The world’s proved reserves have been have been falsely puffed up by the inclusion of 300 billion barrels of speculative resources, according to the former head of exploration and production at Saudi Aramco, and this explains the industry’s inability to raise output despite soaring prices.

Sadad al-Huseini’s presentation to the Oil and Money conference in London went substantially as previewed by lastoilshock.com, but the analysis he delivered may also throw light on the infamous OPEC reserve additions of the 1980s.

Mr al-Huseini began by noting the obvious inconvenient truth of the oil market of recent years: that production has barely increased despite a soaring crude price and massive investment by the industry. “It’s telling us something. We should be listening to what the numbers are telling us, not what the politicians say… It’s not about economics alone, you can increase prices, but you will not necessarily drive production up”

He also noted that 400 billion barrels of reserve replacement has been reported over the last decade, and asked why this had not been translated into new capacity. The answer, he suggested, was that a quarter of the world’s claimed proved reserves are no such thing: not production-ready oil, but speculative sources. “Reserves are confused and in fact inflated. Many of the so called reserves are in fact resources. They’re not delineated, they’re not acessible, they’re not available for production”. By his estimate 300 billion of the world’s 1200 barrels of proved reserves should be recategorized as speculative resources.

Mr al-Huseini did not specify which countries had inflated their reserves in this fashion, but the number is strikingly similar to the size of reserve additions recorded by OPEC members in the mid-1980s when countries were vying for quota share, although no new discoveries had been made.

However he did go on to question the production potential of some Gulf states, pointing out that 75% of Iranian production comes from mature fields that are more than 50% depleted. “That is not sustainable. When you hear officials saying production is going back up to up to over 5 million barrels [per day], that is not do-able”. He also noted that the 38 giant fields in the Arabian Gulf with reserves of over billion barrels each are on average 41% depleted. “These are the fields that in many forecasts are supposed to crank up and double production from the Gulf – again, very questionable”.

Al-Huseini’s world production forecast showed output on a plateau that will last no more than 15 years before starting to decline. In a world where spare capacity has evaporated, he concluded, the technical floor for oil prices would continue to rise at about $12 per year. “Prices can only go up”.