WikiLeaks cables reveal serious concern that Saudi oil reserves are substantially overstated

The US fears that Saudi Arabia, the world's largest crude oil exporter, may not have enough reserves to prevent oil prices escalating, confidential cables from its embassy in Riyadh show.

The cables, released by WikiLeaks, urge Washington to take seriously a warning from a senior Saudi government oil executive that the kingdom's crude oil reserves may have been overstated by as much as 300bn barrels – nearly 40%.

The revelation comes as the oil price has soared in recent weeks to more than $100 a barrel on global demand and tensions in the Middle East. Many analysts expect that the Saudis and their Opec cartel partners would pump more oil if rising prices threatened to choke off demand.

However, Sadad al-Husseini, a geologist and former head of exploration at the Saudi oil monopoly Aramco, met the US consul general in Riyadh in November 2007 and told the US diplomat that Aramco's 12.5m barrel-a-day capacity needed to keep a lid on prices could not be reached.

According to the cables, which date between 2007-09, Husseini said Saudi Arabia might reach an output of 12m barrels a day in 10 years but before then – possibly as early as 2012 – global oil production would have hit its highest point. This crunch point is known as "peak oil".

OPEC countries have strong incentive to overstate reserves as the reserves determine the quota they are permitted to pump within the cartel and it drives investment.

This news follows a string of warnings on the geologic limits of oil production including the Kuwait Oil Company, a German military report, the International Energy Agency and the US Joint Forces Command's Joint Operating Environment Report (JOE) which wrote:

Peak Oil
...petroleum must continue to satisfy most of the demand for energy out to 2030. Assuming the most optimistic scenario for improved petroleum production through enhanced recovery means, the development of non-conventional oils (such as oil shales or tar sands) and new discoveries, petroleum production will be hard pressed to meet the expected future demand of 118 million barrels per day.

The complex interplay between gas price, the economy and vehicle purchase forms uncertain terrain for the 2011 introduction of electric vehicles.  With the economy down, gas prices declined due to reduced demand.  This in turn led those buying new cars, those less impacted by the downturn, to return to buying SUVs - even if what is likely to be a brief trend before gas climbs again.

With the end of the recession, bigger vehicles have made a comeback, sales figures show, and it has come at the expense of smaller, more-efficient cars.

Leading the growth were sales of midsize sport-utility vehicles, which jumped 41 percent through the first 11 months of the year, led by vehicles such as the Jeep Grand Cherokee and the Honda Pilot, each of which get about 18 miles per gallon.

Even in San Francisco, there has been a significant drop of in hybrid sales reports the Wall Street Journal.

According to R.L. Polk & Co., which analyzes the auto industry, new hybrid-car registrations in the San Jose-San Francisco-Oakland area have steadily declined since peaking in 2007. That year in the region, there were new 27,292 registrations of hybrid cars, which are more fuel-efficient than cars that run only on gasoline. By 2009, that number had dropped 36%, to 17,575 registrations. This year through May, there have been 6,306 registrations of hybrid cars in the Bay Area, Polk reports.

The falloff mirrors a national trend. Hit by the recession, hybrid car registrations nationwide also peaked in 2007, at 350,701, and fell around 17% to 288,952 last year, Polk says, as auto sales overall declined in the economic downturn.

But the Bay Area's hybrid-registration falloff was steeper than the nationwide drop. And the region's share of nationwide hybrid car registrations has shrunk over the past few years, with the Bay Area making up 6.1% of the overall U.S. share last year, down from 7.8% in 2007 and 8.1% in 2006, says Polk.

But San Francisco has been the epicenter of the electric vehicle rollout, most recently with the launch of the Nissan LEAF where I delivered remarks along side Nissan Americas Chairman Carlos Tavares.  Many consumers looking to fuel efficient vehicles may be waiting to step up to a plug-in vehicle instead.

More significant though in driving demand is the price of gas and with the strengthening economy, it is again starting to climb.  Especially noteworthy was the statement by the former president of Shell Oil, John Hofmeister, who stated that Americans may face $5 a gallon next year, a perspective echoed by other analysts in BusinessWeek.  The debates on price are largely focused on when the price of gas will again climb significantly, not if.  This will then have two effects, drive consumers back to more efficient vehicles, and again create a drag in the economy.

The International Energy Agency’s annual report, issued earlier this month, suggests that peak oil production occurred in 2006. As global demand increases and production gets ever more costly, prices of $135 a barrel are projected 25 years out. To mitigate increasing costs and scarcity it is critical to take action now on promoting renewable energy sources and alternative fuel vehicles.

“The size of ultimately recoverable resources of both conventional and unconventional oil is a major source of uncertainty for the long-term outlook for world oil production,” the International Energy Agency report concludes.

Over all, oil prices should continue to climb in coming decades, reaching $135 a barrel by 2035, a price level that some economists believe contributed to the global economic collapse of 2008. Some experts found the report’s projections troubling.

International Energy Agency

This projection of world oil supply only underscores that there will be no better time to diversify our energy portfolios with renewable sources, electrify our fleets or upgrade our buildings for energy efficiency.

Despite progress to advance clean energy including financial incentives, fossil fuels continue to receive far greater shares of subsidies.

According to the International Energy Agency (IEA) global subsidies for fossil fuel production were almost six times that of renewable energy subsidies 2009.

In its annual World Energy Outlook report [pdf], released today, the IEA says the fossil fuel industry received US$312 billion compared to US$57 billion for renewables.  The majority of the subsidized funding for fossil fuels came from developing countries.  The World Energy Outlook-2010 sees oil as the leading fuel in the energy mix until 2035.

Nevertheless, the agency sees renewable energy resources continuing to gain a larger share of the energy pie.  It estimates the primary use of energy sources such as sustainable hydropower, modern biomass, wind, solar, , marine, and geothermal geothermal energy tripling by 2035.  According to the World Energy Outlook-2010, renewable energy sources will see their contribution to the global energy supply grow from 7% to 14%.