Oil analysis

In Saudi Arabia, two massive projects are under development, Shaybah in the country’s desert wasteland known as the “Empty Quarter” and Khurais, a field that has been plagued with problems ever since oil was produced there in the 1970s. The Saudis are spending more than $60 billion on these and three other projects and tackling incredible obstacles to develop them. To get the oil flowing at Khurais, which is known for its low pressure and highly fractured formation, for instance, Aramco plans to inject about 84 million gallons (nearly 2 million barrels) of seawater per day, piped in from 150 miles away.

While they have older oil wells with lifting costs of as little as $2 a barrel, the cost per barrel for these new projects could top $80 a barrel. That isn’t exactly what we’d call low hanging fruit.

The trouble is the Saudis “proven” reserves have remained essentially unchanged since 1988, when OPEC’s production quota rules were set based on proven reserves. Not surprisingly, the Saudis have never allowed outside observers to confirm its reserve numbers. Worse still, contrary to their stated intentions, they’ve been unable to increase their production capacity for the last three years—a time of soaring oil prices. The graph below was compiled from data taken from the June 2008 BP Statistical Review of World Energy. Over time, one would expect their reserves to fall as more and more oil is pumped out of the ground.