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250 comments on Saudi Arabia and that $1000 bet
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250 comments on Saudi Arabia and that $1000 bet
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Ever notice that people don’t trot out their articles when the data contradict their prediction? But since the data support the prediction, here it is again.
http://www.energybulletin.net/16459.html
Published on 24 May 2006 by GraphOilogy. Archived on 25 May 2006.
Texas and US Lower 48 oil production as a model for Saudi Arabia and the world
by Jeffrey J. Brown & "Khebab"
Texas, like Saudi Arabia, produced at less than capacity for long periods of time, thus the following plot, based on the assumption that Saudi Arabia was likely to start declining at the same stage of depletion at which Texas started declining.
Texas, in 1972, relative to Saudi Arabia, in 2005:
http://static.flickr.com/55/145186318_27a012448e_o.png
In regard to oil prices, the average monthly Brent spot crude price was $38 in the 20 months prior to 5/05, versus $62 in the 20 months after 5/05 (within a range of $54 to $74). And of course, 5/05 was the highest crude + condensate production so far (EIA). The cumulative shortfall in what we would have produced at the 5/05 rate and what we actually produced is on the order of 366 million barrels of crude + condensate (through 12/06). BTW, I would put the most recent Saudi peak at 9.6 mbpd, in 9/05.
In my opinion, we have seen some reduced demand, primarily in poorer regions like Africa, because of a physical inability to buy energy. I think that $62 has been sufficient, so far, to balance reduced demand against lower supply. But I suspect that we are about to start a new round of bidding for declining production--and especially declining exports.
In regard to the HL model, to expect to see sustained rising production from the 60% of Qt mark, which is where Saudi Arabia currently is, is to expect to see that which we have never seen, insofar as I know, in any large producing province (60 Gb or more).
In fact, Saudi Arabia is right between the 50% mark at which the North Sea peaked, and the 70% mark, where the North Sea is currently. No one (outside CERA at least) questions the reality of the North Sea decline, so why is the Saudi decline so shocking?
While it is true that the Texas HL plot was quite noisy prior to the peak, we can get an accurate HL plot for Texas now, and the Saudi HL plot has been quite consistent. The infamous “dogleg” in the last three or four years of Saudi data was also seen right before the Texas peak.
Also, on an annual basis, the 2005 to 2006 decline in Saudi production of 4.3% (C+C) is quite close to the long term Texas decline rate of about 4%.
One thing that puzzles me is why were Iraq, Russia and “Other” able to find buyers for a total increase of about 900,00 bpd (12/05 to 12/06, C+C), but Saudi Arabia had to cut their production by about 700,000 bpd?
WT: I added this comment late to the exchange you had with RR, in response to RR, on the orginal Staniford thread:
http://www.theoildrum.com/comment/reply/2325/165766
Gregor
There are many ways to make an analysis.
I prefer charts.
If Saudi oil production were a stock, we could easily find a "rising wedge", which is very bearish for production.
Top beginning Jan. '98
Bottom beginning Jan. '02
If I knew how to upload the pic...
Graphs of the market measure human reactions in group situations. A chart of production is about geology, not human reactions (though there may be some recession/geopolitics embedded in the graph). If geology follows a graph, it would be something like a hubbert graph - not a 'rising wedge'.
Technical analysis in the market doesnt work anyways. Most people that look at charts dont make money doing so but recognize a certain pattern that worked in the past or they read about in some technical analysis book. They remember the times it worked and selectively forget about the times it didnt.
Any market chart pattern can turn into any other chart pattern and usually does.
Well, I think Geology determines where 50% is - the point at which the absolute top is reached. Not HOW we get there. Not HOW we leave there.
If you look at the oil production graph of the WORLD, you will notice that it followed a bell shape until 1974. And then?
It formed a left shoulder:-)
And did it then return to the bell curve?
No.
Why? Price restrictions, political restrictions, infrastructure restrictions. This has NOTHING to do with geology. This is what you call "human reaction" (hate to mention it, but it would concur to CERA's above ground factors).
I happen to see all this on a chart, just like I called September 2003 as the start of the oil bull market. Why? Because of the price chart (in combination wiht the fundamentals of PO and Chinese demand and especially because of the sustained price pressure after GWII was quickly "won"). My father, an old oil man, didn't believe me.
I am not going to defend chart techniques, which is more of an art than a science or whatever.
BUT I would refuse right now to BET on Stuart's conclusion that SA has maxed out because I need a confirmation from the chart - a rising wedge can break in both directions, and it has not broken yet. It is approaching its lower support line.
For what it's worth..
"They remember the times it worked.."
The problem with a lot of chart technic is that it is best seen in the rear view mirror. Sound familiar?
Besides, let's just test the hypothesis. Here's the chart:
As a trader, I would not bet on SA's fall until the line at the bottom is broken. I have a fundamental idea (call me Stuart, convinced that production has peaked) but wait for a market "signal" to make the trade..
Now, how about historical information in a field that is very humanly driven (factor "human reaction")? I'm using a much greater time frame, basically comparing apples with oranges in the two charts:
Like I said, for what it's worth..
Westtexas, I suppose many of us are quite familiar with your HL analyses, which seem to me helpful and informative. I have a few problems relying on HL analyses for SA.
1) We don't have sufficient data to say SA's Qt is what you say it is.
2) HL is not perfectly predictive. I recall one HL analysis where the predicted Qt was quite short of actual because the line trended up at a point.
In order of importance, 1) is more important that 2), and 2) injects sufficient uncertainty, for me, to prevent saying anything definitive about future Saudi capacity.
HL error is non-linear post peak its pratically nill +/- 5% at most and this is from intrinsic production issues. Leading up to the peak I'm guessing its less than 10% if your within 5% of the peak. Once more I remind Mr Rapier he promised a post on HL error.
Multi peak scenarios have their own peak issues leading to a systematic error when depending on how you convolve the peaks.
Probably a simple retreat to taking the area under the curve and constructing a total simple area is the easiest and close enough.
One thing thats not been brought out but should is the production decreases we see are generally short lived and don't actually effect the final date of peak production all that much within the error of HL analysis. The shift in a production period spanning decades is on the order of years well withing the +-5% that I think HL has.
Right now we are in the pivotal point that is either a few years post peak or a few years pre-peak so lots of room for discussion.
I have noticed that recently as peak has become a stronger possibility that we have lost sight of the fact that these few years really don't effect the final result all that much. Its a matter of peak now or before 2015 in the big picture it does not matter. Even if production increases base demand if oil was cheap is already greater than supply so the era of cheap oil is already in the rear view mirror.
We are now concerned when real shortages will develop.
Then of course the EROI peak which I think will be far worse.
Once more I remind Mr Rapier he promised a post on HL error.
As you might guess, I have had a lot going on, an inconsistent Internet connection, and frankly this has been of low priority for me. I also haven't decided the best way to approach the problem. I could start in 2000 and generate a year by year HL of Saudi (or Texas in 1960) and show how they change over time. Do you think this would suffice? It would give a series of data points that have bounced around, giving us a standard deviation for a particular time period.
Suggestions are welcome, but I can't say when I will get around to it. I have several other things I am working on, but I do agree that this would be an interesting analysis to present.
I'd say you need to show when error is bad say 20%
and work back from their I don't know what year that is
or the time scale but thats enough for some cool results.
Once you show error drops under 20% and the error bars on the years of peak drop thats enough.
I think we can safely determine when we are 20% post peak for texas. I think that everyone here figures we are less than this now for the world.
I just don't know what the resulting error spread in years is.
But running Texas/ lower 48 through this analysis will give us a excellent handle on how well we understand peak oil and we have the North Sea as a test.
In any case I think if you do this you can be 100% confident in predicting peak oil for the world within this range.
You push that we must know the right answer my response is we have enough data to be confident about the world peak within a error range. Yes it means the public will need to understand error but we have almost 100% confidence in the numbers.
In any case backing off to a 20% error range for a known case makes good sense. Initially maybe go higher but you get the drift early on HL has like 500% error bars.
memmel, you are exactly right that the position of Saudi/world production
Memmel, I believe that you are exactly right that the timing of the determination of the peak is impossible to determine with the data we have available and the important thing to notice is that the era of inexpensive crude is over. Its the unanswerable arguement for the Cornucopians.
Let them keep redefining the definition of crude to include kerogen (oil shales) and bitumen (tar sands) so that their reserve figures are preposterous, and include ethanol and buidiesel in the oil production figures. The public could care less about the number of barrels per day, but they damn sure notice a nickle bobble in price at the pump.
Hi m,
re: "Then of course the EROI peak which I think will be far worse."
Is there any way to get an analytical handle on this? Has anyone applied the methods that exist to looking at the situation we face?
I assume that you are referring to the UK plot, which showed an initial P/Q intercept of 30%. The problem with this is that there is no example of a large producing region showing anything remotely close to a long term 30% P/Q intercept. Most of them are between 5% and 10%. The only two outliers that I know about are the UK and Iran, which are around 13%.
The "Early Peak" UK HL plot is just an example of doing the HL plot too early in the data set.
The overall North Sea peaked at the same stage of depletion as the Lower 48, Mexico and apparently the world. Russia also hit a plateau at 50% of Qt.
I'd like to see a longer term chart comparing Texas and SA oil production. Did Texas have the kinds of ups and downs that SA shows when we go back to the 1960s as in the charts in the main post? Your chart overlaying SA and Texas production only takes SA back to the 1990s, where there are no peaks visible. If you're going to claim the two are comparable, let's see more data.