Yet Another Forecast for Saudi Oil Production
Posted by JoulesBurn on August 12, 2008 - 8:39am
Topic: Supply/Production
Tags: aramco, original, peak oil, saudi arabia [list all tags]
Predicting the future of Saudi Arabian oil production is a rather daunting endeavor, given the limited amount of information available upon which to base a prediction. Presented here is an appraisal for Saudi production through 2015 based on an informed analysis of past production data and a simple extrapolation into the future. It is found that the oil production trend from the early 1990s through the present is driven more by the addition of new producing areas than by "peak and decline" in the Hubbertian sense. This trend will likely continue for the next few years leading to a new "peak", although more rapid decline in mature areas of Ghawar will eventually overwhelm both mitigation efforts therein and added production elsewhere.
“Data always beats theories. 'Look at data three times and then come to a conclusion,' versus 'coming to a conclusion and searching for some data.' The former will win every time.”
—Matthew Simmons, ASPO-USA conference, Boston, MA, October 26, 2006
Rethinking the Peak
Has oil crude production in Saudi Arabia peaked? Some claim that it did as of 2006, although the slate of new production -- including the redevelopment of Khurais and Manifa -- would suggest that 2006 levels will be exceeded in the next few years. The problem here is not with the concept of peak oil, since all individual producing areas will certainly exhibit this behavior, but rather with the idea that the nature of the peak and decline of an arbitrary entity is immutable to changes in the definition of said entity. Such changes can include large new discoveries which eventually increases the amount of oil available, new technologies which do the same, or political decisions about which fields to produce and when. The latter two of these certainly apply to present day Saudi Arabia.
Is it really critical when Saudi production peaks? Yes, given that this certainly means that, with no spare capacity, Saudi Arabia can no longer serve as the swing producer. The rapid price increase during 2008, while not proof of a Saudi peak, is nevertheless indicative of the impact on the world economy from a limited supply buffer.
Forecast This
Several forecasts for Saudi oil production have been offered on this forum, including these:
- A Nosedive Toward The Desert, by Stuart Staniford
- Saudi Arabia - production forecasts and reserves estimates, by Euan Mearns
- Saudi Arabia: An Attempt to Link Oil Discoveries, Proven Reserves and Production Data, by Khebab
- World Oil Forecasts, including Saudi Arabia, Kuwait and the UAE – Update Feb 2008 , by Ace
- Forecasts on Saudi Arabia liquids production, by Jean Jean Laherrère
Similar to the above analyses, I will use recent trends in prior production as an indicator of what is to come. The time period of interest is from the early 1990s (when KSA restarted many mothballed fields, including south Ghawar) to the present. What is different is that I will explicitly account for the contribution of newer production (from a myriad number of megaprojects) to the total during this period in developing a forecast for the next few years. In addition, I will not be concerned with a determination of remaining reserves, and will not be using the Hubbert Linearization (or HL) technique. The use of the HL technique for estimating future oil production in general, and for Saudi Arabia in particular, has a rather storied history on TOD. Instead of reliving these moments, I will just direct those interested to a compendium:
http://www.theoildrum.com/tag/hubbert_linearization
Accounting For Newer ProductionIf the present plans of Saudi Aramco are realized, about 5 million barrels per day of new production, equivalent to another Ghawar, will have been brought online in about a 20 year period as detailed below:
| Project | Flow (103BPD) | Year |
|---|---|---|
| Haradh I | 300 | 1996 |
| Shaybah | 500 | 1999 |
| Haradh II | 300 | 2003 |
| Qatif | 500 | 2004 |
| Abu Safah | 300 | 2004 |
| Haradh III | 300 | 2006 |
| AFK | 500 | 2008 |
| Nuayyim | 100 | 2008 |
| Shaybah II | 250 | 2009 |
| Khurais | 1200 | 2009 |
| Manifa | 800 | 2012 |
Importantly, production from these fields is managed such that it can be maintained at the target levels well into the future. This is accomplished by adding new wells, of course, but the net result is that any decline estimate which treats new production the same as pre-existing production will overstate the decline. But since the new production amounts (and start-up date) are known, we can isolate the existing production in past years by subtracting the new production from the total. This is shown in the figure below.
The data to the left of the black vertical line (the present) are known quantities. The new production (red) is subtracted from the total (blue) to obtain the contribution from existing production (green). The data to the right represents forecasts for what Saudi Aramco will add in terms of new production (red) and how much the existing production will decline in the next few years based on a linear extrapolation of that for prior years (green). The total production in future years is then calculated as the sum of these. Is a continuation of this seemingly linear trend probable? Most likely not, for reasons discussed below, but the point here is that nothing in the data itself suggests anything different than a continuation of this trend. It is interesting that the constant decrease (somewhat over 1% per year) is in line with the net decline admitted by Saudi Aramco (natural decline mitigated by additional wells added). Also, the effect of constrained production (either existing or "new") will be wrapped up in this as well, so it's best not to draw too much of a conclusion without additional information.
Whither the Peak?
Once isolated from the newer production contribution, the pronounced trend for existing fields since the early 1990s is a slow decline which gets masked by the new additions. One could claim a peak in 2006, but this lasts only until enough new production is added quickly enough to overwhelm the decline. Of course, after Manifa, the options for substantial additions become rather sparse. And without knowing what fields will be produced and when, predictions beyond 2015 are rather problematic. There is a lot of oil in smaller fields, but the logistics of developing the necessary infrastructure (including water handling) to simultaneously deliver from many fields the oil equivalent of another Shaybah or Khurais will be a much bigger project than either of those.
What if Ghawar Crashes?
If the trend for older fields differs from the above prediction, what is possible? To the extent that any of this production is being throttled back, then letting it all flow would certainly add to the total. But a stronger possibility is a steeper decline of existing fields based upon evidence, from satellite analysis of well drilling, of what it has taken in recent years to maintain production in Ghawar and Abqaiq. A comparison of the distribution of newer and older wells in north Ghawar is shown below:
 |  |
In the left image, red and blue placemarks indicate locations of oil and water wells respectively. In the right image, green circles denote recent well locations and diamonds indicate drilling rigs.
The number of newer wells and the expected productivity of the wells (especially given that these are most likely all horizontal wells) suggests rather serious decline mitigation. Furthermore, the concentration in the center of the field suggests that the days of adding more wells to keep the decline under control are limited indeed. If a steeper decline of Ghawar occurs in the next couple of years, it will possibly be masked by Khurais and then Manifa -- although the higher levels of production promised by Saudi Arabia will not materialize.
Summary
An analysis of recent crude oil production data for Saudi Arabia, in conjunction with data on recent projects which have added additional supply, indicates that the most recent production peak in 2006 will be surpassed with the additions of the Khurais and Manifa producing areas. Beyond these, however, more rapid decline of Ghawar and other older fields will overwhelm any potential additions from their remaining as yet undeveloped fields.
Author's note: Westexas pointed out some errors in the most recent Saudi production data, and the data has been updated to reflect this correction. This does not significantly affect the forecast presented here, however.
Ed note: Khebab just posted this in the comments, I thought it should probably be moved up in the body of the post...it's a graphic of all of the myriad forecasts on one plot:
Click To Enlarge.
and the numbers:
| Forecast | 2006 | 2007 | 2008 | 2010 | 2015 | Peak Date | Peak Value |
|---|---|---|---|---|---|---|---|
| Crude oil + NGL | |||||||
| Observed (EIA) | 10.58 | 10.16 | 10.66 | NA | NA | 2005-04 | 11.06 |
| IEA (WEO, 2006) | 10.83 | 11.03 | 11.22 | 11.60 | 13.30 | 2030 | 17.30 |
| IEA (WEO, 2005) | 10.85 | 11.09 | 11.35 | 11.90 | 13.62 | 2030 | 18.20 |
| EIA Low Prices (IEO, 2006) | 12.45 | 13.11 | 13.70 | 14.40 | 15.01 | 2030-01 | 18.60 |
| EIA Reference Case (IEO, 2006) | 12.57 | 13.27 | 13.86 | 14.46 | 14.79 | 2030-01 | 17.10 |
| EIA High Prices (IEO, 2006) | 11.82 | 12.19 | 12.49 | 12.65 | 11.06 | 2010-01 | 12.70 |
| Smith (2006) | 11.39 | 11.78 | 12.73 | 14.08 | 14.38 | 2018-01 | 14.50 |
| Mearns (2007) | 10.72 | 10.95 | 11.37 | 11.52 | 9.51 | 2011-01 | 11.68 |
| IEA (2007) | 10.73 | 10.80 | 11.17 | 12.17 | NA | 2012 | 12.57 |
| HSM (2008) | NA | NA | 10.93 | 11.12 | 11.30 | 2015 | 11.30 |
| Brown&Khebab high case (2008) | 11.11 | 11.13 | 11.14 | 11.08 | 10.56 | 2008 | 11.14 |
| Crude Oil + Lease Condensate | |||||||
| Observed (EIA) | 9.15 | 8.72 | 9.22 | NA | NA | 1980-11 | 10.41 |
| Logistic | 8.66 | 8.59 | 8.51 | 8.29 | 7.51 | 2003 | 8.75 |
| Bakhtiari (2003) | 9.08 | 8.98 | 8.90 | 8.76 | 8.20 | 2003 | 9.50 |
| Campbell (2005) | 9.00 | 9.00 | 9.00 | 9.00 | 9.00 | 2006 | 9.00 |
| Ace (2007) | 9.02 | 8.73 | 8.44 | 7.77 | 5.96 | 2006-01 | 9.15 |
| Kopelaar high (2008) | NA | NA | 9.38 | 9.76 | NA | 2009-12 | 10.00 |
| Kopelaar low (2008) | NA | NA | 9.49 | 10.28 | NA | 2009-12 | 10.40 |
| JoulesBurn (2008) | NA | NA | 9.19 | 9.94 | 11.02 | 2013 | 11.23 |
| Consumption | |||||||
| Cont. Barrels/Capita | 1.75 | 1.79 | 1.83 | 1.92 | 2.14 | 2050 | 3.43 |
Don't forget the refining capacity to handle all that sulfur and vanadium:
Graph courtesy the World Petroleum Congress, from a doc Gail linked to.
I've wondered if some of the new production out of the ME is effectively stranded to an extent - customers they may have who can handle the stuff, but once supplied they have to wait a bit before selling more of their heavy sour product. With new refining in place the market will perhaps be a bit more liquid again.
Could you explain how your new (red) line corresponds to the megaprojects data above. Surely there should either be big step 2009, or some reasoning as to why its smooth. If it is smoothed over a period of years, why does it appear Manifa isn't?
I guess Khursaniyah is part of the AFK heading, but I don't see that on 2008's new figures, and its supposed to have already started production.
I didn't assume that all of the new production from a megaproject would should up in the target year, so the increases are smoothed out. Moreover, Khursaniyah was reportedly going to start this month, but there is no indication that it has as of yet.
But:
a) in that case I don't see where the 800kbpd of Manifa in 2012 went, since there is only one small blip, then flat, and Khurais should be still increasing.
b) you have a kick upward in production this year, being attributed to existing fields. You also have news stories saying Khursaniyah is in full production. Swap the 'old' for 'new' in light of that and your future production on old fields extrapolation gets pulled down significantly across the future predictions.
Also the megaproject page has Khurais down against early 2010. Even if believe the Saudi date of mid 2009, your own satellite work suggests more of a 'big bang' startup does it not?
I agree with the aim, but I'd be included to assume the behaviour of the 'old fields' should be a punctuated, smooth decline - with certain fields maybe being shut down. If you are not getting that, I'd question if the data for the other curves passes the sniff test - particularly in light of stores as a buffer that's not included.
Specifically, I have 850k for 2009 (AFK, Shaybah, and Nuayyim), 400k for 2010 and 800k for 2011 (Khurais), and 400k for each of 2012 and 2013. One could speculate endlessly about how these projects will eventually be ramped up, and this is just one guess.
Not for the faint of heart:
Click To Enlarge.
and the numbers:
Khebab, thanks for this compilation.
Here's the forecast I produced last year which I believe is using similar methodology to that used by J. Burn this year - i.e. the forecast is built upon the historic production stack, some assumption is made about decline (I'll return to that later) with new projects built upon that to produce the forecast. I think JB's forecast looks pretty similar to mine though I note he is modeling crude oil and mine is for crude + condensate + NGL (C+C+NGL).
Forecast numbers are production capacity. Actual production may be lower depending upon demand. Click all charts to enlarge
This forecast is built upon the significant body of work done modeling reserves and decline in Ghawar last year by Stuart Staniford and myself aided and abetted by a gang of TODers. At the end of it all Stuart and I reached very similar conclusions.
This is the revised base case Ghawar forecast upon which the Saudi forecast is built:
http://www.theoildrum.com/node/2507
The weaknesses with this Saudi forecast that I would identify myslef are as follows:
• The 500,000 kbd estimates for discovered undeveloped and yet to find are pure guess work.
• I have applied 5% decline to the heritage assets and this may be far too high. As JB points out here there are still large undrilled areas on certain supergiants that can be drilled to compensate for decline. This may be particularly true in the northern sour heavy fields of Safaniyah, Marjan and Zaluf.
• No allowance is made for secondary recovery from the now wet areas of Ghawar. With the right investment these may produce vast amounts of oil with high water cut forward to 2100.
Each of these points are likely to add to the forecast shown and this will likely help bridge the gap between the reserves held in this forecast and those reported by the likes of Colin Campbell.
I like this 30 billion barrel forecast. Excellent work by Euan.
By Saleri's own numbers remaining reserves in Ain Dar/Shedgum at this point are about 10 Billion barrels. I think North Uthmaniyah is lower... any reasonable volumetric estimate of the "Mohawk" says it.
Note that there is a 3 MMBOPD loss to 2015 in this compared to 1 MMBPD in the forecast given.
But I would say Khebabs curves about have it covered.... LOL.
FF
Err Euan, Haradh III only came onstream in 2006, bringing total Haradh production up to 900k. IIRC anything that's actually coming out of Hawiyah NGL is similarly tied to recent GOSP construction?
Hawiyah NGL is coming from non-associated wells. They have added quite a few in the Hawiyah/S. Uthmaniyah areas in the last few years, with the output eventually feeding the NGL plant completed just east of the existing Hawiyah gas plant.
Gary - see your point about Haradh - must have had a bad bottle that evening. I don't understand the remainder of your comment.
I think Hawiyah NGL production was similarly affected by lower numbers in the past due to completion dates on facilities being recent. That's from memory, I can't lay hands on the link, but it should be out there.
Obviously we've been over the difficulty in getting good production numbers from these fields in the past; let alone future figures. Still, I'd bet that Shedgum will go before Uthmaniyah and old fields will be progressively shut in to yield surge capacity as newer fields come on line - putting a cap on production and confusing that graph mightily.
Following your comment, I've updated the chart in JoulesBurn story.
Thanks Sam,
So what is HSM and where did the Brown and Khebab forecast come from and has Jeffrey seen it?
Euan
You can click on the links within the table in order to get a detailed explanation. In a nutshell:
- The HSM is a variant of the Shock model proposed by WHT, the Saudi Arabia forecast is based on a discovery dataset from IHS:
- The Brown & Khebab is based on a bootstrapped HL technique with a fairly large uncertainty, I took only the upper forecast (URR @ 250 Gb):
I think that the HSM is one of the best approaches for SA, in particular given the fact it is almost impossible to get good reserve growth numbers off of discovery data from such an inscrutably circumspect national oil company.
Nicely written and reasoned summary. Thank you Joules and some nice replies by Khebab and Euan. The Matt Simmons quote leading off the article sets the tone of the article but then posting the data from various sources gives a scattergram of data points leading me to conclude "what data!?". It's everywhere. Until we get verified data from KSA, articles like these are useful talking points but trying to use the current data for policy decisions is fraught with risk. My one significant question is what techniques are being used in the new additions? Are they drilling wells and waiting for the oil to run directly into pipelines or are they starting new production hot and heavy with enhanced techniques right from the get go a la North Sea? If so can be expect sharp fall offs in production going forward? The graph showing new refineries coming chiefly from overseas and not in the North American hemisphere suggests several conclusions:(1)we will not need new refineries built domestically(2) we will be buying refined products going forward instead of crude so this will probably increase price for distillates, gasoline and petroleum based feedstocks at a greater rate than crude(3) if you are using domestic refineries as I have for investment vehicles, fuhget it, sell them, suck up your losses and look elsewhere for ways to lose money. Generally, not a pretty picture.
Having just read Twilight in The Desert I do wonder about such forecasts for KSA. If Simmons is right then sure speculation is just that - speculation with little firm ground to base it on?
Also, I'm curious about this - "No allowance is made for secondary recovery from the now wet areas of Ghawar. With the right investment these may produce vast amounts of oil with high water cut forward to 2100". How so? My (perhaps amateur) understanding of this was that once the percentage of water cut reached a certain level that was it - no more oil could be usefully extracted?
With Ghawar (or Abqaiq), the more correct term would be "tertiary recovery", since secondary would be water injection started 40 years ago or so. To change the game, so to speak, they could alter the mobility of the residual oil (CO2, surfactants). This would require a massive amount of alterant, given the size of the field. Or, they could invest increasing amount of capital in more water handling facilities and keep on producing at increasing water cuts. The prospects for either of these approaches is questionable.
Thanks Joules and Khebab!
My assumption for total economic URR crude/condensate for Saudi Arabia (including half of Neutral Zone) remains a pessimistic 185 Gb based upon the creaming curve, recovery factors and monthly/annual HL plots.
http://europe.theoildrum.com/node/4299/387218
Saudi Arabia's forecast crude and condensate production rate to 2020 is updated below for the recent EIA data release. It is worth noting that the EIA says that Saudi Arabia's production for May 2008 was 9.40 mbd while the OPEC July 2008 OMR says a much less 9.18 mbd. Which number is closer to the true production?
http://www.eia.doe.gov/emeu/ipsr/t11c.xls
http://www.opec.org/home/Monthly%20Oil%20Market%20Reports/2008/mr072008....
An important feature of the chart below is the recent increase in the depletion rate of remaining reserves. WebHubbleTelescope uses a similar statistic which he calls extraction rates in proportion to the current reserve value.
http://canada.theoildrum.com/node/3958/373313
From Jan 2005 to Dec 2007, the average depletion rate of remaining reserves was 4.4%/year as shown by the dashed green line. The depletion rate has now risen to 5.0%/yr or in other words, Saudi Arabia is extracting their oil at a higher rate. There is a chance, probably after the US presidential election in November, that Saudi Arabia will reduce their depletion rate back to about 4.5%/yr. If this is done then the production rate would have to fall by a one off 10% or about 0.9 mbd, in addition to normal decline. Furthermore, this would also imply that Saudi Arabia's average crude/condensate production rate for 2009 would be about 8.0 mbd, rather than the 8.9 mbd shown below.
Saudi Arabia Crude & Condensate Production to 2020 - click to enlarge
The next chart has also been updated but hasn't changed significantly from the last update.
Saudi Arabia Crude & Condensate Production to 2080 - click to enlarge
World crude/condensate production to 2012 has been updated for the recent EIA data release and also for the Aug 12 EIA STEO.
http://www.eia.doe.gov/emeu/steo/pub/contents.html
The chart indicates that crude/condensate production has stayed at about a high 74.5 mbd from May to July. The drop for August is due mainly to the Russia Georgia conflict interrupting oil supplies from Azerbaijan through the Georgian part of the oil pipeline and summer maintenance.
Weak demand and recent high production rates of crude/condensate have contributed to the recent fall in the oil price. However, as crude/condensate production rates are forecast to decline, this will place further upward pressure on oil prices.
http://www.theoildrum.com/node/4397/392132
World Crude & Condensate Production to 2012 - click to enlarge
I definitely find that the average depletion rate of remaining reserves is akin to smoke monitor -- very sensitive to perturbations in output if you start with a good stable model.
Are we ignoring, then, the comments from al Husseini and the recent seeming confirmation from BusinessWeek, or are we considering those not to be useful as they are not data sets? Even if not data sets, do they not help frame the discussion, particularly since the claimed info from both comes from insiders? Are our models more reliable than info from those who worked/work there (assuming reliability)?
Cheers
ccpo,
Here are two production capacity charts from Husseini's presentation at the Oil & Money October 2007 conference. Husseini is an insider but until the IEA confirms Husseini's forecast, few governments/companies will accept his forecasts. I view Husseini's forecasts as a best case scenario.
http://www.energyintel.com/om/program.asp?year=2007
The first forecasts crude oil production from the Middle East which shows Saudi Arabian crude exceeding 10 mbd in 2011.
Middle East Crude Production Capacity to 2030 - click to enlarge
This chart shows world crude oil and NGL production, which excludes BTL, CTL, GTL, ethanol and refinery processing gains. It shows a longer plateau than my forecast.
World Crude & NGL Production Capacity to 2030 - click to enlarge
(Note as NGLs stay constant at about 8 mbd, Husseini, being an ex-Aramco executive, probably uses Aramco's definition of NGLs which includes propane, butane, condensate and natural gasoline but excludes ethane.)
Thanks for the reply, ace. (By the way, on re-reading my own post, it could have been taken as sarcastic or otherwise "pointed," which it wasn't, so I hope you didn't take it that way.)
Looking at what you have above, it seems in line with realistic expectations to me, at least with regard to SA. It looks like about 2mb/d over their 2007 production. That fits well the combined numbers of Husseini and the BusinessWeek article. It may be a little optimistic, but not by much. The world total also may be a little optimistic, but we are expecting a peak in new production over the next year or three according to the Megaprojects, no?
Anyway, I was mostly curious whether anyone else is actively figuring those two resources into their calculations. Between the decline of Russian production and those reports on SA, I think the deal is sealed. A million or two difference in production over a couple years won't mean much in the long term.
Or maybe I'm just lazy and looking for the Occam's Razor approach to Peak Oil.
;)
Cheers
Hey hey JoulesBurn,
The green line for existing production looks linear, but I have been conditioned to believe that depletion follows a bell shaped curve. Is the green line perfectly straight because you are extrapolating from an existing trend? That is, given what we know about depletion should the green line be straight? And lastly, what would future production look like if the existing production is plotted with the nice symmetric bell curves we all know and love?
Thanks in advance,
Tim
Part of the reason for doing yet another forecast is to diverge from the idea that past Saudi production data is just a mysterious monolithic stream upon which we can only imagine a bell-shaped decline conveniently happening very soon after the present. In essence, there are two trends: legacy production (undergoing a steady decline), and added production (stable after addition). Now, there are many reasons why the legacy decline might steepen, but it is not evident in the data.
It's important to note that the trend for existing production (yellow line) is itself a combination of many trends:
Coming up with some sort of a priori model which takes all of this into account is a bit of a challenge. The prior trend looks linear, so I'll go with that for a rough guess, but it will be increasingly hard to maintain that trend given that Ghawar looks more and more like a junkie with no place left to stick a needle.
Excellent summery Joules. And, as usual, we're back to the one big physical uncertainty: changes in the decline rate at Ghawar. In addition to recent horizontal drilling I've heard anecdotes that the KSA spent around $9 billion in the late 90's on a significant increase in horizontals in the field. Can you confirm this? Even more important, can you offer a guess as to what percentage of Ghawar production is coming from horizontals? Most here already know that horizontal oil wells typically exhibit a very low decline rate until the water level reaches the well bore when it then drops very dramatically. If a significant portion is from horizontal production predicting future Ghawar decline is akin to walking thru a mine field. Everything seems fine until you take that last step and you world turns upside down.
Beyond the physical deliverability of KSA oil I’m wonder when production management objectives will be based upon sound business principles as opposed to maximizing immediate cash flow. I watched the KSA eventually flood the market with $10 oil in the mid 80’s in an effort to recover market share they had lost. As a result of the demand destruction (a 15% decrease in global oil consumption) caused by the previous price spike the KSA kept cutting production to maintain pricing for the rest of OPEC. Eventually they were forced to compete on a price basis with the other exporters. But this isn’t 1986. Almost all the oil exporters now admit they are at or past their own PO. As the other countries continue maximum lifting the KSA will have the option to use their added deliverability to take market share away from the other exporters. But if the KSA is satisfied with their cash flow (remember: OPEC earned almost as much income in the first half of ‘08 as they did during the entire year of ‘07) they may be content to reduce their lifting significantly below the capabilities. I would also expect the KSA to temper their price expectations by monitoring the world economies closely. They remember better than any how their revenue stream suffered with the 80’s demand destruction. We probably need to wait another 12 months before we see the true impact of the price increases during the past year. Given the inflation time lag and the wild cards like China I’m not sure anyone can make a supportable projection on global oil demand in 12 months.
And, thus, we’re back to watching the race between Ghawar decline and demand destruction growth, IMHO.
Most of the increased deployment of horizontals in the late 90s was in Shaybah:
As to how much is currently flowing from horizontal wells, if one assumes that all of the more recently placed wells are fully open -- and given that as per KSA 80% are horizontal -- a large and increasing fraction is from these types of wells.
Good info Joules...thanks. But all the more worrisome. I've seen many horizontal wells go from great producers to losing 90% of their net rate in as little as 6 months. A good rule of thumb has been to cut production rate by at least 50% when the water hits. But half the time operators don't because they think the laws of physics apply to others and not them.
Millard...you are the optimist, aren't you? I hope you're right. I can make a good living at $50 oil and the economy would certainly just buzz right along too. I've got 7 more years to retirement and would enjoy seeing the volatility disappear till then. But I seriously doubt it will. My big concern is how much worse it will get.
Rockman: Check out what happened after the last oil spike (1979-80). Hey, you might be as old as myself, and actually remember the last go 'round. Check out the literature prevalent at the time. It was gloom-and-doom, much of it compelling reading.
Instead we ended up with a glut.
I am worried by the amount of oil controlled by thug states, who are not investing, and developing, like free societies.
On the other hand, conservation measures are very powerful. The GM Volt and other EVs promise to radically curtail demand. Jeez, France, with its nuked-up electrical grid, and EVs, would hardly use oil at all. Who will buy oil when EVs rule the world?
Yes Millard...I am a card carrying member of OFI (Old Farts International). I remember those times well. In 1985 I was getting up at 1AM and delivering produce to restaurants. Others with Master's degree in geology were't so fortunate. So you can imagine that I never take the good times for granted. But it's not 1986 and we still haven't seen anything close to the demand destruction we saw back then. Oil is exactly where my 6 month running average said it would be 6 months ago...right around $110. I'm not really that smart...just that blind pig thing. I'm certain we're at POP (Peak Oil Plateau). The best I think we can hope for over the next 10 years or so is that Saudi accepts the role of good shepard for the world economy. Bleed us but don't kill us.
I am worried by the amount of oil controlled by thug states, who are not investing, and developing, like free societies.
-----------------------------------------------------------------------
Say like Mexico? or Indonesia which we supported for so many years during the Suharto dictatorship until her oil ran out? We are interest in oil for oil and money sake -- it's just hard to hear any more of the craps about development of free and open societies. Oh, I even almost forgot about Iraq ...
Oil prices are collapsing now, so the the era of demand destruction may have to wait. Obviously, the U.S. alone could take 6-10 mbd off the market in the next 10 years, if gasoline went above $5 a gallon. And I think you would see a flatlining of China demand for foreign crude in another 5-10 years, if oil stayed high (they switch to other sources, including jatropha, CTL, and higher mpg cars).
Problem is, oil prices collapsing as we speak. The bottom of this rout could be $90, but once it goes that far, it might be $60, as speculators continue to liquidate positions. The commodities funds are going to suffer multi-billio-dollar withdrawal days, and they will collapse and liquidate. Ouch.
Conservation efforts will slow...and maybe we get another run-up in five years, or maybe 15 years.
I thought we had seen Peak Demand...but oil may see $30 a ba