More on Saudi fields and rigs
Posted by Heading Out on August 10, 2005 - 5:34am
Had a bit of trouble reading the names on the original post, so I am adding a second segment to the map I posted yesterday on Saudi oilfields, and modified that one slightly to add oilfields North of Safaniyah. (Abqaiq and Fazran are common to tie them together. Red is a gas field).On Monday the Guardian carried an article with the title "We have been here before:the price of oil will fall," by Vincent Cable. It is a bit amazing how little evidence is required to allow this conclusion to be published in a major newspaper. Here's the pitch
"What theory and experience should teach us is that the current high prices will affect supply and demand. On the supply side, a lot of exploration and investment is already taking place in OPEC countries and new areas such as the Caspian and the African continental shelf. Oil firms have developed new technologies for maximising yields and exploring inhospitable offshore reserves which are now profitable. Non-conventional oils like the "tar sands" of Canada and Venezuela are vast and believed to be profitable at around $30 a barrel, in effect setting a cap on the long term price.Which leads to
On the demand side, the scope for easy economies in oil use has been limited by advances already made. The oil intensity of western economies (and China) halved after the oil shocks of the 1970s. But industry, already under pressure on energy costs, is having to economise and so will households."
"It seems clear that increased supplies, and capacity, and slowing demand will reverse the market trend before long, possibly very sharply."These are the statements so beloved of politicians, since they are so general, and thus a bit harder to refute. So, where does one start to do that? Let's begin with the exploration and investment in Saudi Arabia, since this is where the largest increase in oil supply is expected. Yesterday's quote from Aramco VP Khalid al-Falih has an interesting sub-message. He said that the Saudi's are now increasing the number of drilling rigs to 90, from a recent working set of 28 onshore and 3 offshore. This is to meet their production plans, and to counter a recognized depletion of 1 mbd per year.
Now 25 years ago the average Saudi well produced around 10,000 bd, but by 2000 this had fallen to 5,140 bd, and there is growing body of evidence that it has now fallen to about 3,300 bd. Unfortunately the decline will not stop there, and Matt Simmons has projected that it will continue to decline to below 3,000 bd before long, and one can expect that it will continue to decline thereafter.
There are two consequences to this, the first is that it just takes more drilling rigs, and more time to produce the same amount of oil. Whereas 20 rigs, each drilling 5 wells a year, when each produced 10,000 bd, would give 1 million barrels of new oil a year, at 5,000 bd/well this required 33 rigs (since they increased productivity to 6 wells/yr each). Now we need 90 rigs, and before long even more. This is a clear indication that the glory days of high production from the original major fields of Abqaiq, Berri and the northern parts of Ghawar (Ain Dar and Shadgum) are drawing to a close.
The likelihood is also that the new wells are going to be drilling to outstep existing reservoirs, and so the number of dry holes will increase, and also, since they will be tapping into smaller fields, that the individual wells will deplete faster. And it will all take time, and a huge investment, that will result in only a gain of around 500,000 bd a year on average, over the next five. In which regard I noted that the increase in production is now down to 12 mbd, not 12.5 as earlier touted, and includes an new oilfield beyond the original planned source fields, suggesting again that the old ones are no longer reliable.
And time is not going to allow much of this planned increase to meet this season's demand. As Platts notes
Saudi Arabia, the only OPEC member with any significant volume of surplus capacity, maintained its production at 9.5-mil b/d and has already signalled that it will keep output at this level through August.Now Saudi Arabia is the largest major new development around the world, other anticipated increases are significantly smaller, and some, such as the much anticipated Russian increase, have now been shown to be wishful thinking. Non-OPEC oil is, if anything, declining this year (thanks Halfin). And we are now entering the time of high demand. Somehow I fear that Mr Cable's optimism will prove to be unfounded, and the price of British petrol will soon pass a pound, perhaps never to drop below that point again. But one wonders, will anyone remember his words when this comes to pass?
"Crude prices are now holding well above $60 and it is not even autumn let alone winter," said John Kingston, global director of oil at Platts. "What, if anything, does OPEC have up its sleeve? Rank-and-file members are coming up with a few extra barrels here and there, so if OPEC is going to pump any sizeable volume of extra oil, it is going to have to come from Saudi Arabia."
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Well, the price of oil will indeed fall. As soon as the world slips into recession. I am quite pleased that world economic growth has hung on as well as it has. Otherwise the supply problem we are about to encounter would have been masked by the drop in demand caused by an economic slowdown. The irony is, the better the U.S. economy does, the more likely it is that we will hit that wall this fall rather than limping across the finish line, to begin the cycle again. So, all of us who would like to see this problem recognized and dealt with, should hope that we continue to see robust economic growth. It is the combination of a growing economy and dwindling oil supply that sets up the conditions that will make dealing with this issue unavoidable. If however, the economy were to tank because in part due to the high oil prices, you could envision the sort of demand destruction that would bring us down to a consumption level that would give us a true production cushion of 2 million barrels per day (rather than the imaginary one we have today). Under those circumstances prices could drop dramatically without adding any substantial amount of production capacity.
Another possible scenario I've been thinking about, given news stories like this one on the housing market in San Diego, is that the housing bubble in the coastal markets could burst first and impact the economy enough to cause a real difference to oil demand (since a surprising fraction of consumer spending is being driven by equity borrowing rather than wages).
Stuart.
It is ridiculus to think that demand destruction will save the day. In the event that significant demand destruction takes place, economies will begin to collapse with ensuing chaos, and possibly war. At best the capitalist will see a shrinking market in which to invest. Where is the profit in that? I don't look forwar to any of it. I think people sometimes underestimate the hardship that they will feel if as in HW's opinion, we walk off a cliff.
Even Russia is worried about the growing scramble for energy. President Putin is putting the subject down for discussion at the 2006 G8 economic summit, presumably in the absence of other fora.
"At this years G8 summit in Gleneagles, Scotland, Russian President Vladimir Putin set the agenda for next years conference. He stated that moves to stabilise world energy supplies will top the Group of Eights agenda at next years meeting in Russia. These words were echoed shortly after by Russian Deputy Energy and Industry Minister Ivan Materov when he commented that energy security, including stability of energy supplies will be the key issue at the next G8 summit."
One thing I think is important that isn't mentioned every often is the quality of the oil that is produced. Older wells produce oil that is less easy to refine than oil that flows out of newly drilled wells. This means this older oil will produce more expensive gasoline.
"It is ridiculus to think that demand destruction will save the day"
Of course. It won't create a drop of oil. But it will temporarily lower the price and the CNBC crowd will look at that market signal as evidence that the problem is solved. It is short sighted. It is stupid. But there you are.
I think if Opec in general (and Saudi Arabia in particular) had any excess capacity AT ALL they would have already brought it on line. Looking at production so far for 2005 (I posted a link to a report yesterday), it is totally flat.
And this is at a time of record high prices (demand).
What "proof" will people need before they believe that we just can't open the tap any wider?
"But captain, she's givin' us all she's got. I don't think she can take much more of this." -- Scotty
So how high will prices have to go before demand drops? I suspect it might be quite a way yet. Must be nice to be a supplier of addictive substances in a time of shortage.
I can't speak for societies of the rest of the world, but with 70 years of observing the people of the U.S.A. I can say this. We never, get moving on any crisis until the bridge falls out from under the train, then we go fix the bridge. I don't see them acting any different in the oil crisis. Only this time I'm afraid, we are not going to fix the bridge, all that quick, and there is going to be a lot of hardship on the majority of the population.
the old hermit
On the Midweek open thread, Yosemite Sam gave this link to an interview with Matt Simmons at Financial Sense Online with Jim Puplava. I just listened to the whole thing and Simmons' remarks are convincing and scary. I highly recommend it. My impressions and according to Simmons....
1) OPEC reserve numbers are completely unreliable. Oil is produced year to year and the reserve numbers never change. Also, one of CERA's major clients is probably Saudi Aramco (hence the political source of their numbers).
2) Production from the northern part of Ghawar could tip very soon and precipitously. Aramco numbers for future production are impossible.
3) We are in trouble this winter.
JIM: If that was to happen we would almost be looking at $75-80 oil, I suspect.
MATT: No, no, no. Oil prices could easily go up 5-10 times.
4). There is no significant difference between Simmons' view of the near future and that of the maligned Jim Kunster.
5) Technology (near-term) will not save us.
I urge you listen to this or read the transcript.
Dave
Thanks. That isn't an easy thing to read right after lunch, but it's necessary.
I used to think that Simmons acted almost like a lobbyist, painting dark scenarios to try and gain tax breaks or whatnot. I'm not thinking that so much anymore.
Dave,
I did not see the transcript. Glad you spotted that and posted it.
Having read Twilight in the Desert and listened to and read other of Simmons' interviews, I think his confidence in his thesis is growing. As he said, he was fearing that someone would easlily point something out that would make him look like a fool. But that just has not happened.
Having said the good news, the bad news is that he might well be right. I did not sleep well last night. His optimism is based on a swift, competent centralized response. I cannot imagine that happening in this Carl Rove/Fox News world.
'in the decade of the 90s, one oil company after another, starting to go to conferences and say, the rig of today is like 8 rigs of the past, because its new technology...'
Yeah, the 90's definitely saw the start of people going to respectable scientific conferences and spouting thinly disguised corporate claptrap. Why was that? Most places I go, the proportion's about 50% now, and rising. Troubling...
After listening to Simmons again I have a plan (well one for me and one for those who dont believe in this stuff)
Plan A (for believers):
1) Obtain seeds for food, fuel and fiber crops.
2) Stock up on canned goods, coal, and maybe a little distillate fuels to survive the first winter.
3) Identify using google satellite imagery a suitable uninhabited area in the hinterland, to be used as a safe haven when the time comes.
4) Get a good bicycle so that you have a sure fire way of getting away.
5) Be ready to leave to the hinterland and squat through the madness that ensues.
Plan B (for non-believers):
1) Stay put in the city.
2) Starve to death or be killed by starving bands of marauders.
3) If you really dont believe there will be a problem then 2) can simply be skipped and everything will be hunkey-dorey-ok!
Lets face it, if crude jumps to $300/bbl this winter to accomplish some demand destruction, how long do you expect the shelves in the grocery to remain stocked? How long do you expect the lights (and the fridge!) to stay on?
For Plan A, should probably find some other people who are willing to do the same and work together as chances for survival among a group that can co-operate and defend the camp together will be higher. It could be a real mess this winter.
Anonymoose,
Bring a notebook and a video camera. It will be fun to hear about your expeience dragging a bicycle around the mountains this winter. I will need some good reading this spring and am already looking forward to the fime of you, your bike, coals, canned goods and everything else.
Jokerman:
Yes, of course, a laptop and a video camera, to document the experience and share with others how survival was .... attempted (and hopefully achieved!!).
So that also means generating electricity ... hrmm ... now that could be a real challenge. I'm getting excited already.