THE SHIFTING SANDS UNDER SAUDI OIL PROWESS
Mamdouh G Salameh, World Bank, Washington DC / Oil Market Consultancy Service, UK
Phone: +44 1428 644137, Fax: +44 1428 656262, E-mail:mgsalameh@btconnect.com
Overview
Saudi oil production peaked in 2005 and has been in steady decline since then with domestic oil demand
rising at an alarming rate and accounting for 35% of crude production in 2011. As a result, Saudi crude
exports have already declined by 30% between 2005 and 2011 and are projected to decline further by 10%
to 5.25 mbd by 2015.
Population growth and robust economic development and also fuel subsidies drive that demand. The
country currently gets almost all its energy from crude oil and natural gas. Moreover, the size of Saudi
proven oil reserves has for some time been under intense scrutiny in view of the claims the Saudis have
been making about their oil reserves. Far from having 264 billion barrels (bb), Saudi proven reserves could
only range from 60 bb - 85 bb, based on estimated ultimate recoverable reserves (URR) of 185 bb-210 bb
and a total production of 125 bb since the discovery of oil in Saudi Arabia.
The changing Saudi oil fundamentals are forcing Saudi Arabia to become more hawkish on the oil price.
Since 2008, Saudi Arabia has been undergoing a strategic shift in its oil price policy from “dove” to
“hawk” prompted by economic, demographic and security pressures. When the oil price hit $147/barrel in
July 2008, the Saudis were unable to put more oil on the market to help get the situation under control.
Many explanations have been proffered for the Saudi inaction but the one explanation that carries the most
credence is that the Saudis have less oil firepower than previously believed. This is confirmed by the fact
that US Energy Information Administration (EIA) has sharply scaled back its medium-and long-term Saudi
oil production forecasts in recent years. The Saudi shift will exert heavy pressure on the oil price in
coming years.
Methods
The author will analyze the evidence that the Saudis are in the midst of a strategic shift in their oil price
policy from “dove” to “hawk”. He would also assess the impact such a shift could have on the global
economy, energy security and the price of oil.
Results
The paper will argue that there is credible evidence to suggest that the Saudis are undergoing a strategic
shift in their oil price policy from “doves” to “hawks” prompted by economic, demographic and security
pressures. It will also argue that this shift would exert heavy pressure on the oil price.
Conclusions
The paper will conclude that the changing Saudi oil fundamentals are forcing Saudi Arabia to become more
hawkish on the oil price. It will also conclude that since 2008 the Saudis have been undergoing a strategic
shift from “doves” to “hawks” in their oil price policy, prompted by economic, demographic and security
pressures. As a result, the pressure on the oil price will continue unabated in coming years with a projected
price of $150-$170/barrel by 2015 not out of place. The paper will warn that this could precipitate a worse
global economic crisis than the 2008 one from which the global economy has not yet fully recovered. It
will also conclude that it is high time, therefore, for the Saudis to come clean and allow an independent
auditing of their proven reserves and the production of their major wells in order to enable the global
economy to take urgent measures to mitigate the adverse impact of an impending oil crisis.
*Dr Mamdouh G. Salameh is an international oil economist, a consultant to the World Bank in Washington
DC on oil & energy and a technical expert of the United Nations Industrial Development Organization
(UNIDO) in Vienna. Dr Salameh is Director of the Oil Market Consultancy Service in the UK and a
member of both the International Institute for Strategic Studies (IISS) in London and the Royal Institute of
International Affairs. He is also a member of the Energy Institute in London and an advisor of the Oil
Depletion Analysis Centre (ODAC) in the UK.
References
1
Al Moneef, Majed. ( a paper published on the Arab Energy Club website in April 2010 and quoted
by Platts).
2 Al-Saif, Abdallah. (In a presentation, the current Aramco senior vice-president for exploration,
reported that Aramco has 716bn barrels of total reserves, of which 51% are recoverable, and that
in 20 years Aramco will have 900 bn barrels of reserves).
3 BP Statistical Review of World Energy, June 2011.
4 Burning Oil for Water (an article published by Maingate, the newsletter of the American
University of Beirut), Winter 2011.
5 Callahan, Jonathan. “Saudi Arabia Oil Exports to Decrease Due to Increased Domestic
Demand” (a paper published by the Oil Drum on 14 April 2011).
6 Data from IEA and Bloomberg New Energy Finance.
7 Haroutunian, Nourad, SiPaola, Anthony. “Saudi Arabia Looks to Solar & Nuclear Power to
Reduce Its Oil Use by Half “, Bloomberg, 3 April, 2011.
8 Goldie-Scot, Logan. “Sun Sets on Oil for Gulf Power Generation” (a Bloomberg New Energy
Finance Study, January 7, 2011).
9 Salameh, Mamdouh. “Peak Oil & the Impending Oil Crunch” (a lecture given at the invitation
of Masdar Institute of Science & Technology, 14 February 2011, Abu Dhabi, UAE).
10 Yelriv, Steve & Feld,Lowell. “A Strategic Shift in Saudi Oil Policy?” IAGS Journal of Energy
Security, 14 December, 2011.
A Short Biography
Dr Mamdouh G. Salameh is an international oil economist, a consultant for the World Bank in Washington
D.C. on oil and energy and also a technical expert with the United Nations Industrial Development
Organization (UNIDO) in Vienna. He holds a doctorate in Economics specializing in the economics and
geopolitics of oil and energy and a post-graduate Diploma in Industrial Management and Marketing.
Dr Salameh has presented papers to numerous international energy conferences around the world on the
economics and geopolitics of oil and energy and has been frequently invited to lecture on these topics at
universities around the world. He has written three books on oil: “Is a Third Oil Crisis Inevitable?”
(published in London in April 1990), “ Jordan’s Energy Prospects & Needs to the Year 2010: The
Economic Viability of Extracting Oil from Shale” (published in London in October 1998) and “ Over a
Barrel” (Published in the UK in June 2004) as well as numerous research papers published in international
Oil and Energy Journals. Dr Salameh has undertaken research assignments for the US Department of
Energy, the World Bank, the Institute of Energy Economics in Japan, the Indian Government, OPEC, the
Canadian Energy Research Institute, Boston University working on the Encyclopedia of Energy and the
government of Jordan among others. He regularly appears on TV to discuss oil prices and other
developments in the global oil market.
Dr Salameh is a member of many International Institutes and Associations including the International
Association for Energy Economics (IAEE) in the US, the British Institute of Energy Economics, the
International Energy Foundation in Canada, the International Institute for Strategic Studies (IISS) in
London, and the Royal Institute of International Affairs (RIIA) in London. He is also an advisor to the Oil
Depletion Analysis Centre (ODAC), London.