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Seeking to resolve this debate, investment research firm Sanford Bernstein performed satellite analysis of the oil field, reviewing high-resolution images dating back to 2001. The water-injection methods used by the Saudis produce surface depressions when oil reservoirs become depleted.
Bernstein found no signs of surface collapse. Instead, it found some areas slightly elevated, which could indicate use of high-pressure recovery, an advanced extraction technique. It concluded that only one of the oldest sections was in decline.
That report was dismissed as "junk science" by industry analyst and peak-oil theorist Matthew Simmons.
Indeed, some old oil hands argue that the entire method for computing reserves is fundamentally flawed.
Richard Pike, president of the Royal Society of Chemistry, who spent 25 years in the petrochemical industry, contends in an article in the Petroleum Review that published estimates are less than 50% of their actual level. As The Independent summarized his argument:
"Companies add the estimated capacity of oil fields in a simple, arithmetic manner to get proven oil reserves. . . . However, mathematically it is more accurate to add the proven oil capacity of individual fields in a probabilistic manner based on the bell-shaped statistical curve used to estimate the proven, probable and possible reserves of each field. This way, the final capacity is typically more than twice that of simple, arithmetic addition."
Pike is no oil-industry shill and contends that producers understand this issue but prefer to show lower totals, to help support higher oil prices.
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Yet 2008 oil supplies remain within recent historical ranges, which would mean that current prices reflect fundamental forces.
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Senators try to block no-bid oil deals in IraqSen. John Kerry of Massachusetts explains why he and other Democrats asked Secretary of State Condoleezza Rice to halt contracts Iraq wants to award to Western oil companies.
"Oil storage has been historically inelastic, no matter the price. . . . Over the last 4 years (and for most of my trading life) forward (supplies) have always hovered between 50 and 55 days -- storage is expensive and limited, and just not efficacious.
"This is why . . . supply arguments are often overblown . . . supplies remain closely aligned to demand and rarely overrun -- as OPEC members have time and again explained but are ignored."
In other words, if prices are excessive, oil gets inventoried, all right, but in the ground. Which explains the keen interest in finding out how much is really there. Just don't hold your breath waiting for a precise answer.
This article was reported and written by Yves Smith for Slate.com.
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