September 03, 2005
Saturday

Even as the world's thirst for oil grows, no one quite knows how much of the precious liquid we have.

Some experts say that the Earth's oil reserves are smaller than we think. For example, Saudi Arabia, the global economy's gas tank, might not have the vast petroleum reserves its leaders claim, according to a new book rattling the energy industry. Royal Dutch/ Shell Group last year admitted overstating its oil reserves by about 25 percent.

Others maintain that crude is more plentiful than we suspect.

Federal rules force U.S. oil companies to underestimate the size of their reserves, a prominent energy research firm argued this spring in a widely circulated report. They can pump far more than their official estimates suggest.

So how much oil can the world produce? With demand and prices soaring, few questions carry more weight for the international economy. And few are as maddeningly difficult to answer.

Oil-producing companies and countries publish estimates of their proven reserves - essentially, the amount of oil they can pump with existing technology under current market conditions. It all adds up to about 1.3 trillion barrels worldwide, enough to keep humanity's cars, factories and power plants humming for 42 years at our present level of consumption.

But as Shell proved, a company's reserve numbers can be fudged. And state- controlled firms, such as the National Iranian Oil Co. or Petroleos de Venezuela, don't let outsiders verify their estimates. National companies control roughly 77 percent of the Earth's petroleum.

Add to that the fundamental difficulty of figuring out how much oil lies in an unseen reservoir trapped beneath layers of stone. Even the most careful, honest estimates can miss the mark.

"The only way you finally, really know much proven reserves an oil field has is when you cap the last well," said Matthew Simmons, chairman of a Houston investment bank serving the energy industry.

And yet, no one can afford to take oil reserve estimates lightly.

Asia's growing economies are chugging oil, straining supplies and pushing the price of crude to near-historic highs, ending last week at $65.35 per barrel. If the world has less oil than we think, adding supply to slake that thirst will be difficult and very expensive.

Lower-than-expected reserves could also place us closer to peak oil, the dreaded, much-debated moment at which oil production starts an irreversible decline.

Oil companies, too, are frantic to keep their reserve numbers up, lest their investors think they're running low on fuel.

San Ramon's Chevron Corp., for example, bought Unocal Corp. to boost its reserves of oil and natural gas, which had been slowly dwindling. Many companies are struggling to find enough oil to replace what they've pumped, with production exceeding new discoveries for the past 16 or 17 years.

"We're still consuming far more than we find," said Jamal Qureshi, an oil market analyst at the PFC Energy consulting firm.

For decades, politicians and economists assumed that the huge pools of petroleum beneath Saudi Arabia would be able to meet the world's needs. The country has become a kind of central bank for oil, increasing production to ease the world through supply shortages and cutting back when its leaders think oil prices have fallen too low.

But Simmons argues that the desert kingdom could run dry, spelling out his case in his book "Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy." The Saudis, he says, have overworked their oil fields, pumping too much crude too quickly - a practice that can reduce the amount a field eventually produces.

Further, the kingdom's national oil company, Saudi Aramco, treats most information about its wells as a state secret. Its reserves, officially pegged at 261.9 billion barrels, can't be independently verified. And Saudi Aramco hasn't significantly changed that number in 17 years, even though it has pumped 46 billion barrels in that time, Simmons said.

He fears Saudi oil output could soon start to fall. A drop could destabilize the kingdom, already under attack from Islamic radicals, and send world oil prices shooting to unprecedented heights.

"It doesn't mean we've run out of oil, but it does mean you're going to have to have rapid changes in the way we use energy," Simmons said. "We've built a world that basically assumes that every year we can increase oil supply."

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