The Oil Drum

I just read an interesting article in the WSJ. They quote Ali Naimi as saying that in May, 2004 the Saudis "went almost all out" to produce 9.5 mbpd, because of rising demand.

Interesting. Al-Naimi's comments were reported by the wire services, but not the one about going all-out. Hmmm...

Excerpt from the WSJ (two key quotes highlighted):

Saudi Oil Minister Says Market
Is Balanced, Requires No Changes
Naimi Confirms Reduction
Of 1 Million Barrels a Day
In Kingdom's Production
By KAREN ELLIOTT HOUSE
February 12, 2007; Page A3

Mr. Naimi said that beginning in May 2004, the kingdom "went almost all out" to produce 9.5 million barrels a day to satisfy rising demand. "We kept that level until August/September last year," he said. When the kingdom saw demand slacken in the summer of 2006, it voluntarily cut production by 450,000 to 500,000 barrels a day and then by another 400,000 to 500,000 barrels a day in concert with OPEC. "So you can say one million barrels was taken off the market," he said, "but gradually."

The drop in oil prices from last summer's highs and a surge in interest in rival forms of energy haven't forced the kingdom, the world's largest crude exporter, to rethink its investment plans.

"From what we see, the world will need what Saudi Arabia produces," Mr. Naimi said. Therefore, the kingdom will proceed with its plan to increase capacity by the end of 2009 to 12.5 million barrels a day from 11.3 million barrels.

"There is no question demand will be there in 2009," he said. "There is no reason to think otherwise."

President Bush declared in January a more-than-fivefold increase in target levels for renewable-fuel production, to 35 billion gallons annually by 2017.

"Alternatives will be needed over the next 30 years," Mr. Naimi acknowledged. The world, he added, will need every unit of energy "it can generate, whether from alternatives, conservation or greater efficiency." Still, he said, "it is a global market, so what one country does isn't really relevant."

When I hear the Saudis talking about increasing production, I am constantly reminded of comments by the Texas State Geologist, at an industry meeting in 2005 (in response to a pointed question from me): "While Texas may not be able to equal its peak production, we can, with the use of better technology, significantly increase our oil production." Of course, Texas production has fallen almost continuously for 35 years (we are still finding small fields, but we couldn't offset the declines of the old, larger fields).

That article was at the bottom, and was noticed too late - the post was getting a bit long anyways.

At some point, the reality that less is coming out of the pipeline will be unavoidable. 18 tankers less - how many destined for America? - is not exactly a blip, it is at least several million barrels (too many variables in the information easily searched for, but this snippet about the Nigeria Yoho project http://www.rigzone.com/data/projects/project_detail.asp?project_id=60 says 'The FPSO with 13 crude oil tanks and a total capacity of 2.1 million barrels of oil ... originally [the] dwt tanker “Amazon Falcon” converted to a FPSO' which suggests a large scale is implied).

However, no single reason for these production declines is proven in my mind, apart from the fact that they have been happening, they are happening now, and they seem to be reasonable to expect to continue into the immediate future also. As for that flood of oil, well, that wave is still on the cloudy horizon, which has a few less tankers sailing into the sunset these days.

What is interesting is that these declines are no reason to question anything, or get concerned, or actually start to change how we live, because the decline is less than anticipated, thus becoming a rise in supply.

The Cheshire Cat may be making an appearance soon.

More than likely, KSA simply knows that it can sell its oil closer to OPEC market price to Asian and western companies after seeing them do so at $75+ a barrel for most of the summer. It's a good thing you were not a businessman, else you would have run Saudi Aramco into the ground with this nonsense.

I feel compelled to comment on how remarkable it is when doomers talk about oil demand. They often site that demand destruction could not possibly occur because oil is an in-elastic commodity: its use is hardly curved by its price. Strangely enough, when the price of oil goes down, these same doomers remark on how people are rushing out to buy SUVs and wasting more oil because gas is cheap, then when the price rises, it's simply a vast conspiracy to cover up declining production because raising the oil prices by $12 below WTI to $10 below WTI is really going to cause a lot of demand destruction. :rolls eyes:

The hypocracy is astounding.