It's a near certainty that Saudi Arabia will showing an accelerating annual decline rate from 2006 to 2007 versus 2005 to 2006. It kills me when people assert that "Stuart was wrong."

Having said that, as I noted in March it's quite possible that Saudi Arabia will show a temporary increase in production, after the initial decline, because they were so dependent on one field. In contrast, the East Texas Field only accounted for about 7% of Texas production at peak production in 1972.

Rounding off to the nearest 0.1 mbpd, Texas production around the peak was as follows:

1972: 3.5 mbpd
1973: 3.4
1974: 3.4

Did you see rkshepherd's post in the comments under Khebab's article (posted last Friday)? He described briefly how market forces lower URR outside the national oil companies.

Bob, what you have described is definitely one element.

In addition, the North Sea is a tough and very costly environement. KSA onshore is not Texas and KSA in the Persian Gulf isn't near offshore GOM, but the variable costs of operating wells for either onshore or offshore has got to be vastly lower in KSA than for the North Sea.

A marginal operation can be kept operating onshore. Offshore and in a hostile environment ... turn out the lights and go home.

To misquote / faux paraphrase what isn't written on W.C. Field's headstone: All things considered, I'd sooner be onshore and in Texas [and to your point if possible with an 87.5 percent -- or lower -- lease.]

:<)

One of the major differences between humans and animals is the ability to predict and react to future events. That's what we are all calling for in reacting to peak oil after all - preaction that reduces the caustic effects of relying on reaction.

While we may not be seeing the type of preaction we would like, I think we ARE seeing preaction in the political sphere. Its more complicated than just "we'll use less", but our effective peaking at 85Mbpd is an outcome of the various game playing effects that are beginning.

However, from what I've been able to determine of the way the system dynamics plays out its not all sweetness and light. The way the game is played on the downslope is different to that on the upslope. Its not a case of depletion and demand destruction being forced to be in step (which is just two sides of the same coin). Its a case of using the resources in the optimum way.

Look at it like this. If you have $100k in the bank and the aim of staying in the game as long as possible, and even winning, you don't just play straight. When another player is in a poor state you might well play to force them out of the game to improve your own chances. Equally, if a player is doing extremely well you might align yourself with other players to pull them back. The $100k is used and played not as valuable in its own right, but as a tool to be employed.

To understand the post peak and the characteristics of the decline you have to understand the game being played and the strategies employed. Maths only takes you so far.

The expectation is that the oil will be nationalised as a strategic asset (which is basically already happening). Thence the national government will attempt to maintain their economy via management of the asset.

Four interacting system effects come out of that:

1) Once decline is obvious, its very much in the interests of the national government to conserve their resource. So production goes even further down and home demand is also addressed to ensure the resource can be stretched out. It doesn't hurt that the less is exported, the more its worth.

2) Those with high imports will get very 'interested' in those with production and will lean on them to increase the productions and the share sold to them. That goes as far as warfare - military and economic. Axes and pacts will form around suppliers and large forceful countries.

3) Declines and depression in other countries will have consequent effects on any oil producer, even if they have enough production themselves. The expectation is economic turmoil no matter what.

4) Petrochemical and energy intensive industry will tend to move to those countries with supply, increasing their demand at home and further depressing the countries they leave.

In short, I'd suggest the market will be told when and where to dance by political pressure. The CEO that doesn't like it may well find themselves in jail.

Regarding the ELM, I called it a model because it was a simple mathematical model that showed the effect on net exports of a country that showed a production decline of -5%/year, with a +2.5%/year rate of increase in consumption, with consumption equal to 50% of production at peak production. The result was that net exports went to zero in 9 years, with only about 10% of post-peak production being exported.

I have have described two net export case histories, with radically different demographics and consumption/energy tax characteristics: the UK and Indonesia. However, like the ELM, consumption at their final production peaks was relatively high, in the 50% to 60% range. The UK went to zero net exports in 7 years, Indonesia in 8 years.

I would think that virtually any exporting country would fall somewhere in the UK to Indonesia continuum in terms of per capita income, energy taxes/subsidies, and rate of change in consumption, etc. As noted above, it didn't seem to make much of a difference.

Also, I think that it will be very difficult for exporting countries to reduce domestic consumption when the cash flow from export sales is increasing, even as export volumes fall, because of higher oil prices. However, when cash flows from export sales decline, because higher oil prices can't offset the decline in export volumes, I would expect to see some more aggressive efforts to curtail domestic consumption.

The following article has the ELM and a comparison of the post-peak year over year changes in net exports for the ELM, the UK and Indonesia:

http://graphoilogy.blogspot.com/2007/09/declining-net-oil-exports-tempor...

shaman,

Good question. I think it depends on the nation. As an example, in Venezuela the folks believe they have a god given right to cheap oil, especially since it is theirs. If the gov't were to reduce the subsidy and raise the price to the locals, that may result in increased dissatisfaction of the govt which could threaten the govt security. Nationalize the oil and guarantee cheap happy motoring is a great way to buy votes and keep in power, if you happen to be a producer. the trade off is the need to keep the people happy with cheap gas vs the need to get external income to by other things to keep the people happy. In Saudi and other places their balance is again between the needs to keep the local folks under control vs keeping enough income to pay for several thousand royal princes.

ej

Specifically, it assumes that identification with national interests on the part of those that control oil resources will continue to hold sway over identification with corporate/economic interests.

For starters, a national oil company hardly qualifies as corporations. They have no stockholders to answer to. They only need enough capital to keep the oil flowing. There is no danger of ARAMCO running out of money to pay expenses. But PEMEX is a far better example here. At PEMEX the welfare of the Mexican people seem to far outweigh any PEMEX corporate interest. The company is going broke while the government takes all profits to keep the people happy and keep themselves in power. And they will for damn sure keep the people in gasoline and other fuel even if exports must go to zero.

And of course all this bleeds over into the "economic" interest. Whose economy are you talking about? The treasury of the nation or the economic well being of the people in that nation? If it is the latter then the interest of the people will dictate that more and more oil is diverted from export to domestic use.

But the best argument for the Export Land Model is in the actual data. Remember, as Matt Simmons is fond of saying, the data trumps all theories. Exports in Russia, Saudi Arabia, Mexico, and virtually all exporting nations are dropping faster than production. That proves it! The data is all you need to settle the argument once and for all.

Ron Patterson

The results will vary based on the culture and politics of any particular producer. In KSA, they need to maintain income but they need to keep a restless population happy too. Those competing political needs will dictate the economic response in nations where finances are not always the first thing on the minds of those in power. Imagine a KSA with 4mbpd internal consumption and 6.5 mbpd production. What would happen if they tried to cut internal consumption back so as to have more to sell? Much would, of course, depend on how they cut back but certain modes of cutting back could be catastrophic for the ruling clan there. This is why I believe that the Iranians really do have peaceful uses planned for nuclear power - it will let them sell more oil. That doesn't mean that they only have peaceful uses planned but that peaceful uses are quite plausible for Iran. Of course, military uses are quite plausible for that regime as well.

"The greatest shortcoming of the human race is our inability to understand the exponential function." -- Dr. Albert Bartlett
Into the Grey Zone

In simple terms what is money that be can created at the click of a mouse compared with one of the most valuable energy resources known.

I guess the answer is It Depends

On when the Shieks want to be pulled from their limos by an angry mob.

well, if you believe bush (scoff,scoff) "the iraqi oil belongs to the iraqi people" (and we are only there to insure freedom and democracy) and that little lie about wmd's, well that was only to sell the idea to the 'mercun people, the 'mercun people are not smart enough to figure this all out by thumselvs

I am aware of a report that predicts that Saudi liquids consumption will increase by 500,000 bpd in 2007 and 2008, because of a shortfall in natural gas production.

My September, 2007 prediction for Saudi Arabia (I assumed a fourth quarter C+C production rate of 9.0 mbpd):

http://www.theoildrum.com/node/2975?nocomments

The 2005 to 2006 numbers for Saudi Arabia are as follows (exponential increase/decrease per year, EIA, Total Liquids):

Production: -3.7%/year
Consumption: +5.7%/year
Net Exports: -5.5%/year

Extrapolating from year to date numbers, my estimates for 2006 to 2007 Saudi numbers are as follows (I am adding in some increased liquids consumption, because of their ongoing natural gas shortfall):

Production: -5.6%/year
Consumption: +10%/year
Net Exports: -9.5%/year

what the hell are you talking about "their production exactly matches their quotas" ? over what time period ? for a single instant on 11-13-07 ?

By comic relief, I am sure you were reffering to the fact that TOD has been running a one sided debate with itself, ever since Leanan went on her ninja post deletion spree, stomping out all who question the 'status quo'.

Last April, during the hard freeze, my wife rescued a blue skink, which my young son named Hothgar. We let him go when the weather warmed up, and haven't seen him since. Coincidence?

I remember that debate. I suspect their initial decline may have been involuntary, while their subsequent cut was intentional. I suppose time will tell.

By the way, in engineering projects I've seen something very similar happen with regard to a project schedule. A Project Manager gets behind on his schedule. He can't bear to slip the schedule a bit more each month - that would ruin his credibility bit by bit, so he announces one large slip to a much later date he knows he can meet. That way, he takes heat for it one time only. I'm thinking the Saudis may have done with oil production what the Project Managers do with their schedule.

The best in Game Theory, no?-)