Your mixing in the claim of production rate with reserves and recovery factors. I'm not saying they are not doing the same thing.

In general the oil markets have been adequately supplied despite the high price of oil and lack of expansion. We have yet to see shortages.

If you define what they mean by adequately supplied then yes no big importer has experienced shortages yet.

US economic problems could easily be placed on its own financial games and you could easily see the Saudia's be concerned that oil price will collapse as the world economy cools.

I'm not saying I believe any of this but I am saying that if you start questioning the Saudis then you make a effort to ensure that they are grossly out of line with the rest of the industry. The answer is although optimistic the claims they make are not way out of line when compared to the rest of the industry.

So bottom line is if KSA is lying then we have a pretty good chance that reserve estimates recovery factors production estimates etc etc etc are probably seriously exaggerated throughout the industry.

My personal conclusion is that either we have been feed a HUGE lie or the Saudis are only slightly optimistic in their the assertions they are making. Singling them out is not correct.

Read my post. Assuming that production remains high past a 35-40% recovery is not in general a reasonable assumption. Reserve estimates based on enhanced recovery factors probably don't help us a lot as for as production rates go. I'm dismissive of these additional reserves as far as the rate they can be produced.

Since we are talking about a global peak in production its not clear what role watered out fields in unstable countries will play in future production especially for exports.

As far as Ghawar lets say that to get 5 million barrels of oil at a 90% water cut means 10:1 water to oil.
Thats 50 million barrels of water a day. I'm comfortable asserting that Saudi Arabia is not setting up to handle 50 mbpd of water. And I think you can see its a huge engineering project. And of course this is just one field that they would be dealing with. Your free to do the math. Russia produces high water cut fields and so does the US but the water handling facilities where built out over decades.
It makes more sense to produce the last of the field once water cuts are high at 1-2mbpd or so which fits pretty well into existing water handling infrastructure. So at least for Ghawar and probably many of the Saudi fields once water production overwhelms the current water handling capacity we can expect production rates to decline rapidly then reach a steady but much lower rate which they probably can maintain for decades.

I happen to believe that the Saudis have every intention of producing oil for decades and even maintain exports at some level I also think that people will be surprised what this level will be. I think internal consumption issues have taken even them by surprise but that something that can eventually be dealt with.

Finally its often claimed that the Saudi's produce their fields very conservatively while maintaining spare capacity however we have time periods in history where we can be pretty certain that they pushed the fields. The first gulf war for example.

Or look at this.

http://www.theoildrum.com/node/2331

The point is we are not seeing a huge difference between maximum production and normal production. In fact historically Saudi production has often swung up and down by 1mbpd.

http://www.economagic.com/em-cgi/data.exe/doeme/paprpsa

Over monthly numbers like this the changes could easily be related to filling and draining storage.
But this means even as reported production numbers drop of real production could easily be higher to refill storage.

Certainly we also have periods where Saudi production is constrained but considering the maximum production number reached over the decades its not clear that they have maintained spare capacity that when turned on is still conservatively producing the fields. In fact the periods of conservative production once you take into account they may be refilling storage and not reporting production. Out of 40 years only about nine years did they produce well below capacity.

And further more capacity has been around 8-9 mbpd for 40 years.

Time will tell but in closing if KSA is planning on keeping production high in the face of high water cuts then they probably need oil closer to 200 dollars a barrel to justify the expense.

I believe you slipped a decimal place. The revenue would be more like $18 million per year. With the right equipment for water handling, a 99 percent water cut would still make good money.

How interested would Aramco be in continuing production? That I obviously do not know, but from the perspective of a small operator -- onshore, with developed infrastructure from 5,000 feet or so --- whats not to like about even a 1 percent / 50 barrel per day well?

The data in the graph I posted above are labelled 1985 and 1996. That was before Petroconsultants was acquired by IHS, and while Campbell and Laherrere were associated with Petroconsultants (eg see their affiliation on the 1997 Sciam piece. So they were personally involved in preparing that data. So your theory would require not that the current IHS conspire with the Saudis to inflate global recovery data, but rather that Campbell and Laherrere personally be involved in inflating the data. This doesn't seem very likely.

Furthermore it's likely that global recovery factors have improved a bit since then.

I'm not saying for certain that recovery factors for the whole of Ghawar will necessarily be as high as North Ghawar - far from it. We have very limited data with which to project the performance of the South. Rather my point is that you are claiming that Saudi Arabia will necessarily have a rather poor global recovery, with the highest reasonable limit being only 37%. But that isn't the highest reasonable limit. For example ASPO has estimated a 45% recovery factor for a reasonable estimate. Zagar, who you cite, suggests a Saudi URR of 255Gb, higher than your "upper reasonable limit". Within the context of the TOD community, Euan, I, and Khebab, who have all studied the issue at some length, think the recovery will probably be higher than your upper limit. So you are not in fact representing the range of reasonable opinion on this question, but rather making a very biassed presentation that skews negative.

I'll rephrase it this way. It seems to me that while North Ghawar has accounted for a huge percentage of cumulative production to date, it will account for a vastly smaller percentage of future cumulative production, so the recovery factor on the north end is not terribly relevant to future production. The key question is what the recovery factor is for their reserves outside of North Ghawar.

Which is another way of stating the obvious: What did Texas do to offset the decline from the East Texas Field? Answer: we couldn't.