140 comments on Saudi Arabia - opening the tap?
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140 comments on Saudi Arabia - opening the tap?
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Westexas:
I think that the problem one always has in defining curves comes in the short term when there is some indication that the producer is holding back some supplies. In this particular case we know that the Saudi's have some problem in the short term in selling their heavier, sour crude, because of refining problems. This may well go away in the intermediate term (say around 2013) as they build their own refineries (for dealing with the oil from Manifa) and work with others to build other capable refineries elsewhere. There are thus some artificial factors that play into the game, and make accurate models of short-term capabilities difficult.
No argument from me (although I would argue that "difficult" is not the same as "impossible"), but we can also say that it is a near certainty that Saudi Arabia will show three straight years of annual production below their 2005 annual rate, at about the same stage of depletion that the prior swing producer, Texas, started declining.
Meanwhile, their consumption is currently going to "infinity and beyond," on track to double to 4 mbpd in 2015, from 2 mbpd in 2005, against a recent total liquids production rate of about 10 to 11 mbpd.
How much of the ~9 mbpd do you think is allocated to maintain the income of the Saudi upper class? Can they actually let the internal consumption go to 4 mbpd?
I have suggested Phase One and Phase Two declines. In Phase One, cash flow from export sales increases, because oil prices go up faster than net oil exports decline. In Phase Two, oil price increases can't offset the export declines. We would expect to see a positive feedback loop in Phase One.
Perhaps "Phase Two" should be split:
Phase 1: Revenues increase as prices rise faster than export declines.
Phase 2: Revenues decrease causing rate of domestic consumption increase to slow, but overall domestic consumption still increases; net exports decline at faster rate than geologically-driven decline.
Phase 3: Revenues decrease rapidly enough to cause overall domestic consumption to decline; net exports decline at a slower rate than geologically-driven decline.
I think that Phase Three would be the point at which a lot of remaining world trade consists of net energy exporters trading energy for food and other essential goods.
At what point do we think the UK will get to Phase 3?
The UK still has oil for a while, we could export again if we stopped consuming so much.
Maybe food is more important than oil - we might have to export oil just to get enough to eat if other countries won't loan us the money?
WT,
Howmuch of that 2MBD goes inot industrial production rather than consumption. I assume they produce most of there eelctricty with oil and have some sizables desal plants but aren't they also ramping up aluminimum production to value add to the oil? Is the expected exapansion of KSA consumption more to do with industrial growth rather than private consumption?
I would suggest that much of the KSA internal consumption that is for industrial purposes fuels economic growth in the Middle East and Asia. Therefore, the oil taken off the export market largely does not displace oil used elsewhere like OECD. US's problem caused by ELM is fueling the auto/truck/airplane based transportation system which consumes 3/4 of all oil and liquid fuels.
HO
This leads me to the most compelling reason for the oil price rise - the decline of light sweet. This is oft wrongly expressed in the MSM as a shortage of refinery capacity (It defies logic that the shortage of the ability to process a commodity would drive up the price of that commodity), so it is the shortage is of the "right" type of refining capacity.
Which then raises the question, how fast can "they" build/convert heavy sour capable refineries?
Because this in the medium term is going to be the driver of price, how fast the refining industry can adapt to the sweet/sour product mix. Of course this raises another issue, ie the refiners are not making any money as they are squeezed between supply misinformed govt/public, so why invest?
If as I suspect its will be an ongoing race and as the overall production cannot significantly rise (it will decline IMHO) one could characterize this behavior as "riding the submarine all the way to the bottom"
Neven
Different countries and companies have different regulations and permitting processes. But in most cases the lead time is several years, and then you have to be sure that there will be enough supply for a sufficient number of years to give you an acceptable return on the investment. For example if countries in the Middle East are building their own refineries to ship final product, rather than crude, then there is less economic incentive to build new refineries to handle lower quality crude in, say, the United States.
Also you have to be convinced that the spread between light and heavy will be large enough, long enough, to justify the investment.