wanted cheaper driving, and they offered a paradoxical reassurance that they were absolutely committed to $25 oil barrels, but not any time soon. Just how uncommitted they are to lower oil prices was later underscored by the Saudi Minister of Finance, Dr. Ibrahim Al-Assaf, who said that they'll need to spend billions of dollars on desalination and power plants. Those billions won't come from exporting sand. Oil export revenues make up more than 90 percent of total Saudi export earnings, about 80 percent of state revenues, and around 40 percent of the country's GDP. Dr. Assaf also said that although Saudi Arabia is seeing 4 percent economic growth, it really needs 8 percent to cope with its growing social problems and exploding population. It doesn't take a super-computer to work out where that doubled growth must come from.

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Now there are growing voices inside and outside the oil industry warning that with world oil discovery having peaked in the 1960s, it has been nearly a quarter century since we found more oil than we used. They remind us that exactly forty years after US oil discovery peaked in 1930, its production peaked. In other words, the world is now where America was in 1970. Since an unexpected decline in world oil production is generally regarded as a catastrophe, no government or official institution has yet admitted it. Signs of oil peak therefore have to be found indirectly.

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Whether or not it is true that Saudi oil reserves are real, the oil minister did say something that no one disputes: that the economic miracle of the 20th century depended on a plentiful supply of cheap oil, and that future stability depends on spare capacity. With high prices and supply problems from Venezuela to Nigeria and Iraq, the cheap abundance is already in question. Where is that spare capacity, that may soon be so badly needed? Nowhere but Saudi Arabia, according to Guy Caruso, head of the U.S. Energy Information Administration, the statistical arm of the Department of Energy. He said that in the entire world the spare capacity is only two million barrels a day, and all of that two million is in Saudi Arabia."

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http://www.alternet.org/story.html?StoryID=18555