Perspective on False Reserves, US Production, Saudi Arabia and OPEC

To: Dana Visalli
From: Jean Laherrere
Date: Wed Jan 3, 2001 5:02pm
Subject: Proved Reserves Increase


... In summary, proved reserves are political (or financial) data and should not be used for forecasting the future. The mean value (proven + probable) is needed and it is what is used by the oil companies -- but they do not publish it. The problem is that BP Review publishes the political data and most economists believe them....

Dana Visalli wrote:
> Jean:
> What is your perspective on the degree of variability of reserves relative
> to price?  Colin shows 22 Gb of proved oil reserves for the US in 1997 (from
> O&GJ). Is this a market-based estimate?  Will reserve estimates go up with
> price?  Petroconsultant's estimates of ultimately recoverable reserves must
> surely take price into account.

I answered ... your previous mail [regarding] Spurious Reserve Reports ... I enclose it again.

Dana Visalli wrote:
> Jean:
> Thank you for responding so fully to Mike Lynch's views.
> Can you tell us any more about the peculiar reserve reports from OPEC?  by
> way of review, here are the reserves listed for some Middle East countries,
> 1990 reserves/1997 reserves: Saudi Arabia 257.5/259, Abu Dhabi 92.2/92.2,
> Dubai 4/4, Iran 92.9/93, Iraq 100/112, Kuwait 91/94.
> It looks like no one is minding the store; the numbers don't change, as you,
> Colin and others have pointed out.

OPEC was in fact constituted of two groups; the first producing at full capacity and the second being the swing producers restraining their production to a certain quota. The swing producers are the Gulf producers: Saudi Arabia, Kuwait, Iran, Iraq and Abu Dhabi. It is why I prefer to look at the production of the world outside the Gulf producers rather than to the Non-OPEC. But within the Gulf producers, there were Saudi Arabia and the other four, as SA had in the past the power to increase or decrease its production by 2 Mb/d. (Compared to the nuclear powers, SA was the only one oil power.) The countershock of 1986 was triggered by Saudi Arabia alone as it was the only country to increase production, see the attached graph 1 from the USDOE monthly data at where in 1985 SA was the only producer to increase production as the rest of the Gulf [and] the Non-OPEC stayed flat.

The explanation is in the 1994 Peter Schweizer book "Victory" describing the barter deal between King Fahd and Reagan: cheap oil for US protection in the Gulf (cost for the US, 50 G$/a). The attached graph shows also the deal worked pretty well in 1991: Saudi Arabia quickly replaced Kuwait production in order to remove the oil price spike. The deal stayed until 1999 when Venezulea under Chavez (with the help of Mexico) decided to end the cheating within OPEC and convince Abdallah to increase price by respecting the quotas. Notice that the Non-OPEC [production] was peaking during this period [of] 1984-1992.

The problem within OPEC was to decide the quotas. The quotas depend on reserves and population. It is why when a reserves value is published, they prefer not to change in order to not upset the previous agreement on quotas. But the situtation has changed now as most of the Gulf producers have reached their capacity. I gave up guessing what the Gulf producers will decide, as what the oil price will do on the short term. In the past the variations of the demand were smoothed by the swing producers. Now I do not know how the supply will react to the demand as the Gulf producers are not "swingers" any more. The price will have to do its work, not in increasing the reserves but in decreasing the demand.

> Why, when the future of industrial society depends on those reserves, are
> they so uncritically accepted by the mainstream?

During the 80s BP Review which was reporting mainly the Oil & Gas Journal data decided to change the OGJ [data] by putting their own values for Abu Dhabi as BP (as [with] Total) is partner in almost all the producing companies (staffed with BP people). When the review was published (at this time on paper), [the] BP Chairman was called by the Sheik who told him to destroy all the copies and to put [in] the values given by the national company. It was done very quickly and since then BP [has given] OGJ reserve data without questioning. An oil company which wants to stay in the Gulf cannot go against the will of the leader.

> And there is the question of many OPEC nations' reserves doubling in 1988.
> You mentioned you were in Abu Dhabi in October; their reported reserves
> tripled between '87 and '88 (from 31.0 Gb to 92.2 Gb).  You didn't happen to
> check their dipstick when you were there did you? ..... which is to say, has
> any authority been able to confirm or deny the veracity of these reports?
> Was there any critical discussion of these reserve jumps at the time they
> occurred?

The United Arab Emirates reserves are given by the USGS report 98-468 as 61 Gb to compare with 97.8 Gb in BP Review. My paper in Abu Dhabi will be published soon by ECSSR as they have the copyright, but I will put it on the web after its publication. After my talk (see at the the paper, Gulf News Oct 8), Dr. Ibrahim Ismail, advisor to the UAE Minister of Petroleum & Mineral Resources, said irrespective of the quality of the data and ambiguous definitions, there has been a continuous growth in oil and gas reserves in the last 50 years. In fact he was referring to the OGJ proven data which are the political values, [whereas] the technical data (backdated mean values from my personal file where I have homogenized all technical data) have been declining since 1980. (See attached graph 2.)

Happy New Year,

Jean Laherrere

OGJ • Dec 18, 2000

1999 1999 1999
State first production
producing wells
per well


1905 1821 1049849 577


1943 81 13411 166


1902 31785 1513145 48


1944 801 30479 38


1889 1475 49175 33

North Dakota

1951 3304 90090 27


1954 78 1934 25


1907 1929 44529 23

South Dakota

1954 138 3014 22


1861 40990 856773 21


1894 10034 167471 17


1916 3478 40929 12

New Mexico

1911 20225 176375 9


1889 166321 1400025 8


1958 26 181 7


1900 3500 21466 6


1939 1206 7290 6


1887 9250 50597 5


1921 7321 19600 3


1891 85837 193307 2


1889 43500 79578 2


1860 700 945 1


1943 18 22 1


1889 29963 33055 1


1889 5121 5381 1


1889 303 252 1


1860 29166 16351 1


1860 23344 7608 0.3

West Virginia

1860 16025 4027 0.3


1859 16250 4027 0.2

New York

1865 3602 562 0.2

Total US

557592 5881448 11

Lower 48

555771 4831599 9
Total US from BP Review (includes NGL, etc.) 7760000  

Graph 1

Graph 2