FORMER ARAMCO INSIDER SPECULATES SAUDIS WILL MISS 12.5 MBD IN 2009

VZCZCXRO7441
PP RUEHDE RUEHDIR
DE RUEHRH #2441/01 3440554
ZNY CCCCC ZZH
P 100554Z DEC 07
FM AMEMBASSY RIYADH
TO RUEHC/SECSTATE WASHDC PRIORITY 7183
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE PRIORITY
RUEAIIA/CIA WASHDC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHINGTON DC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 03 RIYADH 002441 
 
SIPDIS 
 
SIPDIS 
 
DHAHRAN SENDS 
DEPT OF ENERGY PASS TO MWILLIAMSON, GPERSON, AHEGBURG, AND 
JHART 
CIA PASS TO TCOYNE 
 
E.O. 12958: DECL: 12/10/2017 
TAGS: EPET, ENRG, ECON, SA 
SUBJECT: FORMER ARAMCO INSIDER SPECULATES SAUDIS WILL MISS 
12.5 MBD IN 2009 
 
REF: RIYADH 1950 
 
Classified By: Consul General John Kincannon for reasons 1.4 b, d and e 
. 
 

r />can reach 12 million b/d within the next 10 years, it will be

unable to meet the goal of 12.5 million b/d by 2009. The

former EVP added that sustaining 12 million b/d output will

only be possible for a limited period of time, and even then,

only with a massive investment program.



3. (C) According to al-Husseini, the crux of the issue is

twofold. First, it is possible that Saudi reserves are not

as bountiful as sometimes described and the timeline for

their production not as unrestrained as Aramco executives and

energy optimists would like to portray. In a December 1

presentation at an Aramco Drilling Symposium, Abdallah

al-Saif, current Aramco Senior Vice President for Exploration

and Production, reported that Aramco has 716 billion barrels

(bbls) of total reserves, of which 51 percent are

recoverable. He then offered the promising forecast - based

on historical trends - that in 20 years, Aramco will have

over 900 billion barrels of total reserves, and future

technology will allow for 70 percent recovery.



4. (C) Al-Husseini disagrees with this analysis, as he

believes that Aramco's reserves are overstated by as much as

300 billion bbls of "speculative resources." He instead

focuses on original proven reserves, oil that has already

been produced or which is available for exploitation based on

current technology. All parties estimate this amount to be

approximately 360 billion bbls. In al-Husseini's view, once

50 percent depletion of original proven reserves has been

reached and the 180 billion bbls threshold crossed, a slow

but steady output decline will ensue and no amount of effort

will be able to stop it. By al-Husseini's calculations,

approximately 116 billion barrels of oil have been produced

by Saudi Arabia, meaning only 64 billion barrels remain

before reaching this crucial point of inflection. At 12

million b/d production, this inflection point will arrive in

14 years. Thus, while Aramco will likely be able to surpass

12 million b/d in the next decade, soon after reaching that

threshold the company will have to expend maximum effort to

simply fend off impending output declines. Al-Husseini

believes that what will result is a plateau in total output

that will last approximately 15 years, followed by decreasing

output.



5. (C) Al-Husseini elaborated that oil field depletion rates

also play a significant role in determining the Aramco - and



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global - production timeline. Increasing output is not simply

a function of adding new capacity to already existing

operations. Instead, due to depletion rates, new reserves

must be brought online to both replace depleted production

and satisfy growth in consumption. The International Energy

Agency (IEA) has estimated global depletion rates at 4

percent, while a 2006 Aramco statement has estimated Saudi

Arabia's overall depletion rate at 2 percent. Al-Husseini

estimates that moving forward, satisfying increases in global

demand will require bringing online annually at least 6

million b/d of worldwide output, 2 million to satisfy

increased demand and 4 million to compensate for declining

production in existing fields.



6. (C) The second issue that will limit any proposed Aramco

output expansion can be broadly defined as a lack of

supporting resources. For example, in al-Husseini's

estimation, it is not the amount of oil available that will

prevent Aramco from reaching 12.5 million b/d by 2009, but

rather issues such as a lack of available skilled engineers,

a shortage of experienced construction companies,

insufficient refining capacity, underdeveloped industrial

infrastructure, and a need for production management (if too

much oil is extracted from a well without proper planning and

technique, a well's potential output will be significantly

damaged). As previously reported by post (Reftel),the

Eastern Province economy is facing severe industrial

expansion limits, and despite Aramco's willingness to invest

up to 50 billion USD to achieve the 2009 goal, availability

of labor, materials and housing may end up as determinative

factors.



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GLOBAL OIL PRICES: DEMAND HAS MET SUPPLY

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7. (C) Considering the rapidly growing global demand for

energy - led by China, India and internal growth in

oil-exporting countries - and in light of the above mentioned

constraints on expanding current capacity, al-Husseini

believes that the recent oil price increases are not market

distortions but instead reflect the underlying reality that

demand has met supply (global energy supply having remained

relatively stagnant over the past years at approximately 85

million barrels/day). He estimates that the current floor

price of oil, removing all geopolitical instability and

financial speculation, is approximately 70 - 75 USD/barrel.

Due to the longer-term constraints on expanding global

output, al-Husseini judges that demand will continue to

outpace supply and that for every million b/d shortfall that

exists between demand and supply, the floor price of oil will

increase 12 USD. Al-Husseini added that new oil discoveries

are insufficient relative to the decline of the super-fields,

such as Ghawar, that have long been the lynchpin of the

global market.



8. (C) COMMENT: While al-Husseini believes that Saudi

officials overstate capabilities in the interest of spurring

foreign investment, he is also critical of international

expectations. He stated that the IEA's expectation that

Saudi Arabia and the Middle East will lead the market in

reaching global output levels of over 100 million barrels/day

is unrealistic, and it is incumbent upon political leaders to

begin understanding and preparing for this "inconvenient

truth." Al-Husseini was clear to add that he does not view

himself as part of the "peak oil camp," and does not agree

with analysts such as Matthew Simmons. He considers himself

optimistic about the future of energy, but pragmatic with

regards to what resources are available and what level of

production is possible. While he fundamentally contradicts

the Aramco company line, al-Husseini is no doomsday theorist.

His pedigree, experience and outlook demand that his

predictions be thoughtfully considered. END COMMENT.



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BIOGRAPHICAL DATA

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9. (U) Dr. Sadad Ibrahim al-Husseini was born in Syria but

raised in Saudi Arabia, his father a Saudi government

official. He received a BS in Geology from the American

University of Beirut in 1968, as well as an MS and Ph.D. in

geological sciences from Brown University in 1970 and 1972,

respectively. Al-Husseini also attended a Professional

Management Program at Harvard Business School in 1982.



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Joining Aramco in 1972, al-Husseini quickly advanced,

becoming Senior Vice President for Exploration and Production

in 1986. He was given the title Executive Vice President in

1992. Al-Husseini served on Aramco's Management Committee

from 1986 until 2004, and sat on the Aramco Board of

Directors from 1996 - 2004. He retired on March 1, 2004.

Al-Husseini is married to Souad al-Bassam and has one

daughter. He also has three brothers that work in the energy

sector.



(APPROVED: KINCANNON)

FRAKER