Is Saudi Arabia Running Low on Oil?

By: Matthew Paolini

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

However, there are a growing number of observers who 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 biggest oil producer for the past three decades. For quite some time, industry watchers have postulated that Ghawar, the biggest oil field in the world, has reached its plateau of production.

If you don't know anything about Ghawar, it is by far the largest conventional oil field in the world, measuring an estimated 175 miles by 20 miles. Currently, conjecture has it producing between 4.5 and 5 million barrels of oil per day by outside observers, which is over six percent of worldwide 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, or recoverable oil still left in the ground, have been estimated at just over 70 billion barrels by Saudi Aramco, the nationalized oil company which is the largest of its type 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 harvested 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 has a lot of attention paid to it because of its importance in the worldwide oil markets. It has long held the mantle as the world's largest producer of oil, and has acted as a 'swing producer,' increasing and reducing oil extraction rates to balance to the worldwide market in concert with the other nations in the Organization of Petroleum Exporting Countries (OPEC).

Some worrying signs clearly indicate that Ghawar might be in permanent decline. Back in April 2006, a Saudi Aramco spokesman shocked listeners by making the observation that its mature fields are now declining at a rate of 8 percent per year. In other words, Ghawar's production is now most likely past its 'peak.' The spokesman continued that measures were being taken to offset the decline, but that the only viable solution to declining oil supplies is to locate new fields, and it has been documented that new findings have not kept pace with burgeoning worldwide demand.

If it becomes clear that Ghawar is indeed in decline, it likely means that the entire world is as well. Of the 'super-giant' oil fields, four are officially in permanent decline: China's Daquing, Mexico's Cantarell; Russia's Samotlor; and Kuwait's Burgan. Although Ghawar has not officially been so declared, it is clear that the handwriting is on the wall.

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