February 11, 2011
Over the last couple of years we have all grown used to stories of financial problems caused by lies, secrecy and general deception. Just using words like Enron, Madoff and derivative ought to be enough to jog the fading memory.
But it seems that the world has another such problem to contend with at some point…
Enter stage right, Saudi Arabia and Wikileaks.
According to this story, the oil reserves in Saudi Arabia may be overestimated. I must confess, this is not a shock to me. The independent financial newsletter crowd has been writing about similar stories for quite some time. They often write about how reserves were magically increased around 20 years ago to fit OPECs output models.
However, they are independents and sometimes are super-reliable, sometimes less so. Internal cables from the American government seem as though they may be based on a little more than that.
Apparently, Saudi reserves are “overstated by as much as 300 billion barrels of ‘speculative resources’.” And that, “soon after 2020 “a slow but steady output decline will ensue and no amount of effort will be able to stop it.””
I don’t pretend to be an oil expert. I’m not. But even my limited capacity can tell that 300 billion barrels of oil is quite a lot. Or, possibly, more than quite a lot.
For Saudi reserves to increase dramatically and then a few decades later decrease just as dramatically, I can think of two possible scenarios. Either a) someone lied and the oil never was there, or b) a magician with immense powers has done something amazing with a lot of barrels of oil.
I’m guessing a.
Keen memoried readers may recall that Royal Dutch Shell had their own reserves scandal back in 2004. That related to a measly 4 billion barrels.
Does this mean that it is not only bankers that we cannot trust to safeguard the global economy? It could be hard to tell which set of lies proves to be the most costly…
How can this not be bullish for the price of oil? Economics is based on scarcity and oil just officially became a whole lot scarcer. The negative consequences for the global economy must be clear, I don’t need to spell them out.
It also suggests that the shift into a ‘green economy’ needs to be happening much faster. Even if we presume that we need to generate our power in a low carbon way very soon to help prevent further climate change issues, this simply adds to the pressure for that need.financialguy