Few analysts have questioned these increases (though it was called paper barrels at that time, today, our memory being what it is, these have become real barrels). Even more astonishing is that though Saudi Aramco has been pumping oil for the last 17 years, its reserves remain at 260 bb. However, even if the reserves are 200 bb today, Saudi Arabia would be able to supply 10 mbpd for the next few decades easily. Even this number is under serious doubt.

The last available report by Aramco (1978) indicated that about 70 bb of proven reserves came from just four fields — Ghawar (46), Safaniya (14), Abqaiq (4), and Berri (6). These fields accounted for more than 90 per cent of Aramco's oil production. Though data subsequent to that period are not available readily, a 1999 report indicated that most of the oil came from just seven fields, with Ghawar and Safaniya accounting for 75 per cent. So, what happens when these giant fields go into maturation?

At the start of 2004, Saudi Aramco listed an inventory of 83 oilfields and 18 natural gas fields. However, little else is known other than the fact that the collective production of these fields has never crossed 2 mbpd.

Any assertions on Peak Oil have to be based on proving the inability to increase/sustain production of these giant oilfields and also that of new fields or additional discoveries adding to the production volumes.

Existing giant oilfields

There is no direct evidence to prove that these fields have peaked. However, discussion of the problems and the current set of technologies used to maintain the output indicate that these fields might well have matured. Moreover, the recent claims of Saudi Aramco that Ghawar today contains proven reserves of 125 bb appear exaggerated. Consider the following:

New fields brought into production

Saudi Aramco issued a statement last year that it would be spending $18 billion over the next few years to maintain production from the existing fields. This contradicts its earlier claim that it was producing its cheapest oil first, when asked why production was concentrated to a few fields.

Additionally, would it not be prudent to spread the output to reduce the damage from "overproduction" to these giant wells. The conclusion that can be drawn is that these other oilfields are not large enough.

There are 4000-plus oilfields in the world today of which, 97 per cent produce less than 1,00,000 bpd. So, the chances are that all of the reserve fields belong to the smaller category.

Contrary to perception, there are only three small pockets in Saudi Arabia that have not been explored.

Dr Sadad Al-Husseini (a former Executive Vice-President of Saudi Aramco) has gone on record stating that it can never produce more than 12 mbpd.

The usual questions and answers

Given the demand inelasticity, even slight shortages can cause the price to soar. Even a 1.5 per cent annual increase in demand with a one per cent decline in supply could see oil spot prices cross $200 per barrel within 18-24 months of Peak Oil, which is likely to happen before 2007, assuming we are not already at it.

Hypothetically, Saudi Arabia can discover a new Ghawar or prolong its life by a few decades. But the odds are stacked heavily against such a possibility. Saudi Arabia can help clear the uncertainty by providing field-by-field reserves/production data and allowing independent verification of oilfields.

Quite obviously, it is difficult to come to a definitive conclusion. The world is divided on the oil debate. Lord John Browne, British Petroleum Group Chief Executive, disputes the very notion of Peak Oil when he states: "Supply is a function of price, demand is a function of price. And if people are put in a corner and held hostage, they will innovate a way out of it."

When oil prices touched $1 a barrel during the 1960s, many energy economists argued that oil was overvalued by a factor of 3-4 times. The US Government at that time turned down a long-term 10-year contract to receive oil at $1a barrel. Similar arguments were heard when oil touched $20 and, more recently, when it touched $40. The Economist, as recently as 2001, ran a cover story of a world oil glut.

Obviously, it is difficult to come to a conclusion on this subject. An impending Peak Oil is a near "certainty". Even if the chances are anything more than a "possibility", the consequences of such an event are so severe that they merit immediate attention. One can only wish that Matt Simmons is wrong about Saudi Arabian oil. But that is only wishful thinking. We can either believe Saudi's Oil Minister that they have "enough" oil or start preparing for a world post-Peak Oil.

(Shanmuganathan N works with Infosys Technologies and is a Visiting Professor of `Security Analysis' at Great Lakes Institute of Management. Satish Kumar S is with Yantra Corporation. The views are personal and do not represent those of the companies.)

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