Channel 4 News Special Report For Oil Supplies

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On TV: Channel 4 News Special Report: Oil Supplies

26-Oct-2004

TRANSCRIPT

KRISHNAN GURU-MURTHY, Presenter:

Now the Wests reliance on future Saudi oil supplies is dangerously overestimated. That’s the worrying claim Channel 4 News has been told by a senior Saudi oil insider. And all the more so given the traditional reliance on Saudi production to ease high prices. It was a message echoed today by another senior oil industry figure, a former energy adviser to George Bush. Such comments could have a significant impact on an already jittery oil market, which has seen the price of a barrel of the crude rocket to record levels over $50 a barrel in recent weeks. The news comes as senior oil insiders began a two-day oil conference in London. Our Economics Correspondent, Liam Halligan, reports.

LIAM HALLIGAN, Reporter:

With a quarter of global oil reserves, Saudi Arabia is the world’s energy linchpin. And with oil prices up at $50, having risen 80% over the last year, most people are relying on the Desert Kingdom to pump more oil and bring prices down.

At the two-day Oil & Money Conference in central London this morning, that was certainly the conventional wisdom. But delegates at this, the annual pow-wow of the industry’s movers and shakers, could be in for a shock. Tomorrow, two key oil insiders from very different backgrounds will warn that we cannot rely on seemingly limitless Saudi oil.

Matthew Simmons has been at the top of the oil industry for 30 years. A former energy adviser to George Bush has overseen $60 billion worth of oil investments. In a sneak preview of tomorrow’s speech, he says we should be worried about Saudis reserves.

MATTHEW SIMMONS, Chairman, Simmons & Co. International:

And the reality is that they have a handful of timeworn fields that I think – there’s a lot of evidence mounting up – are starting towards the endgame of their daily production. And we should be preparing for the day when Saudi Arabia’s oil production starts into a relatively consistent decline that could be a steep decline.

LIAM HALLIGAN:

Channel 4 News has obtained the US government’s highly sensitive energy forecasts. Currently, the world consumes 80 million barrels of oil every single day. Saudi supplies 9 Mbpd, around 11% of total global production. By 2025 global oil demand is set to reach 120 million barrels a day Ð a 50% rise. By then, says the US government, Saudi will pump 22 million barrels daily, a sharp increase in our reliance on Saudi oil.

Simmons refers to these US government estimates as the energy roadmap of the global economy. He spent years studying them, along with numerous Saudi geological surveys. When asked whether the Kingdom could produce 22 million barrels a day by 2025, he doesn’t mince his words.

MATTHEW SIMMONS:

I wouldn’t put one percent. If it turned out that some miracle happened and we discovered some phenomenal fields that have defied discovery for the last 40 years, its Ð you can’t, you can never take a forecast and say that’s an impossibility. 2020 I could be living on the moon; I don’t think I’m going to. I would say that the probability of me living on the moon is higher odds than Saudi Arabia produces 22 million barrels a day.

LIAM HALLIGAN:

Most conference delegates will politely applaud Simmons speech tomorrow, then dismiss him as a contrarian. Saudi Arabia’s fine, many of them told us. The Kingdom has enough oil if it chooses to sell it.

FATIH BIROL, International Energy Agency:

We are not worried about the Saudi oil supply in the long term. We know that Saudi Arabia has huge reserves regarding oil. But we are worried is that whether or not Saudi Arabia is going to put these reserves in the markets.

LIAM HALLIGAN:

But in this rare interview, a senior Saudi insider reveals his fears. Sadad al-Husseini has just retired as a board member of Aramco, the state-owned giant which pumps nearly all the Kingdoms oil. The Saudis have previously refuted Simmons analysis, but al-Husseini says the West is relying too heavily on Saudi reserves.

SADAD AL-HUSSEINI, Former Head of Exploration, Aramco:

I think in total the outlook is much too high for production, and it’s unrealistic for the world to be expecting such high numbers from all of the producers, including Saudi Arabia.

LIAM HALLIGAN:

Al-Husseini will tomorrow tell the western oil establishment it may have to face up to higher oil prices. Demand from China and India is escalating, with little extra supply. This reality isn’t reflected, he says, in US estimates of future production.

SADAD AL-HUSSEINI:

They’re not only overestimating the Middle East, but they overestimate non-Opec, they overestimate Russia, they overestimate the whole global resource base. And I think this is a rather dangerous situation for the US government policy to be based on.

LIAM HALLIGAN:

But Saudi oil is still crucial, which is why global markets will heed al-Husseini’s words. And even among oil traders unconcerned about Saudi, a consensus is emerging. Don’t expect significant falls in oil prices anytime soon.

On the web: Oil supplies over-estimated

Economy

Published: 26-Oct-2004

By: Liam Halligan

Channel 4 News has been told by a top Saudi oil industry insider that the American government’s forecast for future oil supplies are a “dangerous over-estimate”.

Sadad Al Husseini has just retired as vice-president of the Saudi oil company Aramco.

His comments could have a significant impact on a jittery oil market which has seen the price of a barrel of crude rocket to record levels over recent weeks.

Global oil markets are incredibly stretched. The price of a barrel is around $55 dollars and rices have risen by around 80% over the last year.

The key supplier is Saudi Arabia and the markets are highly sensitive to any news regarding the Desert Kingdom.

We’ve obtained sensitive US government estimates of how much oil the global economy will need over the coming years.

At the moment, the world uses 80m barrels of oil a day, with Saudi supplying around 9 million, around 11%.

By 2025, given huge demand rises from China, India and so on, global demand will rocket to 120m barrels a day.

And, the US government says, Saudi will supply 22m barrels a day, around 19 per cent.

The Saudis very rarely speak publicly about future oil capacity but there are signs the Kingdom is worried their fields are being pushed too hard.

Al-Husseini has just retired as Head of Exploration at Aramco and he told us in a rare interview, that estimates of future global supplies from the EIA, the US government’s energy think tank, are simply too high.

He also said he didn’t see a price move below $50 a barrel any time soon.

Al-Husseini’s opinion is a view that is growing in the oil markets, but which no-one wants to admit, that population growth and the emergence of China and India means oil prices are now going to be structurally higher than they have been.

It’s also a view articulated by Matthew Simmons, one of the industry’s leading financiers, and a former energy advisor to America’s Vice President Dick Cheney.

He says the main reason the markets won’t wake up to permanently high oil prices is what he calls “group think” and “conventional wisdom”. He’s told us in an exclusive interview that the only way for oil demand, and thus prices to fall, is a global recession.

Al-Husseini and Simmons are two of the most senior figures in the global oil industry.

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