The most recent controversy over Saudi oil has focused on assertions that the Saudis are experiencing insurmountable problems in their oil fields, that their reserves are overstated, and that their production is near a peak. A debate two years ago between Matthew Simmons and Nansen Saleri at the Center for Strategic and International Studies failed to quiet the alarmist voices, although again, the alarmists did not address the substantive issues that were raised. Colin Campbell, for his part, subsequently used some of the data provided by Saleri and ignored others (such as oil in place) and massaged some of the numbers to conclude that Saudi proved reserves data are actually original reserves – that is, the combination of cumulative production and proved reserves. His evidence for this: the resulting numbers were approximately similar.

One red herring comes from the opposite side of the equation: the global need for Saudi (and OPEC and Arabian Gulf) oil. Most recent official forecasts project that sometime in the next quarter-century, the world will require as much as 20 to 25 million barrels per day from Saudi Arabia to meet global demand. Even though that would only represent a reserves-to-production ratio of 30 to 1 – still triple the U.S. level – numerous analysts have suggested such expectations are absurd and physically impossible.

Again, this demonstrates the alarmists’ relative ignorance of the history of oil market forecasting. Since the Iranian Oil Crisis in 1979, nearly every forecast has predicted a near-term peak in non-OPEC supplies, and soaring OPEC production and market share, with Saudi Arabia the primary contributor. However, not only has OPEC production just regained its 1979 level, but its market share has been flat, if not declining, for a decade, since its post-1986 recovery.

This repetition of failed expectations reflects much of the nature of this debate: the alarmists are not expert in statistical analysis, forecasting oil supply, or resource economics. They are prone to errors of omission and especially prone to weak (or non-existent) analysis, most typically offering facts out of context as proof of their assertions.

For instance, much of the alarmist commentary consists of the vague remarks and rumors about the Saudi oil fields being dogs, their massive equipment purchases and so forth, which should not be given much credence. The overwhelming desire of the world oil industry to gain access to exploration acreage in Saudi Arabia should be ample evidence of how the country’s resources are perceived by knowledgeable industry insiders.

Simmons, author of Twilight in the Desert, is particularly talented at ignoring contradictory data. He argues in one place that the 1976 Aramco estimate of 110 billion barrels of initial proved reserves should be treated as credible, suggesting “game over” since production to date is about half of that, and he believes that in three decades, the industry has not been able to increase the recovery factor. And elsewhere, he notes that peak production for a field occurs at the half-way point, by which measure Ghawar – using the 1976 estimates – should have peaked decades ago. Similarly, he refers to U.S. government studies of the Saudi resources as being “secret,” and then says they were located in various libraries.

Some of Simmons’ arguments have already proven fallacious, such as the suggestion in early 2004 that there didn’t seem to be any significant amount of surplus capacity (in fact, production has since grown by about 1.5 million barrels per day), or that other non-producing fields had too many problems to be brought on line. Just as some Hubbert modelers interpret the drop in discoveries and/or production in OPEC countries as evidence of scarcity, rather than attempts to stabilize the market, they see the Saudi failure to produce all the oil in the ground as a sign that the fields couldn’t be produced, or at least, not without great difficulty. In fact, M. A. Adelman used the investment plans of the Saudis to estimate that the average cost of adding five new fields would be about $3 per barrel.

But where the work suffers in particular is in its lack of demonstrated analysis. The basic arguments consist of facts and assertions, without a chain of logic connecting them. Specifically, the reference to problems in the Saudi oil fields tells us nothing without some indication of how those problems are growing (i.e., more drilling, more expenditures, changes in water cut) or giving some context (such as comparison with other oil fields, or even reference to texts on reservoir engineering that would explain the precise effects of the problems discussed). The primary context is the Yibal field in Oman, which suffered from a precipitous production drop. Simmons attributes this drop to the use of technology similar to that employed by Saudi Aramco. He doesn’t note that the same technology is widely used without causing such difficulties.

While it is true that the Saudis are secretive about their operations, they are hardly alone in this. And there is ample evidence of what they are doing – for example, rig counts, well density, well productivity, and so forth – none of which is analyzed or discussed by the alarmists, despite its ready availability.