American Oil and Gas Reporter - April 2019 - 49

popular in the 1990s surmised that prices
never would exceed $30 a barrel because
technological improvements would enable
production to match demand. A competing
theory held that depletion had rendered
"peak oil" production imminent. The
latter reached its apex in 2003 with publication of articles by Matthew Simmons,
predicting declining Saudi production.
The book version, Twilight in the Desert,
was published in late 2005.
Make Room Or Compete
In July 2005, at Abdallah's direction,
Saudi Aramco began a program to increase
capacity to 12 MMbbl/d, with an intention
of expanding excess capacity from 2.0
MMbbl/d to 4.0 MMbbl/d. Although discrediting peak oil provided one obvious
motive, another rose from concerns about
the long-term effects of U.S. forces' occupation of Iraq. Table 2 is a record of well
completions in Saudi Arabia since 2006.
Capacity can be what Saudi Aramco
claims until it is tested. In July 2018, the
kingdom was not subject to a production
allocation and it turned out to be 10.4
MMbbl/d, a decline from 12.0 MMbbl/d
that resulted from competing priorities.
Oil well completions have been erratic,
while gas well completions have increased
every year except for 2011. Natural gas
consumption has outpaced production,
with the result that, in 2018, about 900,000
bbl/d of crude and fuel oil were used to
generate electricity. Completing gas wells
to reduce that "oil burn" is far more economic than oil well completions to maintain excess capacity.
In early 2008, the Iraqi government
decided to allow foreign participation in
its oil industry. By the end of 2009, it

had awarded 14 service contracts to a
"who's who" of international oil companies, including BP, CNPC, ENI, ExxonMobil, Lukoil, Shell and Total. Taken together, the contracts were a plan to
increase production from 2.40 MMbbl/d
in 2010 to 12.72 MMbbl/d in 2020.
Reality has turned out to be 5 MMbd at
present, with clear potential for 8 MMbbl/d
in 2025. The choice for Saudi Arabia is
the same it faced in 1990: Make room
for Iraq or compete with it.
Since 2010, U.S. sanctions on Iran
and internal conflicts in Libya, Syria,
Yemen, the Sudans and Venezuela largely
have offset North American production
increases. Oil demand trends have proven
far more influential on crude prices. At
the November 2014 OPEC meeting, Saudi
representatives insisted that Iraq participate
in a production cut, which prevented any
action and pushed prices lower. At the
November 2016 OPEC meeting-under
similar circumstances-Iraq agreed to a
production allocation which made possible
a nominal OPEC production cut of 1.2
MMbbl/d. Although Iraq's production allocation was not observed, Saudi Arabia
did not ask for it to be reduced at OPEC's
December 2018 meeting. Instead, Iraq's
production allocation increased.
In 2018, Saudi Aramco engaged DeGolyer and MacNaughton to audit its
proved reserves of crude oil at the end of
2017. The result was 268.5 billion barrels
versus the official 266.3 billion barrels.
At 8 MMbbl/d, 268.5 billion barrels totals
nearly 92 years of production. Cumulative
production through 2017 was 147 billion
barrels, which makes EUR in the kingdom
at least 415.5 billion barrels-nearly double
the 1980s estimate.

TABLE 2
Well Completions in Saudi Arabia
Oil

Gas

Dry

Service

Total

2006

333

400

2007

383

465

2008

370

495

2009

235

125

400

2010

205

135

380

2011

169

110

343

2012

254

128

442

2013

285

134

457

2014

314

141

495

2015

379

170

598

2016

359

217

614

2017

303

235

578

The Future
Saudi Arabia Vision 2030, the work of
MBS, was published in April 2016. It
begins by declaring "We will not allow
our country to be at the mercy of commodity
price volatility or external markets."
The National Transformation Program
(NTP), released in June 2016, was justly
criticized for having 346 targets for
2020 but no specific plans of action to
reach any of them. In September 2017,
it was announced that "redrafting" (by
a large group of management consultants)
had begun.
It is no surprise that a revised NTP is
yet to emerge.
I am unable to identify what things
could be done in the kingdom of Saudi
Arabia to significantly reduce Saudi Aramco's role. It is probably true that the question "transformation to what?" has no
good answer.
The kingdom's future is continued dependence on the market for oil, though
with a possible divergence from the past,
inasmuch as the Saudis are better at stabilizing that market. As a strategy, either
official prices or a set production volume
are as simple as can be. Dealing with
Iraq requires a lot more thought about
the way forward.
❒

GEORGE S.
LITTELL

George S. Littell is a partner in
Houston-based Groppe, Long & Littell,
which provides analytical, forecasting
and consulting services to the petroleum,
natural gas, and refining and petrochemical industries. Littell joined
Groppe, Long & Littell in 1975 after
nine years with Mobil Oil Corporation,
interrupted by service in the 23rd Infantry (Americal) Division, U.S. Army,
Vietnam. Littell graduated summa cum
laude from Yale University in 1966 and
is a member of Phi Beta Kappa. He
also earned an M.B.A. from New York
University and a bachelor of laws from
La Salle Extension University. He is a
member of the International Association
for Energy Economics.

Sources: World Oil and OPEC Annual Statistical Bulletin

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