Saudi oil forecasts are doubted
By Jeff Gerth The New York Times
THURSDAY, OCTOBER 27, 2005
WASHINGTON Last spring, the White House publicly embraced plans by Saudi Arabia to significantly expand its oil production capacity. But privately, some government officials and others advising policy makers are skeptical about whether the Saudis can deliver.
The United States relies on a few producers to maintain enough spare capacity to keep prices and markets stable, even during war or disaster. As oil prices have climbed over the past year because of surging demand, the Bush administration has looked to the Gulf countries, particularly Saudi Arabia, to pump extra oil.
But doubts about Saudi Arabia's assurances of how much it can expand capacity - and for how long - have been raised in a secret intelligence report and in a separate analysis of the Saudi data by a leading government oil adviser, according to a government official and the oil expert.
If those skeptical assessments are correct, the administration's hopes of increasing supplies would only become more difficult to fulfill. Washington's expectations about oil production from Iraq and the United Arab Emirates have proved overly optimistic, and the White House has failed to heed advice about both countries from industry and government specialists, according to documents and interviews.
The challenges facing the White House on energy come as oil companies are reporting record profits, which have surged because of soaring prices for oil and natural gas.
Exxon Mobil, the world's largest oil company, was expected to announce on Thursday a quarterly profit of more than $8.5 billion, more than companies like Intel and Time Warner earn in a full year.
The administration, however, in trying to defuse a political backlash over high energy costs has had little choice but to rely on the promises from Saudi Arabia, the world's largest oil exporter, that it would continue to be the market linchpin.
A senior U.S. intelligence official, who insisted on remaining anonymous because he was not permitted to speak publicly on the issue, said that the Saudi plans to increase production by nearly 14 percent in the next four years was not enough to meet global demand. Even the Energy Information Administration, an independent arm of the U.S. Energy Department that has long been optimistic about Saudi production, recently scaled down its expectations of how much more oil the Saudis could pump in 20 years.
To be sure, there is more to President George W. Bush's energy policy than ensuring surplus capacity. The administration has called for increasing U.S. production and refineries, development of alternative and renewable fuels, expanding nuclear energy and, recently, greater conservation.
Still, the Gulf countries are seen as crucial in moderating future prices. The gasoline price spikes after the hurricanes along the Gulf of Mexico have exacerbated oil markets already tight because of the uncommonly low levels of spare capacity.
Rising demand from Asia made the need to invest in new production "a front-burner issue," said Spencer Abraham, the secretary of energy in Bush's first term.
By May 2004, under pressure from the United States and other consuming nations, the Saudis promised to pump more oil. Saudi Aramco, the state-owned oil company, was planning to increase capacity to 12.5 million barrels a day by 2009.
Before long, the Saudi oil minister, Ali al-Naimi, and Saudi oil executives were saying their country could add 200 billion barrels - from existing fields and yet-to-be-discovered resources - to its reserves, enabling production of 15 million barrels a day for 50 years or perhaps longer.
But there are doubts about the Saudi assertions on how much oil they have. Data about reserves are tightly guarded, and the Saudis dismiss skeptics as uninformed.
But they do not dismiss Edward Price Jr., the former head of exploration for Saudi Aramco and an adviser to the U.S. government about Gulf oil during both Iraq wars. He questioned some of the Saudi predictions last year in a New York Times article and wanted to know from his former colleagues how they reached their recent estimates. Twenty years ago, a study by geologists from four large U.S. oil companies then in partnership with Aramco found little in the way of undiscovered oil resources, he said.
Nansen Saleri, who manages Saudi reservoirs, met with Price in the United States last year. Saudi Aramco officials declined to respond to questions about the meeting. But Price said in an interview that Saleri had told him that the basis for the higher oil figures was a 2000 global study by the U.S. Geological Survey estimating Saudi Arabia's undiscovered resources at 87 billion barrels.
Price said he responded that the estimates "by the USGS had no credibility and far exceeded the detailed studies by the old Aramco team." The Aramco study, unlike the survey estimate, involved detailed field work.
In addition to Saudi Arabia, the Bush administration has viewed the United Arab Emirates as a supplier with excess capacity. But capacity has not grown in four years, which one administration official attributes to a lack of urgency by emirates' officials and a lack of high-level attention by U.S. officials.
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