The Saudi oil minister is likely told what he wants to hear; and isn't told what he doesn't want to hear. That's the problem with government arrangments such as you find in Saudi.

The best idea one can get about Saudi production can be found in Matt Simmons book "Twilight in the Desert". He goes into Saudi production field by field using information gleaned from over 200 technical papers delivered at oil industry conferences.

The picture he paints is one that should lead the whole world to worry, because if Saudi has peaked, so has the world.

Suffice to note that there are now 120 drilling rigs operating in Saudi, up by 400% from 5 years ago. Proliferating wells are symptomatic of all old oil provinces as the small pockets of oil are mopped up. The same is true for Saudi.

And the world may well have peaked. Conventional crude oil production (C+C+NGL) has actually slightly declined since 2004, according to IEA figures. The overall increase they report is based on ethanol, biodiesel and tar sands.

Right on! Say all the neo-classical economists out there. Substitutes smoothly rolling in right on the price cue, just as they always have.

As I said in a piece a couple of days ago there are 3 problems with substitutes:

1. Scalability in volume
2. Scalability in time; and
3. Energy Balance.

Not even the much vaunted neo-classical economists out there can do anything about energy balance because the laws of thermodynamics are immutable. They do not care about economists. The fact is that these three imposters (ethanol, biodiesel and tar sands) have terrible energy balances, even negative in some cases.

What makes oil special is it's huge positive energy balance. That is what our wealth is built on. Not on arcane volumetric calculations of various liquid fuels.

So lets hope all those rigs out there in Saudi are successful. Because if they are not (and history teaches us that they won't be) the consequences will be awful and will start to bite quite soon.

The root of the problem is the distinction between ‘production capacity’ and ‘actual production’. Production capacity now is about 11 mb/d, not 9 mb/d. Therefore, the increase to 12.5 mb/d by 2009 is an increase of only 1.5 mb/d, not 3.5 mb/d, not 40%. The most recent detailed, and public, report of what exactly the Saudis hope to achieve was given by Nawaf Obaid on Nov 9th last year in a PowerPoint presentation to the Center for Strategic and International Studies (CSIS) in Washington, which is still available online. There is a review of the presentation with links on the ODAC Bulletin Board, see “Saudi Arabia’s Strategic Energy Initiative: Safeguarding Against Supply Disruptions”. From the ODAC Bulletin Board review: