Friday, October 28, 2005

Saudi Oil Conspiracy!

My regular readers may be surprised by the tabloid-style title of today's posting. They ought to be equally surprised and dismayed by a tabloid-toned article in yesterday's New York Times, entitled "Doubts Raised on Saudi Vow for More Oil." On one level, it contains good information on the uncertainties about the size of Saudi Arabia's oil reserves and the prospect for substantial production increases in the Kingdom. What I find alarming is its approach to this information, with references to a "secret intelligence report" and comments from "a senior intelligence official, who insisted on remaining anonymous," as if questions about Saudi Arabia's oil reserves were in the same category as those about Iraq's WMD.

Contrary to the view you might reasonably form after reading the Times article, the debate about Saudi Arabia's reserves and production capabilities has been quite public. It includes a bestselling book by Matthew Simmons, "Twilight in the Desert," on which I've commented extensively. It has also included detailed presentations by various Saudi Aramco officials, who substantially increased their disclosure of technical information and production plans, even if this still fell short of what you'd get from a publicly traded oil company or a state oil company such as Norway's Statoil. In my view, the Kingdom's own long-term interests--and ours--require greater transparency on their part, as well as a willingness to allow access for foreign companies and foreign capital. However, that doesn't make the situation a scandal.

It's also worth noting that while Saudi Arabia has been the world's largest oil supplier over the last couple of decades, Russia currently produces about the same quantity of oil, and new volumes are coming on line from a number of other countries, many of them outside the Middle East. Nor would ramping up Saudi Arabia's oil production necessarily provide instant cheap-gasoline Nirvana here, because global capacity to refine the heavy, high-sulfur crude that constitutes most of Saudi Arabia's incremental capacity is limited and will not expand until new refineries are built and existing plants upgraded all over the world.

Whatever the realities behind Saudi Arabia's reticence to disclose more information about its oil industry, portraying the situation as yet another US intelligence failure borders on the irresponsible. If we are casting about to assess blame for our dependence on reclusive Middle Eastern kingdoms, we need to start with the fact that we now consume 1/3 more oil than at the end of the last energy crisis, while producing 1/3 less oil here in the US.

No comments: