Please, Professor, April comes before Thanksgiving
Posted by Heading Out on October 30, 2005 - 10:32pm
I am often asked, "How does Saudi Arabia intend to meet the challenges of the future?" . . . . . . These efforts include:It is worth noting that they are looking to look at advancing technologies and investing in R & D, as a major strategy, but the article actually does not really commit them to much more than the current status. But he also notesMeeting our customers' current requirements by offering additional crude supplies as needed.
Pursuing an aggressive exploration program for oil and gas.
Expanding our production capacity from the current 11.0mn b/d to 12.5mn b/d bid by 2009 to meet future demand and maintain spare capacity of at least 1.5mn to 2.0mn b/d.
Expanding and upgrading our existing refineries both in the Kingdom and overseas.
Building new export refineries in Saudi Arabia and in key consuming countries which will be able to handle heavy, sour crudes.
Adding additional tankers to our fleet.
Investing in new advanced technologies across the spectrum of our business.
Training and developing our workforce.
Expanding our R&D efforts.
Working with the International Energy Forum - an organization created to improve dialogue between producers and consumers - to encourage greater oil market data transparency.
Spare capacity remains a cornerstone of world oil market stability ? both for the upstream and the downstream. With regard to the upstream, Saudi Arabia has long made it a policy to maintain significant spare capacity in an effort to promote oil market stability. Our spare capacity has paid great dividends over the years by helping to minimize disruptions to the world economy. The Kingdom's ongoing policy is to maintain 1.5-2.0mn b/d of spare capacity.
The overcapacity which existed for decades and reached as high as 15mn b/d is gone, having succumbed to rising oil demand produced by a vibrant global economy. As a result, there is very little spare crude production capacity available outside of Saudi Arabia to help balance the market.Now the rate at which the Saudi's plan to increase production is not going to yield vast amounts in any one year,, the total will only go up by 1.5 mbd over 4 years, which means an average increment of 400,000 bd each year.
Yesterday in comments Westexas noted, in discussing world oil production
By the way, both numbers are basically flat, from 7/04 to 7/05, i.e., according to the EIA, we were showing zero growth in oil production/supply year over year (just before the hurricanes).He is talking about information that comes from a downloadable spreadsheet found here under the "Crude Oil (including lease condensate) part C. Part A shows that in that time frame OPEC production went from 30.7 to 31.4 mbd, of which Saudi Arabia only contributed 100,000 bd. This shows not a lot of change in production, as he points out, over that period.
When one includes natural gas liquids, (the top table available on that EIA page) the world production was increasing until April, rising to 84.65 mbd from 81.9 in 2004. However in June and July it dropped off to a July figure of 84.04, virtually the same as the production the previous July (83.99). It appears as though a fair bit of the drop was due to declining US production, and some of this can be blamed as due to the start of the Hurricane season, since Dennis showed up on the 10th of July. But we are left with a little bit of a puzzle as to why the peak was actually a bit earlier (though it might be due to reduced demand before driving season and the end of the filling of the US SPR).
If US production continues to be shut in, then it may be that world oil output may have peaked in April for this year. And, sorry Dr Deffeyes, but that predates Thanksgiving. Will it pick up again next year? We shall just have to wait and see? And also if some of these production numbers get revised, one way or another, then perhaps the situation might have changed.
One wonders if this will come up in Denver, at the Peak Oil Conference? Could make for a lively meeting!
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Re: "it may be that world oil output may have peaked in April for this year". Uhmmm.... 84.04 versus 83.99 year to year. Maybe somebody should make a serious effort at working out those conventional oil decline numbers from existing fields. Unfortunately, this data is not transparent or easily obtainable in the general case.
Still, I am reminded that the lower 48 US peak circa 70/71 was not visible the years it occurred -- these were, since the peak was sharp, the highest outputs ever recorded. Optimism was high and the peak was only recognized in retrospect a few years later.
I agree that the peak, based on production data, is only obvious in the rearview mirror, e.g., the North Sea; however, the P/Q versus Q (Hubbert Linearization) method is a forward looking technique.
Qt, based on plotting P/Q versus Q, is total estimated cumulative oil production for a region/country. The Lower 48 peaked at 50%. Texas at 54%. Currently, the world is at 50%, and Saudi Arabia is at 55%. Note that Texas and Saudi Arabia were both swing producers. (The North Sea peaked at 52% of Qt).
There is a very powerful analogy here. Texas was to the Lower 48 as Saudi Arabia is to the world. Texas had an explosive--and futile--increase in drilling following its 1972 peak. We do know that the Saudis appear to be desperately trying to ramp up their drilling program. Recently, they ran full page ads in the Dallas paper basically begging for drilling supervisors and petroleum engineers to come work for them.
The bottom line is that if you combine the world Qt estimate together with flat year over year production--combined with increasing signs that the Saudis are beginning to desperately increase their drilling program--it begins to look a lot like a peak.
One final point. Recall the post about the cover story in the New York Times last week. Jeff Gerth cited two key sources, both associated with the Bush Administration. One was on the record, the other, with knowledge of a secret report about Saudi production, was off the record. It seems to me that the Bush Administration may be quietly trying to set the stage for admitting that we are at or very close to Peak Oil. I suspect that they may claim to be "shocked, shocked" that the Saudis have been lying about their reserves.
We hope to have a DVD available of tomorrow night's Simmons/Kunstler presentation in Dallas. I'll keep you posted.
Jeffrey Brown
I should think it will come up. I'm looking forward to meeting you.
I see from your remarks above that the prediction is that world production is expected to exceed 85/mbd in January -- though there is some associated uncertainty (GOM, other delays) and that figure may only be reached later in the year 2006. That would certainly put us behind the CERA projections, would it not? Depending on demand, but given the two year pricing trend, it would appear that prices could be up in the $75 to $90 range next year if there are significant difficulties reaching that barrels per day target. Every financial analysis I've seen forecasts prices to remain high next year but delays would push them up even further.