The Oil Drum | Dueling Editors

85 comments on Dueling Editors

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JD on September 28, 2005 - 4:29am

I still don't get it. Why all the fuss about transparency when you already know that Al Naimi is lying? Is there some possibility that an inspection might reveal he is not lying???

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mw on September 28, 2005 - 4:38am

The market would settle for transparency. If indeed OPEC wanted to regain status as the market price setter, and what they claim about reserves is true, then all they'd have to do is open their kimono and show details and facts. Nothing more complicated than that.

But they haven't, and most likely won't, judging them by long-established past behaviour.

All we have to go on is raw total production, and the quality of the stuff, by which to judge their situation and claims, and coming out of the pipe is evidence to the contrary - heavier, sourer crude.

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JD on September 28, 2005 - 4:56am

The market would settle for transparency.
The market is going to settle for whatever the Saudis decide to give it. The market has no power to enforce transparency. You've got the power relationship backwards. The junky doesn't tell the dealer what to do; the dealer tells the junky what to do.

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mw on September 28, 2005 - 12:13pm

Failing transparency the world simply ends up being a more dangerous place.

I do believe there are those in power who would kill to find out exactly what the real scoop in Saudi Arabia is. The implications of a positive or negative answer are subtantial, affecting all of humanity.

At some point they will have to come clean in a transparent way or, I fear, they will do so at the point of someone's gun.

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TRE on September 28, 2005 - 12:40pm

The idea that transparency is going to help us is utopian in my mind. I'd love to know how you think transparency will lead to such a great outcome. Sometimes uncertainty can lead to better results.

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mw on September 28, 2005 - 1:16pm

Transparency tells you if you are royally #$&*#$ or not; transparency, if a crisis is looming a decade out and not tomorrow, gives us time to prepare and adapt.

Lack of transparency will be what kills us.

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GliderGuider on September 28, 2005 - 5:12pm

Transparency is the only thing that would allow us to cross the Hirsch Gap. Without it, you can't tell where you are in the gap, so due to the inertia of human nature governments and consumers figure it's just Business As Usual until the tap runs dry. "Hirsch Gap? Whazzat - a new clothing store?"

Needing transparency and getting it are two different kettles of biodiesel, though.

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JD on September 28, 2005 - 8:55pm

At some point they will have to come clean in a transparent way or, I fear, they will do so at the point of someone's gun.

This is the unspoken subtext, isn't it. "Transparency" is a veiled threat. "We" have a right to know how much oil is there because it's our oil.

This is why the Saudi's are right to resist calls for transparency. Inspectors are the vanguard troops of invasion and appropriation, just like they were in Iraq.

As far as I'm concerned, Saudi oil belongs to the Saudis, and "our" dependence on it is our problem, not theirs. Personally, if I were them, I would have a contigency plan for destroying the infrastructure and poisoning the fields, just in case.

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TRE on September 29, 2005 - 12:28am

I agree with JD 100% on this. I'm starting to get ill with all this talk of transparency. It's imperialism. Nothing more, the US saying "We've burned up all our stuff, you tell us how much you have. Because we're too pathetic to plan ahead and we're addicted to the stuff."

I said here--or somewhere--long ago that I think peak oil needs geological/economic models to demonstrate, for example, how difficult it will be to use tar sands and shale oil to meet our energy needs. And a better understanding of future production is also useful. But many at peakoil.com, have argued that we have the right to pull those numbers out of Saudi Arabia.

Sorry folks. These are more arguments from whining little children who have eaten their cookies and now are demanding that the other kids declare how many cookies they have.

Transparency is not going to help us. The world will slam into the limits and will have to adapt. Hirsch gaps and whiners-for-transparency be damned.

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isaiah on October 4, 2005 - 7:20am

indeed!

and all the whiners about "those who endanger our children", should wake up and realize WE are endangering our children, and have been for decades (if not longer), with endless consumption of globally created corporate "goods" along with our addiction to cheap oil. not to mention the adoption of unsustainable economic systems, such as debt financing/banking and fiat currency. we (govt., multinational corporations, the unquestioning public) all share the blame in this, and to finger the "untransparent" ones is merely scapegoating.

Peak Oil seems to be a convienent excuse for imperialistic tendencies...subtle or not.

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mw on September 28, 2005 - 2:18pm

Hey, by the way... over the weekend there was post after post after post whining about potential market manipulation, by the government, of energy prices.

I note that when prices are rising, no one whines.

What gives ;-)

If the government is a real force in energy prices via actual trading in open markets, I will eat my hat.

** Disclaimer, I own no hats.

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louGrinzo on September 28, 2005 - 6:15pm

While I don't subscribe to the idea that the gov't is manipulating markets, I believe the charges were that they're doing it, not that they're actually any good at it.

That was meant to be a joke, but I'm not so sure now...

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mw on September 28, 2005 - 8:01pm

I run into conspiracy theories in the trading biz all the time, and discount them all the time. The government has much more effective tools at its disposal if it wants to drive price around... many don't cost a dime, in the short term.

That was some short squeeze today...

http://www.trendvue.com/charts/2005/09/tv20050928-16.gif

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Adam on September 29, 2005 - 12:33am

We already know the government is manipulating prices, but not through a conspiracy in the options markets. It's been selling real, physical oil from the SPR. Bush even said on TV that they would release more crude to any refineries that want it. That's a pretty good way to drive the price down, and it's completely transparent. But it clearly isn't enough, so other governemnts are selling gasoline from their reserves.

After Katrina, I thought this was a good idea: The SPR is designed to help recover from short-term disruptions, and if they sold at the post-Katrina price, they might even make a profit. But after seeing another devasting Cat 5 hurricane within a month, I'm not so sure. Unless they replenish the SPR between hurricane seasons, it'll rapidly be depleted.

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Stuart Staniford on September 28, 2005 - 4:40am

We'd know by how much he's lying. Some (probably small) proportion of the reserve increase may really have been justified by improved recovery rates. But not 100%+ recovery rates!

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JD on September 28, 2005 - 4:52am

You seem to regard the 1979 OOIP estimates as carved in stone. They aren't. OOIP estimates can and do grow, just like reserves and recovery rates. 1979 was 25 years ago, and a lot of new technology has come online since then.

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Stuart Staniford on September 28, 2005 - 5:11am

The usual reason for reserve growth in the US is that the SEC requires reporting of reserves only of production that is possible from wells already drilled. As the field gets drilled out, there is necessarily substantial reserve growth. It's also possible for recovery fractions to grow due to better technology - but this factor is not that large. For example, here's Shell estimating that a variety of new technologies should be able to raise average recovery rates from 30% to 38%. OOIP should only change to the extent that pre-Saudi Aramco either misestimated the depth of the oil layer, the porosity of the rock or the extent of the fields. They'd poked holes all over those fields, meaning they'd have had cuttings of the rock all down the wells, and should have had excellent data on the rock layers and the oil column. The only field of any consequence that Saudi Aramco has discovered since 1979 is the Hawtah trend which is not that big and has very tight rocks. For Mr al-Naimi to be an honest man, pre-Saudi Aramco would have had to screw up by a factor of roughly three (unless we want to argue that recovery rates are going to be exceptionally high, but paradoxically, the remaining four fifths of the oil is hard to produce quickly). I eagerly await HO's explanation of how that kind of misestimation could have happened. Perhaps I'll learn something, but given my other 9 bullet points, I'm feeling like I'm on pretty solid ground.

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mw on September 28, 2005 - 1:18pm

Yes, indeed, I'm glad you raised that point. A whole lot of technology has been invented since oil peaked in the 70's in the US, and despite that technology being used where it makes sense here in North America, those peaked fields are still declining and new fields are not replacing what was once there.

US domestic oil creaks down year by year on a steady basis.

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JD on September 28, 2005 - 5:19am

It is a common claim that reservoir engineers and geologists are too optimistic and overestimate reserves. To evaluate this claim, a total of 493 reservoirs of light/medium oil, heavy oil, and gas were tracked over a period of more than 40 years, compiling Alberta Government records estimating ultimate recovery from 1961 to 2002. Recovery factors, well counts, actual production/injection data, and implementation of improved recovery schemes were also tracked to determine the reasons for reserves growth. In addition, the effect of price on growth of reserves was also examined.
Contrary to the claim, the study actually shows remarkable reserves growth in light/medium oil pools discovered in the 1950s. It was found that ultimate recoveries from over 73% of the light/medium oil pools were underestimated and that growth above the initial recovery estimates occurred. The light/medium oil pools averaged a 97% growth in reserves. Because of the mature state of depletion and extensive production history, we can see that the cumulative oil and gas produced to date is often well above the original ultimate recovery forecasted by earlier conservative techniques. Similar growth trends were discovered for heavy oil and gas pools discovered prior to the 1980s. Heavy oil pools averaged a phenomenal 1083% growth in reserves while gas pools averaged 86%. Light/medium and heavy oil pools tend to grow both in recovery factor and volumes in place (OOIP). Gas pool reserves grow mainly by volumes in place (OGIP).
Although reserves growth phenomena have been studied before, this paper discusses the causes of reserves growth and shows the critical importance that improved recovery schemes, infill drilling information, and new technology have on this growth.

http://epiccs.com/Publications/CIM2004_272.pdf

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Stuart Staniford on September 28, 2005 - 5:40am

Yes, but the onshore Saudi fields were mainly discovered in the 1930s and 40s. The biggest ones had been in production for 30-40 years by 1979. Even the offshore stuff was mostly discovered in the 60s. You can see the discovery curves here.. Those OOIP estimates should have been pretty mature by 1979.

And your response to my other nine points?

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mw on September 28, 2005 - 1:20pm

Quite a few of those fields are in decline in Alberta.

You can have reserve growth driven by mistakes in calculation or new technology, but ultimately there is a finite limit to what can be extracted, at any price.

What part of that do you not understand?

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mw on September 28, 2005 - 1:25pm

In fact, those Alberta fields in decline have reserve lifespans often measuring less than a decade now. An entire sub-sector within the Canadian oil equity business was spawned to make these marginal resources "useful" on the stock market - witness the explosive rise in income trusts.

These trusts by and large are set up for one purpose - to extract the value out of the ground and pay an income stream to investors at fairly high rates... much higher than any mainstream oil and gas company involved in exploration and reserve building activity.

Why?

Because they expect the resource - the land - to ultimately be worthless. Eventually some of these trusts will pay their last dividend and close up, because there'll be nothing left to pump.

Slightly simplistic but gets to the heart of the matter.

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Yankee on September 28, 2005 - 11:26am

Again, this whole issue is like peak oil in general. People who have a general sense of the problem (that is, they understand what it would mean for cheap oil to go poof) may feel desperate, so when the abiotic oil people--or Al Naimi--come along, they're predisposed to believe. Many TOD readers may think that Al Naimi's lying, but transparency is still absolutely required to convince all those people who have become complacent as a result of his statements.

I'm not saying this is true of you, JD, but transparency is crucial if we are to convince the rest of the world that there's a problem regarding world oil supply.

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Stuart Staniford on September 28, 2005 - 2:03pm

The problem is that if the regime is lying on this scale, they are dead meat when they get discovered, and so they have no incentive to come clean until they have executed whatever their exit strategy is. When oil is $200 and they are pumping 3mbpd while claiming to be sitting on half a trillion of proved reserves, they are not going to be very popular people.

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Eroie Van Tanstaafl on September 28, 2005 - 2:08pm

If its a lie, its a very well planned one: more than 18 months ago, in fact, when oil had yet to crack $50. I.e., not just before Katrina & Rita made the world wake to Peak Oil, but even before Ivan!

Last year, didn't Aramco announce that their OIP was actually closer to 1200 Gb? (I may be confused on what that number referred to; this ArabNews story from April 2004 says Al-Naimi meant proven reserves, but that's absurd.)

Is it plausible? Circa 1975, estimates of Saudi OIP were 500 Gb, with "proven" reserves of 160 Gb. Adding the 25 Gb produced to then, and that's a recovery rate of 35%

But maybe that's how it all hangs together. If Original OIP is now 1200, and proven reserves now 461, that implies 38% recovery.

It's also possible that the 1200 is OIP remaining - i.e. after subtracting the 100 Gb already extracted. In that case, total recovery should be 43% Take your pick...

Hmmm...

Also, check this out: It's not new - we were warned last year!
Washington Post, Dec 27, 2004:

Saudi Oil Reserves Could Increase by 77%
Associated Press
Monday, December 27, 2004; Page A26
RIYADH, Saudi Arabia, Dec. 26 -- Saudi Arabia's oil reserves, the world's largest, could increase by almost 77 percent to top 461 billion barrels in a few years, the nation's oil minister said Sunday.
"There are big chances to increase the kingdom's produceable oil reserves by 200 billion barrels," Ali Naimi said in a statement issued after he inaugurated new oil fields in eastern Saudi Arabia. "This will come either through new discoveries or through increasing production from known deposits."
Saudi Arabia, which holds more than 25 percent of the world's proven oil reserves, says its registered reserves amount to 261 billion barrels.

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Stuart Staniford on September 28, 2005 - 2:23pm

So at that point, he hadn't decided what would be the cause of the 200 billion barrels in additional reserves, but he knew how big it was going to be.

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Eroie Van Tanstaafl on September 28, 2005 - 2:30pm

Indeed. Or maybe the oil is neither expansion nor new: it's "reserve growth." That's why I suspect part of this is economic: a bunch of the oil is not in fact new. It's just being reclassified as "economical" to extract based on the higher prices. And that's something that can be predicted easily in advance.

That would imply that last December, when he said "we may be able to increase..." he was really saying "if prices go over $50 and stay there..."

But in any case, the ground work for this was laid over a year and a half ago - before Simmons hit the publicity trail for his book and more people started asking the hard questions. I find that interesting.

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Stuart Staniford on September 28, 2005 - 4:33pm

Again, you are hopelessly confused. Proven reserves + cumulative production now exceeds the last American estimate of total oil in the ground. You either have to believe the Saudis can manage 100% recovery (even though they are apparently having to work rather hard to maintain production), or you have to believe the Americans missed large amounts of oil in the ground despite the fact that they'd been sitting on the province for four decades producing oil out of whichever fields they felt were most promising and obviously explored it well enough that the Saudis have found next to nothing since, despite extensive efforts. Neither position makes any sense to me, and I believe those of you inclined to believe the Saudis need to buy yourselves a copy of Twilight and a decent introductory petroleum industry book (eg Charles Conaway's) and actually study the issue.

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Eroie Van Tanstaafl on September 28, 2005 - 5:04pm

Sorry - I thought it was self-evident that the 25-year-old US estimate you referred to was wrong. Or, rather, that it is outdated.

Since we don't know WHAT the Saudis have done in the interim, I agree, it is difficult to take them at face value. But at the same time, the Saudis ARE doing further exploration.

Here's Al-Naimi

Alexander's Oil & Gas Connections
Saudi Arabia's oil reserves stand at 261 bn barrels
27-04-05 The Minister of Petroleum and Mineral Resources, Eng. Ali Al Naimi, has revealed that the Kingdom's oil reserves were 261 bn barrels at the end of the previous year 2004, not taking into account other possible reserves.
He said that the process applied by the Kingdom for estimating reserves is in accordance with the systems devised by eminent professional organizations in this field, such as the Petroleum Engineers Association, International Petroleum Conference and the American Association for Petroleum Geology.
Minister Al Naimi was speaking at the 6th International Petroleum Forum, recently held in Paris. He said that in addition to previously estimated reserves, the Kingdom has other unexplored resources, which have about 200 bn additional unexplored reserves of petroleum.
In the past, exploration efforts in the Kingdom were concentrated on promising areas in the eastern and central regions. It means that there are vast unexplored regions in Saudi Arabia, which may contain huge reserves of petroleum. These regions include obscure areas in the Arabian Gulf, the coast of the Red Sea and parts of the Southern and North-Eastern regions of the country. He added that the Kingdom is now implementing an exploration program to estimate and determine the quantity of reserves in these vast regions.
The Minister gave the details of the latest example of exploration relating to the well "Daeeban-1" in the central part of the Kingdom. It is an important example indicating the trend of future explorations, in the Kingdom. Daeeban-1 is producing about 3300 barrels of Arabian light crude, along with an average of 3 mm cf of associated gas daily. It is expected that with the beginning of regular production the well would give much higher yield.

http://www.gasandoil.com/goc/news/ntm52126.htm

Lots more news here:
http://www.gasandoil.com/goc/news/h_ntm_left.htm

Discoveries here:
http://www.gasandoil.com/goc/discover/h_left.htm

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Stuart Staniford on September 28, 2005 - 5:33pm

I agree the Saudi's have explored extensively. But they haven't found much. I already posted the discovery curve here. You should also realize that posting statements by Mr al-Naimi will not be seen as having any evidentiary value by those of us who have already concluded that he is not honest. If you wish to persuade us, you will have introduce some other kinds of evidence.

I also suggest that linking to enormous lists of articles about all discoveries worldwide do not provide us with any insight into the question at hand.

My suggestion is that you go read Twilight in the Desert and then come back and try again if you aren't persuaded by it. It certainly would be a great service for a sceptic to attempt a detailed and careful rebuttal of that book.

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DrPaul on September 28, 2005 - 11:25pm

There's a good discussion of transparency - why & what an audit would look like - at Simmon's site. See the report
Proving Proven Reserves Are Proven: An Art Form Or A Science?
http://www.simmonsco-intl.com/research.aspx?Type=researchspeeches

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