Reaping the reserves

Every 20th-century energy crisis has inspired such forecasts and awakened politicians to act, or at least to claim to act. This time around several leaders of oil-consuming countries have urged producers to be more transparent 8212; in the words of British Chancellor of the Exchequer Gordon Brown, to 8220;open their books8221;. What they hope for is detail far beyond the aggregate estimates of national reserves that OPEC nations now provide: geological and economic data on specific fields, exploration results and other technical details, better if certified by international auditors. The politicians8217; assumption seems to be that open books will clear up the uncertainties and doomsday forecasts that are helping drive up prices.

This amounts to a grandstanding demand for information that does not exist, not in truly reliable form, and will not be forthcoming anyway. Most producing countries consider such requests a threat to their sovereignty and security. Estimating oil reserves is still an unsolved mystery, with several different disciplines and approaches. Even the most serious analyses can vary widely, on both the gross size of a given reservoir and the amount of oil that can be economically recovered in the near future, given existing technologies and prices. Most large producers say that it would be useless to open their books, because their political enemies would always have room to contest the data anyway.

The accusation that the Saudis are inflating their reserves is based largely on an old tale. Between 1984 and 1988, the five largest Persian Gulf oil countries 8212; led by Saudi Arabia 8212; raised estimates of proven oil reserves by 40 per cent, or a total of 237 billion barrels. The hikes are generally seen as tactical moves in a struggle to obtain higher production quotas within the OPEC cartel. Since then, the producing nations haven8217;t substantially lowered those estimates, despite all the oil they have been pumping. The implication the doomsayers draw is that OPEC reserve estimates must be increasingly inflated.

Yet the original revisions came after many OPEC countries nationalised the concessions of the big Western oil companies, which had capped output to keep prices high. The oil companies consistently underestimated reserves in order to resist pressure from their host countries to raise output and revenue. All the OPEC countries did in the late 8217;80s was to adopt more realistic estimates. Nor is it surprising that the estimates have remained stable since: rising prices allow producers to shift more oil into the category of economically accessible reserves, and most Persian Gulf states have invested in exploration at a rate designed to replace existing reserves.

The skeptics take for granted that big oil states are thoroughly explored, which is not the case. From 1995 to 2004, fewer than 30 new wildcat exploration wells were drilled in Saudi Arabia, compared with more than 15,700 in the United States. The numbers are similar throughout the Persian Gulf.

This state makes plausible the recent Saui response to its accusers: Oil Minister Ali Al-Naimi said estimates of Saudi 8220;original oil8221; 8212; the broadest definition of reserves, including proven, probable and possible future reserves 8212; could rise in coming decades to 900 billion barrels, up from 200 billion, due largely to improving recovery technology. And the US Geological Survey8217;s estimate of Saudi Arabia8217;s unexplored reserves is higher than Riyadh8217;s. If anything, the Saudis may be underestimating their reserves. But releasing more detailed numbers won8217;t clarify the reality, or end the controversy.

Maugeri is group senior vice president of Eni, and the author of the forthcoming book 8216;The Age of Oil: The Mythology, History, and Future of the World8217;s Most Controversial Resource8217;