Steve Levene’s excellent blog on oil and gas at Foreign Policy magazine told me that the world’s largest oil reserves are now no longer in Saudi Arabia, but in Venezuela, according to the authoritative BP Statistical Review of World Energy 2012. Saudi Arabia has 265 billion barrels of proved reserves (16.1% of the world total) compared with 296 billion for Venezuela (17.9%). Next in line are Canada (10.6%), Iran (9.1%) and Iraq (8.7%). A large fraction of the Canadian reserves are tar sands (“unconventional oil”) of which most are not yet being commercially exploited.
Does this mean the power of OPEC (the Organisation of the Petroleum Exporting Countries) is shifting west? As Levene points out, no. Having the reserves is not enough to give market power. What makes Saudi Arabia uniquely influential is not just that it is the largest exporter (10m barrels a day versus 2m for Venezuela) but that it has a large amount of flexible capacity and can act as the “swing producer” in OPEC. Venezuela produces flat out all it can and has little scope to influence supply. Saudi Arabia is therefore still the critical country to watch in terms of oil prices. While long term prices reflect fundamentals – demand and supply – Saudi can and does manage the short and medium term price. If the price is too high, meaning that the world will start shifting to lower oil consumption, Saudi can pump more oil to bring it down. Here its interests are not necessarily the same as other OPEC producers. Saudi has an interest in maintaining high long term demand for oil, so it doesn’t want prices to rise too far. It is aware that OECD (rich country) demand is now at the lowest level since 1995. Other countries, whose reserves will deplete much more quickly, want the highest possible price now, even if that causes a shift to other fuels in the long term, by which time they won’t care any more.
So keep watching Saudi Arabia for now and longer term watch Canada.