You see, that's the problem with Global Consciousness - all too often it's mistaken for mere habit. Or worse yet, coincidence. I should follow my own advice: Don't anthropomorphize the universe, it hates that.
I have seen this argument few places(lower text)-
The LOGIC then has to be - When refineries runs at 100% - we should PAY ALOT OF $ for crude and keep the full tankers standby.... for some days...just in case
My logic gos opposite
High oil prices are still being propped up by a shortage of refinery capacity and there is little sign of the bottleneck easing until 2010, industry executives and officials discussing OPEC's future have warned.
Apart from the weirdness, or confusing implications, of using technology to get more reserves, this fine CEO is absolutely right, of course. There may well be 10 trillion barrels left. But that's not the point. It's the cost of producing it. And not the dollar cost.
As Jay Hanson has pointed out ad nauseum, the game stops when an energy source becomes an energy sink, when it takes more than one barrel of oil (or some energy equivalent) to produce one barrel. Something the oil sands are toying with, to say the least, in their natural gas use.
The energy sink concept will probably remain hidden as long as dollars are used, instead of BTU's, or even calories, to calculate the cost of a barrel of oil; it allows us to slip from source to sink without noticing it. Oil prices will rise so much that more and more oil looks economically recoverable. Again, not the point: what counts ultimately is whether it's "energetically" recoverable.
Once it's clear that overall resources are shrinking, this should become much more obvious (one may hope). It then gets pretty crazy pretty fast to lose lots of energy in the process of turning natural gas into petrol (the same applies to virtually all conversions).
Until then, and who knows how long after, the unlimited potential of both the rise in prices (dollars), and the ability to add more money to the system, will continue to conceal the obvious,
Nah. I am sure that someone, somewhere, will pay to get two perfectly usable units of energy (say, electricity) converted to one unit of gas just so they can keep driving their SUV.
¿What if it does not make sense? I mean, the SUV does not make sense anyway. It is their money, and if they want to burn it that way, it is their God Given Right (tm). You will have to pry it from the cold fingers of their dead bodies.
Although it is usually someone else who ends up dead.
I appreciate your underlying point, but in reality you can fertilize your tomatoes with atmospheric nitrogen. Rotational planting or interplanting with nitrogen fixing plants will do the trick. You can be sure that we'll be making a great deal more use of atmospheric nitrogen, than we ever will of the third and fourth billion barrel of oil down there, somewhere.
And then there is the slightly more random trick of loading the atmosphere with greenhouse gases to stimulate more violent weather, bringing on lightning and rain storms. My garden got a great fix of nitrogen this way last week. Hmmm...maybe I should send a letter of thanks to the coal lobby. On the other hand there was that damage to my roof...I wonder if I can sue for damages? It's all so confusing.
Until then, and who knows how long after, the unlimited potential of both the rise in prices (dollars), and the ability to add more money to the system, will continue to conceal the obvious.
So, the economic system would ensure either an inflationary Big Rip or a Recessionary Big Crunch - either way Malthus wins.
We also have 'reserves' of zillions of joules of solar energy. The key word is 'available.'
(maybe not zillions but I'm too lazy to do the math right now)
Some more excellent work by Khebab. The Saudi graph is EIA crude + condensate, versus average US light, sweet oil prices, by month. Matt Simmons' book, "Twilight in the Desert," was published in May, 2005.
The "unofficial" numbers are based on a Reuters report of comments by a Saudi minister that they are producing "about 9 mbpd."
Assumptions: 5% annual decline rate in production; 2.5% annual increase rate in consumption.
For comparison, the North Sea is showing about a 6.5% annual decline rate since 1999, and the Arab oil producing countries had about a 5% increase in consumption from 2004 to 2005.
On the graph, note that a 20% drop in production, and about an 8% increase in consumption over a 4.5 year time period results in a 50% drop in net oil exports.
Big oil companies are telling consumers to conserve. The Total CEO states that oil will peak in 2020.
"It's interesting they are saying that because very often they have not said anything on (the subject of curbing demand)," says Claude Mandil, head of the IEA.
"I fully agree with them" he told Reuters on the sidelines of an OPEC seminar on Wednesday.
I had to estimate consumption, but from 12/05 to 6/06, the decline in net oil exports by the top 10 net oil exporters was about 4.6% (annual rate of 9.2%) versus the decline in world production of 1.25% (2.5% annual rate). (EIA, crude + condensate)
In other words, through the first half of the year, estimated net oil exports (by the top 10) are falling three to four times faster than world oil production is falling.
I think that the EB is going to add a "Net Energy Exports" category.
Certainly the export land model interesting as a concept and useful to a point. Buy isn't it just extrapolating to the ridiculous?
Saudi Arabia and many other producers have economies dominated by oil exports. If they use the oil, they eliminate their ability to import anything and eventually shut down the global economy.
Sooner or later these countries will begin to see growing domestic demand - which is boosted by export generated income and subsidized prices - as a threat to their existence and will curtail it.
I'm not sure that's true at all. It's not hard to see where the UAE is going as far as diversifying their economy. I wouldn't even call it an oil economy anymore at this point. Saudi Arabia, meanwhile, plans on putting about 700 billion dollars into diversification over the course of the next 20 years. Other big oil producing countries are moving in a similar direction. To say that, "if they use the oil, they eliminate thier ability to import anything" doesn't make any sense. They'll be using the oil to run their automotive, aerospace, pharmaceutical, high-tech industries, etc. They'll be selling high value added products to the world and they'll have plenty of money to import things with. If anything, I think oil consumption in these countries will increase even faster than people think.
So how has Saudi diversification worked in the past?
They'll be using the oil to run their automotive, aerospace, pharmaceutical, high-tech industries, etc.
This reminds me of the old Soviet Union posters proclaiming their plans to equal the west. Sounds easy on paper, but reality is a different story.
First, if they stop exporting oil, what will happen to the rest of the world? Who will they sell all of their products to? Or do you think Saudi Arabia will be self-sufficient?
Second, most of these countries have masses of young uneducated people living on subsidies and foreigners doing much of of the work. How can they possibly compete with the low labor costs in China or the established legal frameworks of the west? Petrochemicals, OK. The rest of unlikely.
All that this can lead to is either destruction of the glaobal economy or massive incentives to develop alternative sources of energy. It's a pipedream.
I think much of this analysis is based on a faulty concept that resources alone underpin economic growth. In a modern world it is far more important to create an environmnet that encourages investment and risk taking.
China imports massive amounts of resources but has has a booming ecomomy. Oil exporters may have grown with oil prices, but haven't done anything to show that they can transition to being more than giant pumps. I don't see that changing.
Export land is doomer's dream material. But in reality it can only go so far.
"First, if they stop exporting oil, what will happen to the rest of the world? Who will they sell all of their products to? Or do you think Saudi Arabia will be self-sufficient?"
It won't happen overnight. The ME and Russia will gradually use more and more of their oil production for their domestic needs. In the UAE, it will be banking, insurance, tourism, manufacturing, aerospace. Russia is planning a major modernization of their military, which will allow them to take advantage of greater economies of scale to sell their hardware all over the world at more competitive prices. SA is concentrating on petrochemicals and planning on following the UAE model by getting into a wide variety of other industries. Just because the U.S. is in for some hard times economically doesn't mean the whole world is.
"Second, most of these countries have masses of young uneducated people living on subsidies and foreigners doing much of of the work. How can they possibly compete with the low labor costs in China or the established legal frameworks of the west? Petrochemicals, OK. The rest of unlikely."
"Foreigners doing most of the work?" That's what they said about the U.S. in the 20th century. In my opinion, having high levels of immigration is probably the most reliable indicator of future economic growth.
"Established legal frameworks?" They have them there too. And countries like the UAE and now SA are doing a great job of establishing large-scale duty free zones. These duty free zones basically act as a subsidy for businesses and industries of all kinds to move their operations to the ME. They've proven wildly successful.
"The rest unlikely?" It's already worked in the UAE. Now other countries in the ME are making plans to follow the same model. Russia, of course, has its massive military-industrial complex to channel its oil-bonanza money through, and within a half-century or so, will no doubt rival the U.S. on all fronts.
"...a faulty concept that resources alone underpin economic growth?" They might not underpin it completely, but it sure doesn't hurt, especially if you know how to leverage it.
"...an environmnet that encourages investment and risk taking." No country in the world has done this better than the UAE. It's being taken as a model in the ME.
"...haven't done anything to show that they can transition to being more than giant pumps. I don't see that changing." It's already changed. Welcome to the 21st century.
Thanks for a good reply. I don't think that it is impossible for oil exporters to recirculate some of their export wealth and to diversify their economies. However, I do think the linear extrapolation of the export land model has limits.
Dubai and the UAE have undergone a massive transformation, as you note. But - correct me if I am wrong - I believe that was spurred by a lack of oil.
I haven't seen any convincing data that shows any of the major oil producers have been able to significantly develop non-petroleum-based industries. Despite your optimism about a Rusian military based revival, it seems they are moving towards being a traditional petrostate rather than forward into a modern economy. And what aboutr other sectors?
I am a huge believer in immigation. I think in countries, like the US, where immigrants could become full citizens and access all of the benefits of their labor, it has been almostr uniformly a positive transformative force. However in other places where they remained "they", the success has been less clear. France has had big troubles with lack of integration. In the Middle East, immigrants are largely contract labor. Anyone who said foreigners were doing most of the work in the US was wrong.
Dubai is certainly moving towards establishing the legal framework needed to compete in the modern economy, but relatively it is tiny. In Saudi Arabia, women can't drive, Iran is executing gays, Russia is hardly a model of transparency.
Massive revenues from high oil prices have inevitably raised living standards and boosted consumption at home. But using oil wealth to drive more and transforming economies are different things. I think we are seeing the former and that it is a blip rather than a trend.
Other than gasoline I don't recall buying any product labelled "made in the Kingdom of Saudi Arabia".Even the gasoline most likely wasn't refined in a Saudi refinery. I recall that during the 1st Gulf War jet fuel had to come from refineries in Singapore.
SAT - sorry for not getting back to you the other day - we were discussing where things are going - $57 - 15th November.
Nothing startling to say other than the market is controlled by supply and demand - wow. With high prices, consumers everywhere are incentivised to use less fuel and producers are incentivised to produce more. So I think we are seeing demand destruction - mainly in the poorer countries. Also a lot of new supply came on in June and July that will provide some temporary relief on the supply side.
RE: The UAE as a model for the new global economy. Use oil to desalinate water to water golf courses - that's a neat idea should be popular all over the developing world.
British Airways are top of my don't under any circumsatnces buy list - but then rumours arise that Emirates may bid for BA. Now that's a neat business startegy - to own the only airline that has a reliable supply of jet fuel.
"...use oil to desalinate water to water golf courses."
Seems like whenever you bring up the subject of ME economic developement on here, all you get is either racist, 1970's stereotypical, or completely clueless responses.
Meanwhile, Smekhovo makes a very concise, but incredibly insightful remark and all he gets is abuse.
That is absurd. You tried to paint an unrealistically optimistic picture of the rise of oil producing countries. Then when a little challenge arose, you fell back on insults and whining.
Nothing that I have said is remotely stereotypical or racist. If something is clueless, point it out. How about a fact? Some data? Evidence?
But if you think Smekhovo's remark was "incredibly insightful", it would seem this would be expecting too much of you.
All i've heard since i've come to TOD are bizarre, racist comments about the arabs, "sinking back into the sand where they came from," the constant repititon, even by the most respected members here, of the completely racist statement that you know someone from Saudi Arabia is lying, "because their lips are moving," people wondering where people will, "park their camels" in Dubai.
Jack, your comments weren't at all racist or clueless. The comment made by Cry Wolf that the economy of the UAE somehow consists of, "using oil to desalinize water to water golf courses" is entirely clueless. I think you know that the UAE has one of the most diversified and open economies in the world, becoming more so with each passing day. You make a very good point that a lot of this has to do with the fact that Dubai had very little oil and that forced them to get involved in other industries.
The other thing you get a lot of here, and I guess this is probably a phenomenon across America in general, is people pretending to be anti-Bush, anti-war, etc., but then they begin to drool at the thought of the U.S. wiping Iran off the map, although they take great pains to pretend like they're against it, while they continue to count the days until it happens.
It is a fact that the ME is growing faster than almost any other region on Earth. A lot of this has to do with the high oil prices of the last four or five years. Personally, I think high oil prices are here to stay. Middle Eastern countries, led by the UAE, have also been making remarkably successful efforts to diversify their economies, using their oil money to get involved in other industries. This is another trend that I anticipate will continue. Most TODers seem to be hoping that the US will derail this trend through genocide. Personally, I don't think that is going to happen. The world put together a containment strategy when the US began planning to take over Iraq. The idea was to make sure that the US footed the entire bill, draining the country of money, while at the same time working to make sure that Iraq succeeded in establishing an independent governement. That strategy has worked. The world is now working to make sure that the US doesn't invade Iran and that meaningful sanctions won't be imposed. That strategy is working as well. Because of the very coherent US strategy the world has put together, I think we will see the US enter a period of paralysis foreign policy wise. The Iraq war will probably be the last war the US will wage as an empire.
Rather than trade insults, let's trade predictions. About a month and a half ago, oil was at 76 and I told people it would fall to 57. Most people said I was crazy. At about the same point, everyone was getting all hyped-up, drooling about the prospect of a war against Iran (while claiming to be against it, of course). I told them it wasn't going to happen. The world has succeeded in reining in the US, I said. Well, they have. I hope everyone here will be around 15 to 20 years from now to witness the economic powerhouse the ME will become.
f the completely racist statement that you know someone from Saudi Arabia is lying, "because their lips are moving,"
That's more an anti-government thing, not an anti-Saudi thing. IOW, they aren't talking about the Saudi people, but about the various ministers, etc., who keep saying there's plenty of oil. The same thing is said about Bush, Cheney, the CEO of Exxon, etc.
I hope you're right. You don't exactly get the impression that a lot of people are hoping that they're not lying though, do you?
I hope they're not lying.
Hey, since you're here, would you mind telling me how to make those shaded boxes when you quote something from someone else's post?
Also, you do great work here, very balanced selection of articles, very cool-headed responses/analysis/interventions. Maybe i'm just stressed out today.
SAT - thanks for the insightful comments. Iv'e not been to the ME for about 10 years now (been to Bahrain, Kuwait, UAE and Oman) - so most of what I know now is based on media reports - which are pretty reliable -right. All you seem to see are pictures of golf courses, flash hotels being build on artificial islands, horse racing and grand prixs. So that's the media image - and I'm pretty sure that's how they want to be seen.
I see golf courses all over the world being sprinkled and groomed - often in areas where water is in short supply, take the Algarve coast of Portugal as a good example. So I do believe that gof is popular in the UAE
- and the courses will be watered by either aquifer or desalinated sea water - and I don't think this is a sustainable activity. Much better to come to Scotland - the home of golf - where it rains every day.
The UAE ceratinly has done a great job diversifying into tourism - and this will have driven construction and services. I guess its liberal attitudes (allows alchol to be consumed) also means that it is being built up to a regional oil service sector. My next door neighbour and his family have lived there for the last 3 years - Bill drilling horizonatal wells in Iran whilst living in Dubai- Iran by the way is not Arab.
An interesting study would be to look at tourism in the ME in realtion to countries that permit alcohol to be sold and consumed.
The last time I was out there, Bahrain was the only other country in the region with liberal laws on alcohol. I was going to move on to The King Fahd causeway linking Bahrain to KSA... but I think enough said.
You can get a drink at the Shell base in Oman too.
AS the one who made that offhanded comment about lips moving, I want to reiterate what Leanan said. It's a comment made about government spokepersons, of n'importe quelle country, race or creed. I usually say it about White House press secretaries or tame administration generals on "Meet the Press".
I think you were misled in this instance by the use of the term "Saudis" as shorthand for "Spokespersons for the Saudi Arabian oil industry", which is how the term is usually used around here.
In general I see very little racism on TOD, but maybe I just have a thicker skin. Or perhaps I'm merely an insensitive schmuck. It's hard to tell sometimes.
I guess the only thing we can all be sure about at this point is that the Saudis have never lied about their oil production capabilities yet. Makes me wonder if people should be so sure that they're lying now.
Damn, at this point I wish I would have been more short gold and less short small-caps. I'm 40-60 when I should have been 60-40. Then again, these things have a way of working themselves out.
I think a more accurate statement would be "the only thing we can all be sure about at this point is that we haven't caught the Saudis lying about their oil production capabilities yet." They have been very careful in parsing the language of their announcements, and given their notorious lack of data transparency we are forced to read tea leaves. We do know that their expressed intention to boost their output post-Katrina has not materialized, and we're getting lots of hand-waving excuses and rig activity that make people over here frown and wonder.
If they go into serious decline it won't be concealable, but I doubt if they will admit to geological limits unless the situation becomes ridiculously obvious.
Ghawar & Cantarell--Warning Beacons on Opposite Ends of the Earth
The mathematical (HL) method and our historical analogues have both been indicating that Saudi Arabia and the world are on the verge of irreversible production declines.
As Deffeyes and Simmons respectively both warned (reinforced by work that Khebab and I did), world and Saudi crude + condensate (EIA) production are down since December, 2005.
Since I studied the available data on Ghawar, and since I read the WSJ article on Cantarell, I have been relentlessly warning that both of these fields were likely to decline/collapse. Last year, these two fields accounted for about 10% of world crude + condensate production. Both fields have rapidly thinning oil columns, between advancing water legs and advancing gas caps. It is much easier for water and gas to flow through a reservoir than it is for oil. The higher the production rate, the more likely it is that gas and water will bypass the remaining oil.
Richard Heinberg reported that Ghawar is crashing. IMO, this is supported by the decline in Saudi oil production, by the shortage of natural gas (probably as a result of the loss of associated gas) and by the Saudi's new status as a fuel oil importer. Furthermore, Ghawar is now at about the same stage of depletion at which an analogue field--Yibal, same reservoir, same horizontal wells--started crashing.
Sprott Asset Management reports that Cantarell may be declining at up to 50,000 bpd per month (600,000 bpd per year). This is consistent with the worst case decline rate of up to 40% per year. Note that the remaining oil column of about 825' is thinning at the rate of about 300' per year.
We know that the next two largest producing fields, Burgan and Daqing are also declining.
With all four of the largest producing fields in the world almost certainly declining or crashing, I don't see any reasonable scenario that would result in higher world oil production. Furthermore, I continue to predict that net oil exports will continue to fall much faster than world oil production is falling.
One final point. I have frequently used the example of the East Texas Field (producing with a 99% water cut)--as an example of where these giant water drive fields are headed.
As far as an impact on world production is concerned, the temporary shutdown of the Prudhoe Bay Field was almost a non-issue. The corrosion of the surface facilities was a symptom--not the problem. The problem is that the damn field has a 75% water cut. Prudhoe Bay, like so many of the other giant fields in the world, is in a terminal decline.
Ghawar and Cantarell are two warning beacons, burning brightly in the night sky--ignore the warning beacons at your peril.
You stated above that Both fields have rapidly thinning oil columns, between advancing water legs and advancing gas caps. It is much easier for water and gas to flow through a reservoir than it is for oil. The higher the production rate, the more likely it is that gas and water will bypass the remaining oil.
I'm trying to understand how this happens. Why is it more likely for gas and water to bypass the remaining oil at a higher production rate?
I'm picturing an oil reservoir that's 2/3 full of oil. The oil sits at the bottom 2/3 and there is gas in the upper 1/3. If I pump water into the reservoir the water will go to the bottom, the oil will rise to the middle, and the gas will be put under pressure at the top.
Is that how it works? Getting a clear picture of this will help me understand better how reservoir depletion works. If there is a reference somewhere that will help me understand it, please let me know.
Viscosity. Water and gas are thinner. They flow faster. Check out "Twilight in the Desert" for a good description of how water bypassing oil happens, gas caps, and water injection.
It's a question of relative permeability. Permeability relative to gas is always higher than to fluids. In virtually all reservoirs, permeabilty relative to water is higher than to oil. As is true for any complex system, there are a huge number of variables. One of the variables is the API gravity of the oil. The lower the gravity of the oil (i.e., the heavier it is), the more likely it is for water and gas to bypass the oil.
In both fields (Ghawar & Cantarell), from this point forward the operators can choose to have a higher remaining recovery or they can choose to have a higher short term production rate, but they can't have both.
Pemex reports that they only have two problems at Cantarell--oil wells watering out and oil wells turning into gas wells.
"Richard Heinberg reported that Ghawar is crashing. IMO, this is supported by the decline in Saudi oil production, by the shortage of natural gas (probably as a result of the loss of associated gas)"
One thing I dont' understand: as Ghawar crashes (and pressure declines, per "Twilight in the Desert"), shouldn't the associated gas come out of solution and form a gas cap? And shouldnt' that gas then be exploitable?
Or do you think the Saudis are reinjecting water and gas and the kitchen sink to keep up production, and hence have no gas to spare for joint chemical factories?
"shouldn't the associated gas come out of solution and form a gas cap? And shouldnt' that gas then be exploitable?"
The field has already formed a secondary gas cap. It's very bad idea to produce the gas from a gas cap to an oil field, at least while the oil is being produced, because the gas withdrawal has a highly detrimental effect on reservoir pressure.
I suspect that the Saudi's natural gas production is down due to the loss of associated gas production that was being produced with the oil in the field.
Think of a very simplified model of the rock as a bunch of parallel tubes of various diameters. Once the large diameter tubes empty of oil it's game over; you get large quantities of water and gas out the well. The trick is to keep the total flowrate low enough so that the smaller passages have time to discharge some oil. If you run the total bpd up, you're just sucking more oil from the large passages and shortening the life of the well.
Think of sandstone. Soft, crumbly sandstone. Pour water on sandstone, some goes in and through, most runs off. Blow compressed air on sandstone, some goes in, most blows off.
Pour motor oil over sandstone. It only goes in the surface at first.
Water & gas go through sandstone MUCH faster than motor oil.
If one produces and oil well too quickly, "coning" can happen. The "profile" around the well has a "cone" of water around in one direction (down) and a cone of gas in the other (up). Away from the well, a slug of oil remains, but all the oil around the well bore is produced.
Simplistic, but I hope that it gets the idea accross.
Thanks to everyone for the explanations. I didn't understand that the reservoirs are porous. I thought it was just a big cavern underground. I'll read some more books on the topic. Thanks for the recommendation!
If you want to get into some interesting stuff (interesting for geo types) look into capillary pressure. As the space between grains of rock goes down, capillary pressure goes up. All fields have some degree of stratigraphic component, since they have to have a seal, keeping the oil from migrating.
What really keeps oil from moving is high capillary pressures. Generally the seals consists of shale and in some cases evaporites. The bigger the oil column, the better the seal has to be.
In some cases, a reduction in porosity and permeability in a reservoir rock is sufficient to keep oil from migrating, but it will allow water to move. For example, we have seen cases where one has oil shows in a structurally higher sandstone, and we test saltwater, and then we test oil from the same reservoir downdip in a structurally lower position, in a more porous and permeable portion of the reservoir. The water test was in a trap facies that kept oil from moving updip.
When you stop pumping, it should start settling, though, right? Gas on top, water in the bottom, oil in the middle. It's the viscosity that will keep the process nice-and-slow. But shouldn't it eventually reach a state that is once again exploitable?
It may very well reach that state, but probably not in our lifetimes. Reservoirs that were blown in the early 1900's have not recovered as yet, and there has been no increase in the pressures needed to move the oil through the rock into the wells.
Westexas, I am not exaggerating when I say that you are one of the most respected analysts here. I always look forward to your posts because they shed so much light on such a cloudy issue.
I do have a question for you though. Given the post you made above, and your knowledge of what is happening in the oil industry, what do you think the timeline is for significant impacts to the U.S. and the world to start occuring? I don't mean just a return to $3/gallon gas or
The LOGIC then has to be - When refineries runs at 100% - we should PAY ALOT OF $ for crude and keep the full tankers standby.... for some days...just in case
My logic gos opposite
High oil prices are still being propped up by a shortage of refinery capacity and there is little sign of the bottleneck easing until 2010, industry executives and officials discussing OPEC's future have warned.
As Jay Hanson has pointed out ad nauseum, the game stops when an energy source becomes an energy sink, when it takes more than one barrel of oil (or some energy equivalent) to produce one barrel. Something the oil sands are toying with, to say the least, in their natural gas use.
The energy sink concept will probably remain hidden as long as dollars are used, instead of BTU's, or even calories, to calculate the cost of a barrel of oil; it allows us to slip from source to sink without noticing it. Oil prices will rise so much that more and more oil looks economically recoverable. Again, not the point: what counts ultimately is whether it's "energetically" recoverable.
Once it's clear that overall resources are shrinking, this should become much more obvious (one may hope). It then gets pretty crazy pretty fast to lose lots of energy in the process of turning natural gas into petrol (the same applies to virtually all conversions).
Until then, and who knows how long after, the unlimited potential of both the rise in prices (dollars), and the ability to add more money to the system, will continue to conceal the obvious,
¿What if it does not make sense? I mean, the SUV does not make sense anyway. It is their money, and if they want to burn it that way, it is their God Given Right (tm). You will have to pry it from the cold fingers of their dead bodies.
Although it is usually someone else who ends up dead.
Good point. The earth's atmosphere is 78% N, but try fertilizing your tomatoes with it.
And then there is the slightly more random trick of loading the atmosphere with greenhouse gases to stimulate more violent weather, bringing on lightning and rain storms. My garden got a great fix of nitrogen this way last week. Hmmm...maybe I should send a letter of thanks to the coal lobby. On the other hand there was that damage to my roof...I wonder if I can sue for damages? It's all so confusing.
Sure, I know that. But it happens on The Great Spirit's terms. You don't pour it out of a bottle.
So, the economic system would ensure either an inflationary Big Rip or a Recessionary Big Crunch - either way Malthus wins.
(maybe not zillions but I'm too lazy to do the math right now)
The "unofficial" numbers are based on a Reuters report of comments by a Saudi minister that they are producing "about 9 mbpd."
http://static.flickr.com/97/240076673_494160e1a0_o.png
Assumptions: 5% annual decline rate in production; 2.5% annual increase rate in consumption.
For comparison, the North Sea is showing about a 6.5% annual decline rate since 1999, and the Arab oil producing countries had about a 5% increase in consumption from 2004 to 2005.
On the graph, note that a 20% drop in production, and about an 8% increase in consumption over a 4.5 year time period results in a 50% drop in net oil exports.
Big Oil Tells Consumers Use Less Fuel
Reuters story from Vienna
Big oil companies are telling consumers to conserve. The Total CEO states that oil will peak in 2020.
In other words, through the first half of the year, estimated net oil exports (by the top 10) are falling three to four times faster than world oil production is falling.
I think that the EB is going to add a "Net Energy Exports" category.
Saudi Arabia and many other producers have economies dominated by oil exports. If they use the oil, they eliminate their ability to import anything and eventually shut down the global economy.
Sooner or later these countries will begin to see growing domestic demand - which is boosted by export generated income and subsidized prices - as a threat to their existence and will curtail it.
This reminds me of the old Soviet Union posters proclaiming their plans to equal the west. Sounds easy on paper, but reality is a different story.
First, if they stop exporting oil, what will happen to the rest of the world? Who will they sell all of their products to? Or do you think Saudi Arabia will be self-sufficient?
Second, most of these countries have masses of young uneducated people living on subsidies and foreigners doing much of of the work. How can they possibly compete with the low labor costs in China or the established legal frameworks of the west? Petrochemicals, OK. The rest of unlikely.
All that this can lead to is either destruction of the glaobal economy or massive incentives to develop alternative sources of energy. It's a pipedream.
I think much of this analysis is based on a faulty concept that resources alone underpin economic growth. In a modern world it is far more important to create an environmnet that encourages investment and risk taking.
China imports massive amounts of resources but has has a booming ecomomy. Oil exporters may have grown with oil prices, but haven't done anything to show that they can transition to being more than giant pumps. I don't see that changing.
Export land is doomer's dream material. But in reality it can only go so far.
It won't happen overnight. The ME and Russia will gradually use more and more of their oil production for their domestic needs. In the UAE, it will be banking, insurance, tourism, manufacturing, aerospace. Russia is planning a major modernization of their military, which will allow them to take advantage of greater economies of scale to sell their hardware all over the world at more competitive prices. SA is concentrating on petrochemicals and planning on following the UAE model by getting into a wide variety of other industries. Just because the U.S. is in for some hard times economically doesn't mean the whole world is.
"Second, most of these countries have masses of young uneducated people living on subsidies and foreigners doing much of of the work. How can they possibly compete with the low labor costs in China or the established legal frameworks of the west? Petrochemicals, OK. The rest of unlikely."
"Foreigners doing most of the work?" That's what they said about the U.S. in the 20th century. In my opinion, having high levels of immigration is probably the most reliable indicator of future economic growth.
"Established legal frameworks?" They have them there too. And countries like the UAE and now SA are doing a great job of establishing large-scale duty free zones. These duty free zones basically act as a subsidy for businesses and industries of all kinds to move their operations to the ME. They've proven wildly successful.
"The rest unlikely?" It's already worked in the UAE. Now other countries in the ME are making plans to follow the same model. Russia, of course, has its massive military-industrial complex to channel its oil-bonanza money through, and within a half-century or so, will no doubt rival the U.S. on all fronts.
"...a faulty concept that resources alone underpin economic growth?" They might not underpin it completely, but it sure doesn't hurt, especially if you know how to leverage it.
"...an environmnet that encourages investment and risk taking." No country in the world has done this better than the UAE. It's being taken as a model in the ME.
"...haven't done anything to show that they can transition to being more than giant pumps. I don't see that changing." It's already changed. Welcome to the 21st century.
Dubai and the UAE have undergone a massive transformation, as you note. But - correct me if I am wrong - I believe that was spurred by a lack of oil.
I haven't seen any convincing data that shows any of the major oil producers have been able to significantly develop non-petroleum-based industries. Despite your optimism about a Rusian military based revival, it seems they are moving towards being a traditional petrostate rather than forward into a modern economy. And what aboutr other sectors?
I am a huge believer in immigation. I think in countries, like the US, where immigrants could become full citizens and access all of the benefits of their labor, it has been almostr uniformly a positive transformative force. However in other places where they remained "they", the success has been less clear. France has had big troubles with lack of integration. In the Middle East, immigrants are largely contract labor. Anyone who said foreigners were doing most of the work in the US was wrong.
Dubai is certainly moving towards establishing the legal framework needed to compete in the modern economy, but relatively it is tiny. In Saudi Arabia, women can't drive, Iran is executing gays, Russia is hardly a model of transparency.
Massive revenues from high oil prices have inevitably raised living standards and boosted consumption at home. But using oil wealth to drive more and transforming economies are different things. I think we are seeing the former and that it is a blip rather than a trend.
Nothing startling to say other than the market is controlled by supply and demand - wow. With high prices, consumers everywhere are incentivised to use less fuel and producers are incentivised to produce more. So I think we are seeing demand destruction - mainly in the poorer countries. Also a lot of new supply came on in June and July that will provide some temporary relief on the supply side.
RE: The UAE as a model for the new global economy. Use oil to desalinate water to water golf courses - that's a neat idea should be popular all over the developing world.
British Airways are top of my don't under any circumsatnces buy list - but then rumours arise that Emirates may bid for BA. Now that's a neat business startegy - to own the only airline that has a reliable supply of jet fuel.
Seems like whenever you bring up the subject of ME economic developement on here, all you get is either racist, 1970's stereotypical, or completely clueless responses.
Meanwhile, Smekhovo makes a very concise, but incredibly insightful remark and all he gets is abuse.
Nothing that I have said is remotely stereotypical or racist. If something is clueless, point it out. How about a fact? Some data? Evidence?
But if you think Smekhovo's remark was "incredibly insightful", it would seem this would be expecting too much of you.
Jack, your comments weren't at all racist or clueless. The comment made by Cry Wolf that the economy of the UAE somehow consists of, "using oil to desalinize water to water golf courses" is entirely clueless. I think you know that the UAE has one of the most diversified and open economies in the world, becoming more so with each passing day. You make a very good point that a lot of this has to do with the fact that Dubai had very little oil and that forced them to get involved in other industries.
The other thing you get a lot of here, and I guess this is probably a phenomenon across America in general, is people pretending to be anti-Bush, anti-war, etc., but then they begin to drool at the thought of the U.S. wiping Iran off the map, although they take great pains to pretend like they're against it, while they continue to count the days until it happens.
It is a fact that the ME is growing faster than almost any other region on Earth. A lot of this has to do with the high oil prices of the last four or five years. Personally, I think high oil prices are here to stay. Middle Eastern countries, led by the UAE, have also been making remarkably successful efforts to diversify their economies, using their oil money to get involved in other industries. This is another trend that I anticipate will continue. Most TODers seem to be hoping that the US will derail this trend through genocide. Personally, I don't think that is going to happen. The world put together a containment strategy when the US began planning to take over Iraq. The idea was to make sure that the US footed the entire bill, draining the country of money, while at the same time working to make sure that Iraq succeeded in establishing an independent governement. That strategy has worked. The world is now working to make sure that the US doesn't invade Iran and that meaningful sanctions won't be imposed. That strategy is working as well. Because of the very coherent US strategy the world has put together, I think we will see the US enter a period of paralysis foreign policy wise. The Iraq war will probably be the last war the US will wage as an empire.
Rather than trade insults, let's trade predictions. About a month and a half ago, oil was at 76 and I told people it would fall to 57. Most people said I was crazy. At about the same point, everyone was getting all hyped-up, drooling about the prospect of a war against Iran (while claiming to be against it, of course). I told them it wasn't going to happen. The world has succeeded in reining in the US, I said. Well, they have. I hope everyone here will be around 15 to 20 years from now to witness the economic powerhouse the ME will become.
That's more an anti-government thing, not an anti-Saudi thing. IOW, they aren't talking about the Saudi people, but about the various ministers, etc., who keep saying there's plenty of oil. The same thing is said about Bush, Cheney, the CEO of Exxon, etc.
I hope you're right. You don't exactly get the impression that a lot of people are hoping that they're not lying though, do you?
I hope they're not lying.
Hey, since you're here, would you mind telling me how to make those shaded boxes when you quote something from someone else's post?
Also, you do great work here, very balanced selection of articles, very cool-headed responses/analysis/interventions. Maybe i'm just stressed out today.
Make sure you are commenting in Auto Format or HTML. (I am posting in plain text, just for this post, so you can actually see the HTML coding.)
I'm in business!
I see golf courses all over the world being sprinkled and groomed - often in areas where water is in short supply, take the Algarve coast of Portugal as a good example. So I do believe that gof is popular in the UAE
http://www.jumeirahgolfestates.com/
http://www.arabianranchesgolfdubai.com/
- and the courses will be watered by either aquifer or desalinated sea water - and I don't think this is a sustainable activity. Much better to come to Scotland - the home of golf - where it rains every day.
The UAE ceratinly has done a great job diversifying into tourism - and this will have driven construction and services. I guess its liberal attitudes (allows alchol to be consumed) also means that it is being built up to a regional oil service sector. My next door neighbour and his family have lived there for the last 3 years - Bill drilling horizonatal wells in Iran whilst living in Dubai- Iran by the way is not Arab.
An interesting study would be to look at tourism in the ME in realtion to countries that permit alcohol to be sold and consumed.
The last time I was out there, Bahrain was the only other country in the region with liberal laws on alcohol. I was going to move on to The King Fahd causeway linking Bahrain to KSA... but I think enough said.
You can get a drink at the Shell base in Oman too.
Jack made some interesting points as well, although we obviously have a fundamental disagreement on where the region is headed. Only time will tell.
And of course, Smekhovo's comment:
is one for the ages. Things are changing pretty fast over there. I think it's awesome.
I think you were misled in this instance by the use of the term "Saudis" as shorthand for "Spokespersons for the Saudi Arabian oil industry", which is how the term is usually used around here.
In general I see very little racism on TOD, but maybe I just have a thicker skin. Or perhaps I'm merely an insensitive schmuck. It's hard to tell sometimes.
I guess the only thing we can all be sure about at this point is that the Saudis have never lied about their oil production capabilities yet. Makes me wonder if people should be so sure that they're lying now.
If they go into serious decline it won't be concealable, but I doubt if they will admit to geological limits unless the situation becomes ridiculously obvious.
The mathematical (HL) method and our historical analogues have both been indicating that Saudi Arabia and the world are on the verge of irreversible production declines.
As Deffeyes and Simmons respectively both warned (reinforced by work that Khebab and I did), world and Saudi crude + condensate (EIA) production are down since December, 2005.
Since I studied the available data on Ghawar, and since I read the WSJ article on Cantarell, I have been relentlessly warning that both of these fields were likely to decline/collapse. Last year, these two fields accounted for about 10% of world crude + condensate production. Both fields have rapidly thinning oil columns, between advancing water legs and advancing gas caps. It is much easier for water and gas to flow through a reservoir than it is for oil. The higher the production rate, the more likely it is that gas and water will bypass the remaining oil.
Richard Heinberg reported that Ghawar is crashing. IMO, this is supported by the decline in Saudi oil production, by the shortage of natural gas (probably as a result of the loss of associated gas) and by the Saudi's new status as a fuel oil importer. Furthermore, Ghawar is now at about the same stage of depletion at which an analogue field--Yibal, same reservoir, same horizontal wells--started crashing.
Sprott Asset Management reports that Cantarell may be declining at up to 50,000 bpd per month (600,000 bpd per year). This is consistent with the worst case decline rate of up to 40% per year. Note that the remaining oil column of about 825' is thinning at the rate of about 300' per year.
We know that the next two largest producing fields, Burgan and Daqing are also declining.
With all four of the largest producing fields in the world almost certainly declining or crashing, I don't see any reasonable scenario that would result in higher world oil production. Furthermore, I continue to predict that net oil exports will continue to fall much faster than world oil production is falling.
One final point. I have frequently used the example of the East Texas Field (producing with a 99% water cut)--as an example of where these giant water drive fields are headed.
As far as an impact on world production is concerned, the temporary shutdown of the Prudhoe Bay Field was almost a non-issue. The corrosion of the surface facilities was a symptom--not the problem. The problem is that the damn field has a 75% water cut. Prudhoe Bay, like so many of the other giant fields in the world, is in a terminal decline.
Ghawar and Cantarell are two warning beacons, burning brightly in the night sky--ignore the warning beacons at your peril.
You stated above that Both fields have rapidly thinning oil columns, between advancing water legs and advancing gas caps. It is much easier for water and gas to flow through a reservoir than it is for oil. The higher the production rate, the more likely it is that gas and water will bypass the remaining oil.
I'm trying to understand how this happens. Why is it more likely for gas and water to bypass the remaining oil at a higher production rate?
I'm picturing an oil reservoir that's 2/3 full of oil. The oil sits at the bottom 2/3 and there is gas in the upper 1/3. If I pump water into the reservoir the water will go to the bottom, the oil will rise to the middle, and the gas will be put under pressure at the top.
Is that how it works? Getting a clear picture of this will help me understand better how reservoir depletion works. If there is a reference somewhere that will help me understand it, please let me know.
Thanks,
Tom Anderson-Brown
It's a question of relative permeability. Permeability relative to gas is always higher than to fluids. In virtually all reservoirs, permeabilty relative to water is higher than to oil. As is true for any complex system, there are a huge number of variables. One of the variables is the API gravity of the oil. The lower the gravity of the oil (i.e., the heavier it is), the more likely it is for water and gas to bypass the oil.
In both fields (Ghawar & Cantarell), from this point forward the operators can choose to have a higher remaining recovery or they can choose to have a higher short term production rate, but they can't have both.
Pemex reports that they only have two problems at Cantarell--oil wells watering out and oil wells turning into gas wells.
"Richard Heinberg reported that Ghawar is crashing. IMO, this is supported by the decline in Saudi oil production, by the shortage of natural gas (probably as a result of the loss of associated gas)"
One thing I dont' understand: as Ghawar crashes (and pressure declines, per "Twilight in the Desert"), shouldn't the associated gas come out of solution and form a gas cap? And shouldnt' that gas then be exploitable?
Or do you think the Saudis are reinjecting water and gas and the kitchen sink to keep up production, and hence have no gas to spare for joint chemical factories?
The field has already formed a secondary gas cap. It's very bad idea to produce the gas from a gas cap to an oil field, at least while the oil is being produced, because the gas withdrawal has a highly detrimental effect on reservoir pressure.
I suspect that the Saudi's natural gas production is down due to the loss of associated gas production that was being produced with the oil in the field.
Pour motor oil over sandstone. It only goes in the surface at first.
Water & gas go through sandstone MUCH faster than motor oil.
If one produces and oil well too quickly, "coning" can happen. The "profile" around the well has a "cone" of water around in one direction (down) and a cone of gas in the other (up). Away from the well, a slug of oil remains, but all the oil around the well bore is produced.
Simplistic, but I hope that it gets the idea accross.
Tom Anderson-Brown
What really keeps oil from moving is high capillary pressures. Generally the seals consists of shale and in some cases evaporites. The bigger the oil column, the better the seal has to be.
In some cases, a reduction in porosity and permeability in a reservoir rock is sufficient to keep oil from migrating, but it will allow water to move. For example, we have seen cases where one has oil shows in a structurally higher sandstone, and we test saltwater, and then we test oil from the same reservoir downdip in a structurally lower position, in a more porous and permeable portion of the reservoir. The water test was in a trap facies that kept oil from moving updip.
I do have a question for you though. Given the post you made above, and your knowledge of what is happening in the oil industry, what do you think the timeline is for significant impacts to the U.S. and the world to start occuring? I don't mean just a return to $3/gallon gas or