On April 22, Saudi Arabia made what appeared, on the surface at least, to be a dramatic announcement. Forget quotas, the Saudis proclaimed. They would pump all the oil consumers wanted up to its current capacity of 11 million barrels a day. And, to make sure that the world would have enough supply in the long term, Saudi Arabia would spend $50 billion over five years to increase oil production capacity to 12.5 million barrels a day by the end of 2009.
In the short term, the announcement isn't anywhere nearly as dramatic as it seems. The Saudis are already producing more than 9.5 million barrels a day. By long-standing policy, the country has kept a cushion of 1.5 million to 2 million barrels a day in idle excess capacity as a buffer against unexpected demand spikes. All the Saudis have really promised to do is to produce to full capacity.
But what about the long-term promise of increased capacity? Here, too, not everything is as it seems. To understand why, you've got a take a closer look at the structure of the Saudi oil fields and at the truly abysmal state of global energy-demand prediction.
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On April 22, Saudi Arabia made what appeared, on the surface at least, to be a dramatic announcement. Forget quotas, the Saudis proclaimed. They would pump all the oil consumers wanted up to its current capacity of 11 million barrels a day. And, to make sure that the world would have enough supply in the long term, Saudi Arabia would spend $50 billion over five years to increase oil production capacity to 12.5 million barrels a day by the end of 2009.
