Gulf states should reveal oil reserves

29 February 2008

There are few more controversial figures in the oil industry than Matthew Simmons. Since the Houston-based banker argued the case for the peak or declining oil scenario in his 2005 book ‘Twilight in the Desert’ he has been at the centre of a storm that has had a real impact on the rising oil price.

If Simmons’ thesis is correct, then the oil-producing states of the Middle East are living on borrowed time. Even with the introduction of enhanced oil recovery (EOR) techniques, their fields are on the inexorable road to decline. The only question is how long the decline will take.

For Oman, it might not be very long at all. In 2001, Petroleum Development Oman was producing 800,000 barrels a day (b/d). Last year, despite the extensive introduction of new techniques, output averaged just 560,000 b/d. While new EOR technologies are rapidly being deployed in the sultanate, Simmons’ argument is that this can only delay the inevitable.

National oil companies (NOCs) say there is more than enough oil for production to be increased and sustained for decades. Not only does Simmons not have the expertise, they say, but he is also making assumptions without having access to the real data.

This is the nub of the issue. Whether or not oil has peaked may not yet be clear, but there are some elements to Simmons’ case that do make sense. NOCs should provide a field-by-field rundown of their proven oil and gas reserves.

This might be uncomfortable for some states at first, but it would help reduce price volatility and deflect criticism of Opec’s decision making.

As oil prices continue to soar, more transparency, not less, is required, and the region’s producers would do well to come clean and set the world’s energy planners at ease.

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