‘How much oil lies beneath the desert sands of Saudi Arabia and how long will it last before running out?” is a question that has intrigued and confounded oil experts for five decades.
The country has proven reserves of 266 billion barrels, according to government estimates submitted to Opec.
If these numbers are correct, Saudi Arabia’s reserves will last for 70 years at the average production rate of 10.2 million barrels per day reported for last year.
But there is widespread scepticism about the official estimates, which were abruptly raised without explanation from 170 billion barrels in 1987 to 260 billion barrels in 1989.
Official reserves have remained constant every year since then at 260 billion to 265 billion barrels, even as the country has consumed or exported another 94 billion barrels.
Most of the country’s giant and supergiant oilfields were discovered between 1936 and 1970. The implied increase in reserves must therefore come from enhanced estimates of the amount of oil recoverable from existing reservoirs.
The problem is that field-by-field production profiles and reserve estimates are state secrets known by only a small group of insiders.
Analysing Saudi reserves and trying to predict when its production will begin to decline has been a graveyard for the reputation of professional oil analysts. The country is producing more oil than ever before, defying predictions that its output would peak and then fall.
The oil industry employs a number of different ways of classifying the amount of oil available for future production. The broadest category is the total amount of original oil in place in the reservoir formation before production began.
In the 1970s, there was broad agreement that the original amount in Saudi Arabia’s discovered oilfields was about 530 billion barrels.
The estimate for original oil in place was reported to the US Senate’s Subcommittee on International Economic Policy by executives for Arabian-American Oil Company (Aramco).
Aramco was then jointly owned by four US oil companies – Exxon, Texaco, Socal and Mobil – as well as the government of Saudi Arabia, so its owners and executives could be required to testify.
The 1979 subcommittee report contains some of the last detailed information about Saudi reserves in the public domain. But not all of the original oil in place can be produced technically or profitably, so most analysts focus on narrower measures that look at the amount of technically and economically recoverable reserves.
Proved reserves are those estimated to exist and be technically and economically recoverable with a probability of at least 90 per cent.
Probable reserves are those estimated to exist and be commercially recoverable with a probability of at least 50 per cent.
Possible reserves are those estimated to exist and be commercially recoverable with a probability of at least 10 per cent.
In the late 1970s, Aramco put proven reserves at about 110 billion barrels, while the more speculative categories of probable and possible reserves were put at 178 billion barrels and 248 billion barrels, respectively.
The question of which measure to use for production and planning purposes is a matter of judgement and caused controversy between the Aramco partners and the Saudi government during the 1970s.
Since 1980, the Saudi government has been the sole owner of Aramco. From 1982, detailed field-by-field information about the company’s reserves and production has been restricted.
Saudi Arabia began reporting to Opec that its proved reserves stood at about 168 billion to 170 billion barrels of crude oil.
The Saudi figure was much higher than the 110 billion barrels of proved reserves reported by the Aramco partners a few years before.
But it was very close to the figure for possible reserves that the Aramco partners had reported to the US Senate.
That raised the question of whether the Saudis had chosen to increase their reported reserve base by reporting probable reserves as proved reserves.
In 1988-89, the proved reserve figure jumped again to 260 billion barrels despite no major new discoveries.
This was much higher than the proved figure reported by the Aramco partners but not far off the figure of 248 billion for possible reserves they had reported in the 1970s.
Again that posed the question whether the Saudis were reporting possible reserves as proved to increase the size of their reserve base.
Saudi leaders have announced plans to seek a stock market listing for Saudi Aramco and make up to 5 per cent of the company’s shares available to investors. The prospect of a partial flotation has triggered renewed interest in Aramco’s reserves since they could be an important part of any valuation.
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