A drilling rig at Saudi Arabia's Shaybah Oil Field. (Courtesy)

Unlocking the Secrets of Aramco

Al-Sharq al-Awsat, London, April 6

There are still those who believe that the international oil market is controlled solely by Saudi Arabia. One of these people is Dr. Fereidun Fesharaki, the founder and chairman of FGE, a global consulting group focusing on the oil and gas markets. Whenever I hear him speak, Dr. Fesharaki emphasizes the fact that oil prices are at their current levels because the Kingdom of Saudi Arabia maintains them that way. Listening to Fesharaki’s lectures will leave one convinced that Saudi Arabia is the sole controller of the international oil market. But this is an unreasonable proposition, first and foremost because Saudi Arabia’s current oil output is about 10 million barrels per day, an amount that constitutes only 10 percent of the world’s daily production. This is a negligible ratio and one that is significantly lower than the Russian share of the global market. So how is Saudi Arabia actually influential? In two ways: First, Saudi Arabia maintains a leadership position within the Organization of Petroleum Exporting Countries (OPEC), which provides Riyadh with at least some leverage over the international oil market. Second, Saudi Arabia commands a vast amount of proven oil reserves. This latter point has been somewhat contested in recent weeks, ahead of Aramco’s expected bond issuance. But unlike some pessimistic analysts, I am not extremely worried. Commentators have warned that the Ghawar field, a major source of Aramco’s oil, might produce much less oil than estimated. But these numbers are fluid. The rate of decline in production at Ghawar is a maximum of 1% per year, while the global rate in other fields is 5%. In addition, even though Saudi Arabia’s oil reserves are smaller than those of Venezuela, the kingdom maintains a higher productivity in the extraction of oil. Not only that, but the quality of its oil is much richer. Furthermore, Aramco has diversified its fields and now relies on a group of fields that complement each other to reach Saudi Arabia’s maximum production capacity of 12 million barrels. Technological inventions will likely push extraction levels even further. Yet despite these huge reserves, the recent debate over Saudi Arabia’s oil reserves should teach us one thing: that even if we remain a major oil producer for decades, we will not have oil forever. Therefore, we must continue diversifying sources of income. This requires major shifts in the way we think about our economy. – Wael Mahdi

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