US fears that Saudi oil monopoly Aramco had overstated its oil reserves by up to 300bn barrels in a bid to spur foreign investment are unlikely to hold true, a top analyst has said.
Leaked diplomatic cables from the US embassy in Riyadh, published by Wikileaks, show Washington feared the kingdom’s crude oil reserves had been overstated by up to 40 percent, meaning it may not have enough supply to prevent oil prices escalating.
But John Sfakianakis, chief analyst at Saudi Banque Fransi in Riyadh, said Saudi Aramco was unlikely to have risked exaggeration.
“I don’t think they want to risk being proven otherwise,” he said.
He said that Aramco provided its own money for most of its investment in search and exploration, and that as such, hedging numbers would be detrimental to its own interests.
“Most of these investments are by Saudi Aramco into itself,” he said. “because in the production business they’re the only ones investing. In refining, they have some joint ventures. But in investments, like search and exploration, it’s Aramco, not foreign companies.
“It’s Saudi Aramco investing in Saudi Aramco.”
The kingdom is the world’s largest crude oil exporter.
The leaked cables detail a 2007 meeting between Aramco’s former head of exploration, Sadad al-Husseini, and the US consul general in Riyadh. Husseini is said to have told the US diplomat that Aramco could not meet the 12.5m barrel-a-day capacity needed to restrain prices, as it had overstated its recoverable reserves to attract foreign investment.
One cable said: “Al-Husseini [believes] Aramco’s reserves are overstated by as much as 300bn barrels. In his view once 50% of original proven reserves has been reached … a steady output in decline will ensue and no amount of effort will be able to stop it.
“He believes that what will result is a plateau in total output that will last approximately 15 years followed by decreasing output.”
A second cable added: “Our mission now questions how much the Saudis can now substantively influence the crude markets over the long term. Clearly, they can drive prices up, but we question whether they any longer have the power to drive prices down for a prolonged period.”
Oil demand in January soared to more than $100 a barrel on rising global demand.
It’s not the first time an oil company has been accused of exaggerating reserves. Four years ago, Shell was found to be misquoting their reserves, a fumble which Sfakianakis said Aramco would not want to make.
As to whether the cables’ information could affect American interests, Sfaniakis said any speculation based on the WikiLeaks cables would be “very hypothetical… it depends on whether there will be other sources of oil, or will it be just Saudi?”
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