[Marxism] White House Admits Saudis Cannot Increase Oil Production

Steven L. Robinson srobin21 at comcast.net
Thu Oct 27 20:44:17 MDT 2005


(This may be the first official acknowledgement that there just might be an
oil supply problem. SR)

S. Arabia vows more oil, White House Skeptical - By Jeff Gerth

New York Times Service

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Washington, Oct. 27: Last spring, the White House publicly embraced plans by
Saudi Arabia to increase its oil production capacity significantly. But
privately, some officials and others advising the government are sceptical
about some of those Saudi forecasts.

The United States relies on a few producers to maintain enough spare
capacity to keep prices and markets stable, even during war or disaster. As
oil prices have climbed over the last few years amid surging demand and
tight supplies, the Bush administration has looked to the Persian Gulf
countries, particularly Saudi Arabia, to pump extra oil.

But doubts about Saudi Arabia's assurances of how much it can expand
capacity — and for how long — have been raised in a secret intelligence
report and in a separate analysis by a leading government oil adviser,
according to a federal government official and the oil expert.

If those sceptical assessments are correct, the administration's hopes of
increasing supplies would become still more difficult to fulfil.
Washington's expectations about oil production from Iraq and the United Arab
Emirates have proved overly optimistic, and the White House has failed to
heed advice about both those countries from industry and government
specialists, according to documents and interviews.

The challenges facing the Bush administration on energy come as oil
companies are set to report record profits resulting from soaring prices for
oil and natural gas. Exxon Mobil, the world's largest private oil company,
is expected on Thursday to announce a quarterly profit exceeding $8.5
billion, more than companies like Intel and Time Warner earn in a full year.

Asked about the profits on Wednesday, the White House press secretary, Scott
McClellan, said "the government and the private sector have a role to play"
in restoring the vital infrastructure damaged by the hurricanes this year
along the Gulf of Mexico and over Florida. Gasoline prices spiked after
Hurricanes Katrina and Rita, straining oil markets already tight because of
the uncommonly low levels of spare capacity.

But when it comes to oil supply, American companies are limited: the
countries that control most of the world's oil keep out private producers.
So whatever the political repercussions from high energy costs, the
administration has had little choice but to rely on the promises by Saudi
Arabia, the world's largest exporter, that it would continue to be the
market's linchpin.

"There's always been this tenet on the American side," said Mr Nawaf Obaid,
a consultant to Saudi Arabia on energy security, "that the Saudis knew what
they were doing and rightfully so."

But a senior intelligence official, who insisted on remaining anonymous
because he was not permitted to speak publicly on the issue, said that the
Saudi plans to increase production by nearly 14 per cent in the next four
years were not enough to meet global demand. Even the Energy Information
Administration recently scaled back its expectations of how much more oil
the Saudis could pump in 20 years.

To be sure, as Mr McClellan said on Wednesday, there is more to President
Bush's energy policy than seeking to ensure surplus capacity. The
administration has called for increasing domestic production and refineries,
development of alternative and renewable fuels, expanding nuclear energy
and, recently, greater conservation. Still, the Persian Gulf countries are
seen as crucial in moderating future prices.

During the 2000 presidential campaign, when high gasoline prices were an
issue, Mr Bush pledged to do a better job of influencing Persian Gulf
producers to pump more oil.

Early on, the administration was mostly interested in whether the Saudis
would produce more oil during the anticipated conflict in Iraq. Long before
the war began, Saudi spare capacity — roughly three million barrels a day
above the seven million barrels being pumped daily in 2002 — seemed
adequate.

Productive capacity depends on the amount of oil in the ground as well as
the infrastructure required to drill, process, store and transport the oil.
In addition, increasing capacity is very costly and time-consuming.

"The long-term capacity was not considered a problem," said Mr Robert W.
Jordan, the American ambassador to Riyadh from 2001 to 2003. The Saudis, he
added, "never expressed any concern about the need to expand."

"Nor did we, or at least me, engage them on this topic," he said.

In April 2002, when President Bush met Crown Prince Abdullah, now the Saudi
king, the focus was not on oil but on Israeli-Palestinian matters, according
to Mr Jordan. The United States did not press the capacity issue because,
even two years later, Saudi officials were publicly expressing confidence
that there was no need over the next five years to add capacity.

Going to 12 million or 15 million barrels a day was possible, though,
because the country had an estimated 150 billion barrels above the 260
billion in proven reserves, Nansen G. Saleri, a senior Saudi oil executive,
said at an oil conference in Washington in February 2004.

Soon, though, rising demand from Asia made the need to invest in new
production "a front-burner issue," according to Mr Spencer Abraham, energy
secretary in the President's first term. By May 2004, under pressure from
the United States and other consumers, the Saudis promised to pump more oil.
Saudi Aramco, the state-owned oil company, was planning to increase capacity
to 12.5 million barrels a day by 2009.

Before long, Mr Ali al-Naimi, the oil minister, and Saudi oil executives
were saying that the country could add 200 billion barrels — from existing
fields and yet-to-be-discovered resources — to its reserves, enabling
production of 15 million barrels a day for 50 years or perhaps longer.

Just before meeting with Prince Abdullah in April, President Bush said he
wanted "a straight answer" about how much extra oil the Saudis could pump.

At that session in Texas, the prince reaffirmed the previously announced
expansion plans. Saudi Arabia's capacity now stands at about 11 million
barrels a day. The Saudis pump about 9.5 million barrels, leaving a cushion
of about 1.5 million barrels, mostly of heavier grades not very usable in
the West. There is virtually no other global spare capacity.

But there are doubts about the Saudi assertions about how much oil they
have. Data about reserves is tightly guarded, and the Saudis dismiss
sceptics as uninformed.

Mr Stephen J. Hadley, the national security adviser, told reporters that the
Saudi programme was "a very good plan because it addresses the underlying
issue you have when you talk about price, which is an issue of availability
of oil and availability of capacity."

But they do not dismiss Edward O. Price Jr., the former head of exploration
for Saudi Aramco and an adviser to the United States government on Persian
Gulf oil during both Iraq wars. He questioned future reliance on Saudi
capacity in an article in the New York Times last year and wanted to know
from his former colleagues how they reached their estimate of more than 150
billion barrels of extra oil. Twenty years ago, a detailed study by
geologists from four large American oil companies then in partnership with
Aramco found little in the way of undiscovered oil resources, he said.

Mr Saleri, who manages Saudi reservoirs, met with Mr Price in the United
States last year. Saudi Aramco officials declined to respond to questions
about the meeting. But Mr Price said in an interview that Mr Saleri told him
that the basis for the higher oil figures was a global study in 2000 by the
United States Geological Survey estimating Saudi Arabia's undiscovered
resources at 87 billion barrels.

Mr Price said he responded that the estimates "by the U.S.G.S. had no
credibility and far exceeded the detailed studies by the old Aramco team."
The Aramco study, unlike the survey estimate, involved detailed field work.

Questions about Saudi Arabia's long-term estimates were also raised last
year in a report by the National Intelligence Council.

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