## A Debate on the Substance and Timing of the Peak of Oil Production and Consumption, Part I

This is a guest post by westexas.

Resolved: World Net Oil Export Capacity is Now Declining Because of Involuntary Reductions in Production and/or Because of Increases in Domestic Consumption in Major Oil Exporting Countries

Robert Rapier suggested that we debate this topic, and I agreed. In reality, there are only shades of gray difference between us regarding the timing of Peak Oil and Peak Exports. I believe that the crisis has hit, while Robert believes that the worst won't be upon us until some time shortly after 2010. Robert will file his rejoinder about a week from today.

In any case, in a guest post on The Oil Drum (TOD) in January 2006, I predicted, based on graphs primarily done by Khebab that the world would see declining net oil exports this year.

I focused on the top three net oil exporters--Saudi Arabia (KSA); Russia and Norway--which together accounted for 48% of the (total liquids) exports by the top net oil exporters in 2004 (all production data based on EIA numbers, unless noted otherwise). Top exporters are defined as those exporting one mbpd or more.

In his most recent book, "Beyond Oil: The View from Hubbert's Peak," Kenneth Deffeyes outlined a simplified version of the mathematical techniques that M. King Hubbert used to accurately pick the time frame for the peak of Lower 48 oil production. The method, named "Hubbert Linearization" (HL) by Stuart Staniford on TOD, is outlined in the article "Texas and US Lower 48 oil production as a model for Saudi Arabia and the World".

Deffeyes defines Qt as a mathematical estimate of the ultimate recoverable reserves for a region. Regions tend to peak, and start declining when they are about 50% depleted, i.e., the 50% of Qt mark.

The following regions have now shown lower production after crossing the 50% of Qt mark: Texas; Lower 48; Total US (which had a secondary, but still lower peak, after the North Slope production came on line); Russia; North Sea; KSA and Mexico.

In the January article, I outlined my "Export Land" model, which was inspired by work done earlier by Matt Simmons. I stipulated that we had a country producing 20 mbpd and consuming 10 mbpd.

I then stipulated Export Land hits the 50% of Qt mark, and over a five year period, production declines by 25% and consumption increases by 20%. Because of these two factors--falling production and rising domestic consumption--the net oil exports from out hypothetical exporter decline by 70%, from 10 mbpd to 3 mbpd.

Note that the underlying assumption, which I think is generally true, is that domestic demand is generally satisfied before oil is exported. We have a real life example of the Export Land model in the UK, which has gone from exporting one mbpd in 1999 to being a net importer in 2005.

Also note that I expect domestic consumption in the exporting countries to go up quite rapidly, at least initially, as oil prices rise faster than their production is falling.

What I found deeply troubling in January was that the top three net oil exporters were all past their respective 50% of Qt marks. In January, KSA was showing stable production, Russia was showing a slow rate of growth and Norway was in decline. I predicted, based on the HL method and based on the Export Land model, that we would see lower exports from these three countries in 2006.

2006 Data

The EIA has now released a table showing the estimated production and exports from the top net exporters for 2005 (again all total liquids), and the data are very interesting, since we can compare the 2005 production, consumption and exports for various countries to the 2004 numbers.

KSA, Russia and Norway collectively have shown a 13% increase in domestic consumption from 2004 to 2005. Even Norway, which I expected to be flat, showed an 11% increase in consumption.

It appears that the only readily available current production data are for crude + condensate (C+C), but the EIA shows that these three countries are down, in September, 2006 by 3.7% from their December, 2005 production levels (KSA and Norway are down; Russia is basically flat). These data are subject to revision, but Khebab has demonstrated that the revisions tend to be downward with time.

In any case, if we assume that Total Liquids behave similarly to C+C, and if we use the same rate of increase in domestic consumption as 2004 to 2005 (which may be conservative given the rapidly escalating demand in KSA and Russia), this suggests that the top three net oil exporters are experiencing about an 8% decline (1.5 mbpd) in net oil exports in 2006 versus 2005 (based on data through September, 2006).

The EIA tracks C+C for 11 of the other 12 largest exporters. Their combined C+C production is up just barely (by 0.6% or 0.16 mbpd) from 12/05 to 9/06, which almost certainly translates to a decline in net exports, given the increasing consumption in most exporting countries.

Saudi Arabia: Why is their production falling?

No one, as far as I know, now disputes that KSA's production is falling. The question is why.

KSA is now at about the same stage of depletion that the prior swing producer, Texas, started declining.

In the spring, the Saudis announced that they could not find buyers for all of their oil, "Even their light, sweet oil," when light, sweet oil was going for about \$70 per barrel in the US.

At the same time that the Saudis were announcing that they could not find buyers for all of their oil, and that they were "voluntarily" reducing their production, they were vastly expanding their drilling program.

Their largest field, Ghawar, which at one time accounted for more than 50% of their production, is now at about the same stage of depletion that an analogue field, Yibal, started declining. The best case for Ghawar is that they are producing one-third water, after the field was redeveloped with horizontal wells.

At the same time that the Saudis announced their "voluntary" production cutbacks in the spring, their stock market started crashing. Interesting enough, Venezuela, which has long life unconventional oil reserves, has a booming stock market.

In my opinion, Saudi Arabia, like Texas in 1973, is at the start of a long term and irreversible decline in conventional oil production, with a long-term decline rate in the 4% to 5% range, perhaps sharper at first if Ghawar is crashing.

Russia: What next?

Mathematically, Khebab has demonstrated that the recent rebound in Russian production was just making up for what was not produced following the collapse of the Soviet Union.

In my opinion, Russia will join Saudi Arabia in showing a long term and irreversible decline in conventional oil production next year.

The "Bidding Cycle" Theory

Given the reports of lower production by the top three exporters, and one can assume increased consumption, someone must be conserving.

The Wall Street Journal recently ran a story, which profiled an African country, Guinea, which has been forced to conserve, "As fuel prices soar, a country unravels."

An excerpt from the article:

"The impact of today's energy crunch on the poor is plain in rich nations such as America: Expensive gasoline and soaring heating bills make a hard life harder. In impoverished countries such as Guinea, where per capita income is just \$370 a year and surging gasoline prices have helped spark bloody riots, the energy shock has become a matter of life and death."

I believe that we are going to see rounds of bidding cycles with available exports going to the winning bidders, e.g., the US so far this year, and with the losing bidders being forced to conserve, e.g., Guinea so far this year.

However, I predict that the next round of bidding (which I believe that we are currently in), against regions like Europe and China, instead of Africa, will be much tougher for the US.

The Expectation of an Infinite Exponential Growth Rate Versus
The Reality of Exponential Decline

Because of a steady increase in US petroleum consumption and because of a steady decline in US oil production, total US petroleum (crude oil + product) imports have been increasing at an annual rate of about 4% per year since 2001. This is one reason that assertions that year over year US petroleum imports may be flat is not much of a comfort.

In most of the US, it is simply a given that the "American Way of Life" is non-negotiable and that we can continue to increase our petroleum imports year after year.

Unfortunately, I predict that Americans are going to realize that the reality of exponential decline is going to trump expectations of an infinite growth rate.

While there are many suggestions for alternative energy sources and for the expanded use of other fossil fuel sources and the expanded use of nuclear energy, the reality in my opinion, is that the Net Oil Export Crisis is hitting so hard and so fast that our only recourse is to effectively implement a triage operation, where large portions of American suburbia are effectively abandoned.

I do strongly support a proposal to tax energy consumption to fund Social Security and Medicare, offset by eliminating or reducing the Payroll Tax, combined with a major push to implement Alan Drake's Proposal for Electrification of Transportation.

I am primarily supporting Alan's proposal because he is advocating proven technology that we essentially perfected more than 100 years ago. Furthermore, he documents how the Swiss were able to survive-- by electrifying their transportation system and by restricting oil supplies to emergency uses--an oil supply cutoff in the Second World War.

The average American today uses about as much oil as 400 Swiss citizens used in the Second World War.

Folks, consider this a reminder to positively rate these articles (using the icons under the tags in the story title) at reddit, digg, and del.icio.us if you are so inclined.  Also, don't forget to submit them to your favorite link farms, such as metafilter, stumbleupon, slashdot, fark, boingboing, furl, or any of the others.

These posts are a lot of work, and the authors appreciate your helping them get more readers for their work however you can.

Robert and I agreed to limit our comments on this topic to our posts.

However, I think that we should respond to questions regarding data sources, methodology and math.    I would especially invite scrutiny of my math.  I tried to double check everything, but there is always a good chance that I made a mistake somewhere.

However, I think that we should respond to questions regarding data sources, methodology and math.    I would especially invite scrutiny of my math.  I tried to double check everything, but there is always a good chance that I made a mistake somewhere.

Yes, I agree with that. In fact, I have no problem with you answering any questions here. But I won't respond until I put my essay up. That way the discussion between us isn't smeared all over the place. I want to have one location where the main arguments reside.

As you say, I will work on my response and I should have it up a week from now, presuming someone doesn't claim priority next Monday.

Given the lack of data transparency for Russian and KSA production data, what, briefly, is the basis for the assertion that they have passed 50% Qt?
Russian and KSA production are easily available. The transparency issue is not about production but about reserves, technical field conditions, etc., that make judging future production problematic. And that is where the HL method fits in. It doesn't need that other data. It uses historical production data to help you draw a conclusion.
The world essentially hasn't broken 85 mbpd production for the last year and a half.  I would have thought the debate would be plateau vs broken elevator cable, CERA notwithstanding.
The world has gone through short-term (3-4 years) plateaus and declines in production before.  The early 80s, for instance.  That oil production has declined for a year and a half so far does not in and of itself tell us that we've reached the ultimate peak.

We need to consider the other facts at hand, such as the world's major oilfields reaching 50% of Qt, the lack of large new projects coming online, etc.  Without this, it's easy for people to just say "oh, it's another temporary plateau--no big deal".

"The world has gone through short-term (3-4 years) plateaus and declines in production before.  The early 80s, for instance."

Iran went off-line in the early 1980s.  Nothing comparable has happened the past couple years that I'm aware of.

I think people say "oh, it's another temporary plateau - no big deal" because they have no idea what caused the past plateaus and how it differs to the past year with OPEC at maxed out production (they admitted it several times this summer).

Because of a steady increase in US petroleum consumption and because of a steady decline in US oil production, total US petroleum (crude oil + product) imports have been increasing at an annual rate of about 4% per year since 2001. This is one reason that assertions that year over year US petroleum imports may be flat is not much of a comfort.

I'm confused by the last sentence.  Aren't these assertions just plain wrong?  Great article, and I heartily aree with your sentiment regarding consumer attitudes.
This link takes you to a wealth of data:  http://tonto.eia.doe.gov/dnav/pet/pet_sum_sndw_dcus_nus_4.htm

Regarding imports, I have been focusing on the four week running average of Total Petroleum Imports, including SPR (at the top of the page you can select weekly or four week running average).    I think that there were some minor SPR imports, I think around 2002, but I don't believe that they had a material impact.

To get the long term increase in total imports since 2001 (around 4% per year), I roughly averaged the rate of increase through 2004 and through 2006 (relative to 2001).   I excluded 2005 because of the hurricane effects.

BTW, if anyone would like to volunteer, I think that it would be very, very interesting to see a chart of Total Petroleum Imports (four week running average)  from 2001 through the end of November, 2006.

Can do
To simplify the chart, I would just show the last weekly number for each month, 1/01 to 11/06, inclusive (four week running average).

If you are so inclined you might add the monthly spot oil price (for WTI, Cushing):  http://tonto.eia.doe.gov/dnav/pet/pet_pri_spt_s1_m.htm

check email
Thanks for the link, I've added it to my essential PO links list!  I can see now why the assertion might be made.
I made a a few charts on the EIA import  numbers. The methodology is described here and consists in correcting for the trend first and then look at the residual patterns.

original data:

The linear model has a slope value equals to 0.3993. Once corrected for this linear model, I can observe residuals (i.e. seasonal fluctuations) around the trend:

The gray level image in the background is the observed seasonal fluctuations derived form the residuals shown on Fig. 3 (darker areas mean more frequent values). The red curve is the observed data for 2006. The * means that the data for the year 2005 and 2004 have been adjusted to match the increase for 2006 predicted by the linear model. The dark dotted line is the seasonal  average fluctuation.

Smoothed data (4 weeks):

Same as before: The linear model has a slope value equals to 0.3991. Once corrected for this linear model, I can observe residuals (i.e. seasonal fluctuations) around the trend:

Conclusion: The recent Total Petroleum product import fluctuations are in the lower range but are still within the domain of past fluctuation history.

Khebab is my hero.

What is the long term annual rate of increase in total imports?

Could you show 2001 to 2006 (inclusive) total imports versus monthly spot oil prices?

As I pointed out in the article, the key question is that happens when an expectation of exponentially rising imports collides with the reality of exponentially declining exports.

Also,

The absolutely critical point that we need to keep in mind is that we require ever greater total imports every year--as long as either our consumption is increasing or our production is falling.

The only reason that we would not need more total imports year over year would be if the rate of decline of consumption equaled the rate of decline of production.  The reality is that consumption is increasing, while production is falling.

My point is that the top three exporters, in aggregate, are showing exactly the same pattern--rising consumption and falling production.

Which brings me back to my original point--a collision between expectations of exponentially rising imports against the developing reality of exponentially falling exports.

and it would follow that the internal consumption would need to be somewhat self supporting - in that they don't need to sell oil to help fund thier social programs etc.
A catch 22,  the need to have cheap oil for domestic use yet wanting to sell it to te higest bidder for cash flow.
Re: What is the long term annual rate of increase in total imports?

The value of the linear slope is 0.3993 mbpd per year which means an increase of +4.0 mbpd in imports in ten years (~30% increase).

Re: Could you show 2001 to 2006 (inclusive) total imports versus monthly spot oil prices?

I can't right now but I could look at it maybe tonight.

I don't have my scientific calculator, but it looks like the trend line doubled, from about 6 mbpd to 12 mbpd, in the 15 years from 1990 to 2005, which suggests a long term exponential growth rate of about 4.8% per year.

(Rule of 72, divide 72 by the interest rate, in percentage terms, to get the number of years required for a doubling).

72/4.8 = 15 years

Note that we are drawing down crude oil + product inventories as imports are now falling below the trend line.

Just for the fun it, the same chart with a 3 months moving average:

The above graphs show a drop in imports for last 90 days of 2006 compared to previous years and the average for 3 years.  Note that this drop started when gasoline and oil prices peaked at the begining of August.  I believe this is the effect of some short term conservation and some demand destruction.  The first few percent of conservation is easy - maybe everyone conserves 3 or 4 percent to save some money, especially lower income people.

The real test comes next year when world exports drop and the asian economies are still growing.  US economy heading for the trash can in 2007 could dampen oil prices, but a  still growing US economy could send oil prices higher and produce a world wide recession.  US still loses in the long run as our production falls during a tightening market for oil.

A while ago I made a graph of US market share of total production.  As other importing economies grow, the US market share will decline, on top of the decline in total production.As your graph shows, we are consuming less now than in 2004, while total production is higher.

Essentially, we are getting 'crowded out' of the oil. We will continue along this path since the transitiion economies are able to devalue the dollar with their large dollar assets and therefore make oil imports more expensive for us....while they have plenty of dollars to spend.  They will do this in order to ensure that they have enough energy to maintain their growth.

If the CIA isn't paying attention to this, they are fools.

"A while ago I made a graph of US market share of total production.  As other importing economies grow, the US market share will decline, on top of the decline in total production.  As your graph shows, we are consuming less now than in 2004, while total production is higher."

Could you clarify what you mean?  All of the above graphs refer to Total US Petroleum (crude + product) imports, and we are showing close to a long term growth rate of about 5% per year in total imports.

I think he is talking about share of the pie.  Our share of the overall pie has evidently decreased while the pie has gotten larger.
high growth economies crowd out low and medium growth economies. Nothing new here. The us used to be high growth compared with the rest of the world, and to an extent it still is. However, the asian dragons are higher growth, and naturally will receive a growing fraction of the pie.  Naturally we support this because the dragons have become our manufacturers, busting their butts 7/24 to ship us anything and everything we desire.
I see what you have done by "adjusting the data" for 2005 and 2004, however by doing this have you not distorted your final results? Essentially what I am asking is this not a circular arguement.
The goal for the adjustment is simply to try to visualize how 2006 would have look like if we had the same monthly fluctuations around the trend as 2005 and 2006. The goal of the above charts is to decorrelate multi-year trend from seasonal fluctuations and better pinpoint significant outliers.

Note that 2006 is an exceptional year because of the nasty hurricane season that caused a large rise in imports.

The comparison should be done between the red curve (2006) and the dotted black line (average residual) and also the gray level background that is representing residuals history.

Note that 2006 is an exceptional year because of the nasty hurricane season that caused a large rise in imports.

I think you meant 2005.

Correct :)
WT and RR thanks again for sharing your thinking and data on the export situation.  I found the WSJ journal article that ran a couple of weeks ago to be spot on with other worldwide info of strikes, protests, and riots in the 3rd World in reference to the rationing going on. This is a big surprise to the MSM myopic Americans that don't even appear to be aware (clueless and proud of it) of these situations.
I also find it fascinating that given the weak dollar and high demand in the U.S. that prices continue to remain well below the peaks of last summer.  Obviously the ignorance is bliss stance has some value as the market suppliers continue to be price takers rather than price makers for the most part.  This to seems to be ready to evolve but the market is convinced that the economic conditions in the OPEC countries create more cheaters than compliers.
One question I have for you is that you continue to advocate increasing gas taxes and offsetting it with a reduction in the payroll tax.  As one quite aware of the retirement dynamics and the aging boomers what are your thoughts on how to offset the fact that they won't be paying any payroll taxes?  How about state employees that don't pay them either?  Tuff shat or do you have another relief mechanism in mind?
As one quite aware of the retirement dynamics and the aging boomers what are your thoughts on how to offset the fact that they won't be paying any payroll taxes?  How about state employees that don't pay them either?  Tuff shat or do you have another relief mechanism in mind?

The devil is always in the details, but the bigger hurdle is to persuade people that we have a problem.

WT and RR;
I think this debate is a great way to focus the thinking you both are putting into these analyses, and I really look forward to learning from this comparison of counterpoints as it develops.  Thanks.

I did want to make a distinction on one of WT's points near the end..

"In most of the US, it is simply a given that the "American Way of Life" is non-negotiable and that we can continue to increase our petroleum imports year after year."

I agree with the first half, but I don't think most Americans really have considered how many aspects of our 'Way of Life' are dependent upon oil imports, so I don't see the mass of consumers putting them into the same statement like that.  I think conservation and reduced dependency on foreign oil (or foreign 'anything') falls into a 'yeah, that would be nice, maybe I'll make a NewYears' Resolution to try and 'cut back' category for many people, who are overworked and overtired from the very overcommuting and overconsuming that starts the vicious cycle of rank-consumerism..  I don't think it's quite as consciously created as the 'company store' model, but it's not that far off from it, either.

Talk Hard!

bob

Bob, I doubt that American consumers will conserve for any reason other than price. If the price of NG skyrockets, people will turn down the thermostat. If the price of gas does the same, consumers will respond as they did in the late '70s, by switching to fuel efficient cars.

Speaking of prices, WesTexas, I am curious as to why you think the price of gas is so low right now?

Total petroleum product inventories, divided by product supplied are below the average of the past few years, and gasoline inventories especially are dropping at a pretty good clip.

Gasoline prices are on an upward trend, up more than 10% locally since 11/1.   IMO, we are going to be on an upward trend for quite a while.

My basic premise is that we are going to have to bid the price up, if we want to continue consuming petroleum products at our current rate.

>>>If the price of NG skyrockets, people will turn down the thermostat.<<<

If this were mostly true. Unfortunately I think that what is likely to happen is that many Americans will just keep the thermostat at what is comfortable for them and then express shock and outrage at the bill. The media will play it up and demand heating subsidies for the "poor and needy".

In most cities utilities cannot cut of supply for non-payment of bills during the heating season.

If there is a cold season the NG in the pipes and underground will be burned regardless of price until the pressure in the supply line is 0 psig.

"I doubt that American consumers will conserve for any reason other than price."

Sure, Some do.  Most don't,  which is why I characterised it as a hopeful, New Year's resolution kind of thing.  I think people 'would like' to change it, but for the most part feel about as powerful in that goal as they do in 'ending world hunger' or even in 'really quitting smoking this time'..

I do think there are a few other factors that can push people along..  Threats of climate change has sold more than a few priuses, and the people I know who have them are not just rich and tossing a few bucks at it to 'feel good'.  It was definitely a costly investment and a vote of support for moving in a better direction.  We ourselves buy a lot of our food from local sources, and know that it's costing us more than getting jugs of soda and generic heads of iceberg lettuce from 'Macro-Ag in Salinas'.  We're not rich, but we put money in to things we believe are smart investments, either in our own health or to help benefit the local economy, small farms, overall soil and water and fuel consumption, helping spread more knowledge about diet as it affects both personal health and local economic security.

You can say we are the extreme exceptions, but there are other exceptions out there.  I met a family on Long Island, years ago.. very mainstream, very suburban, traditional religious, millions of Poreclain Figurines.. etc.. but they had adopted and raised this string of kids, one after another from all over the world, kids who otherwise wouldn't have been able to expect such a full family experience.. They were awesome.. even when I balked at the statement that EVERY vacation they took was to Disneyworld.  Yikes!  But they were 'extreme exceptions' too, in another way than Leslie and I are..  it does add up.  And it makes it really hard to have any statement about 'The American Consumer' really get that far on its own.

And I think prices will go up, and a lot more changes will happen then.  But there are a lot of seeds out there, already germinating.

I'm speaking, of course, of the aggregate. My wife and I have reduced our consumption (already low) dramatically. However, I don't see any movement amongst our friends and neighbors to do the same. People marvel at our "desert hobbit" home,  which require no cooling and minimal heating, and our minimalist lifestyle, and tend to say "oh, but I couldn't live like that."

Well, we're happy. Lifestyle changes for most people are pretty slow, until there is a crisis.

Speaking of which, I recently saw "memoirs of a Geisha," and would like to point to the dramatic lifestyle change everyone went through when their decadent lifestyles were obliterated by strategic bombing. They survived, and found strenth and new directions they wouldn't have guessed they had.

Its interesting to contrast two themes of this article. The first is that those with the biggest bank balances will crowd out other, poorer users - forcing them to conserve rather than having conservation in the biggest users.

The other is American-Way-of-LifeTM being none negotiable.

It seems to me that for the net oil importers its going to be a case of who's economy is stronger; who can outbid others for the resource?

Looking at the list of GDP per capita its obvious that most of the African countries will lose in that that game first, moving on to various island chains, south east asia, south america, middle east and only eventually reaching to FSU and Europe - with the US at number 7 in the list. However,as far as usage goes, the bottom two thirds to three quarters of the list hardly trouble the oil consumption figures - losing them doesn't count.

However, with a currency collapse in the US (let's say halving in value) the US falls to ~50 in the list, on a par with Slovenia and Greece.

So, given the extreme usage in the US, and the social inequality, it would seem that the full force of peaked oil is likely to strike the US via crash revaluation of the currency (eg no oil in dollars) rather than gradually as others fall by the wayside. Further, it looks like its in the interest of many, not least of which Europe and the Far East, to engineer that revaluation before the oil price hurts their economies too much. Would \$10 a gallon halve US consumption?

I note the \$ hovers around the 1.33 euro mark in trading today.

Gary,

I've put it this way.  Let's assume that we did not have the dollar as a medium of exchange.  Instead, assume that we had a barter system.  What things of value could we offer oil exporters in exchange for oil imports?  Note that we are supposed to be a food importer this year.

To paraphrase Bush 41, I predict Peak Doo-Doo next year.

Matt Simmons said last year in Dallas that we if we do nothing to address the Peak Oil problem, Jim Kunstler will have "Turned out to be an optimist."

I agree with Matt.

Have I suggested ELP today?

The US imports food every year.  Are you saying that the US is importing (or about to import) more (food) calories than it exports?  Links?
I've seen this speculation also. I believe it refers to dollar amounts, not calories. Here's a brief article that talks about the narrowing "agricultural trade surplus."
Wheat and corn are bulky and heavy but very cheap. Strawberries and other produce (often organic) flown in from Chile and New Zealand weigh very little but are quite expensive.
The Chinese increase in per capita meat, fish and fruit consumption over the last thirty years is unprecedented in history, and still shows no sign of deceleration.
Source?
US became a net food importer in 2005.

World grain supply drawn down six out of last seven years.
http://energybulletin.net/21815.html

The Australian grain harvest is in trouble due to drought as well. As this article points out the harvest will be retained on farms as feed which means less for export. A neat mirror of WT's theory but applied to grain. Oil shortage is not going to be the only resource story in 2007.
Ah, but we do in fact have a dollar medium of exchange. ANd, all oil importing nations have a critical need for dollars to finance their oil and other commodity imports.  So, for these countries to have the means of importing oil, the us must run a merchendise trade deficit large enough to finance their collective imports. True, the us is running a fiscal deficit, and this undermines our currency, but this can in principal be stopped overnight and, meanwhile, the major exporters, eg china japan korea germany, depend on the us buying their exports to maintain their economies.

Barter is quite inefficient, and such a system would substantially reduce world trade.  The world must have a currency to smoothly finance international trade.  I anticipate the dollar may decline but not a crash.

We really have a long way to go before the dollar ceases to be the global currency. I would sugggest that until the RMB drops below 5 the Chinese will still support us, and that the Japanese and Euros will simply continue to print money in the same amount that the Fed does until that happens. Simply not gonna happen in the next two years because of already sunk investment by CHina, Japan, etc., and if we get rational thought in the White House in 2009, we might be able to stave it off even further.

Nobody can risk a dollar collapse. The only cautions to this are (1) another LTCM debacle, while Bush is still in power (meaning he does as well as he did with Katrina, etc.); (2) regime change in Saudi Arabia, possible triggered by events in Iraq; and (3) something I haven't anticipated..

Check this out. "The Dollar Melts as Iraq Burns" - James K. Galbraith

The ability to control the slide of the US dollar may be evaporating, but there is broad international consensus that every effort must come to bear to defend the greenback, or at least to maintain an orderly and slow decline.  It would be very difficult to think of a government anywhere that wants the chaos that would ensue from a rapidly falling greenback, including those who detest US foreign policy.

The bit I was point out was that engineering the collapse of the dollar could be a viable route to putting off the worse problem (your economy doing a Guinea). Taking substantial parts of the US economy out of the demand side can delay the transition for your economy for much longer. Timing has to be right though - it has to tank fast or what's left will bite yer bum.

Strategically the US transition is unlikely to be like anyone elses. Both on the financial and the demand sides they are outliers. Playing one with the other can materially change the game for everyone else.

Remember, post peak we are no longer in a land that economists understand. Much of their comments and theories will go to the wall.

Well, you don't want to throw the baby out with the bathwater.I have been a skeptic of mainstream economics, in its many guises, ever since I encountered Georgescu-Roegen's thinking several decades ago.  Especially his monumentous, 'The Entropy Law and the Economic Process', Harvard University Press, 1971.  But I think one has to treat economics (mainstream) like one treats Newtonian mechanics: damn useful for explaining most motion, but ultimately inadequate for the task of understanding the universe.

Guinea is an impoverished, marginal player in the world economy, the United States, while declining in importance, especially in terms of world economic growth, is a central player.  There are all sorts of reasons why the elites who run the US economy and government will resist the collapse of the greenback, not the least of which is ego, though self-interest and self-preservation are the critical factors.  Moreover, elites the world over are dependent, if not on the welfare of the US, then certainly on stability; the value of the greenback is not only a function of US policy, but also of the policy of other nations.

I don't think it matters what the US wants now.

The world is going to move now to a basket of currencies for international trade which means the dollar will become one of many. The Euro was enough to kill the dollars control.

All that has to happen is the dollars start to slide ( it has )
And the Euro remain strong. The world should have moved to a basket a looong time ago I think its just timing of the EU and Japans economic recession that delayed the move.

Now this does mean China will be forced to float there currency.

Here is what is going to happen.

The US is going to let the dollar slid off a cliff.
China will lose billions of dollars or they will have to unpeg their currency.

Chinese imports will cost a lot more causing "inflation" in the US justifying a later rate hike once China unpegs.

Short term this means US intrest rates will remain unchanged or might even go down.

Right now the biggest game in the world is to force china to unpeg the yuan nothing else matters. Japan and the EU are not going to stand in the way of this since its in the worlds best intrest to force the Chinese to float their currency.

For the US the nice thing is during the battle China will take most of the losses.

memmel,
re. "China will lose billions of dollars or they will have to unpeg their currency"
From what I have read, China is stockpiling copper, iron ore, building an oil SPR, and diversifying their forex reserves to include more gold and silver.
It seems they are trying to unload US dollars but they are trying to do it in a way to avoid a sudden US\$ devaluation.
The Chinese have a long history and should not be underestimated. They will manage their US\$ reserves to protect their best interests. I would not bet too heavily that they come out holding an empty bag.

Regards,
Gunga

I think that the US is ready and willing and capable of mounting a financial attack on china to force them to unpeg.

We have nothing to lose now the US is basically bankrupt and we are still very very powerful and old masters at screwing people over especially in financial world. China waited to long in allowing the yuan to rise and along with it wages.
Now they will be forced to play by the same rules. Also realize that a lame duck second term US president is the most dangerous and powerful person in the world.

Now of course the bigger scheme is peak oil and I think the US is now on the path of re-localization of our economy. But we have to kill our inefficient suburbs and car economy. Interestingly enough this is exactly whats happening in the US.

Once the suburbs are dead and our auto manufactures are dead the US can then refocus on building a electric centric economy. Its a bit strange to realize that the best thing that could happen to the US is for the dollar to tank and housing and the auto industry to crash but this is what has to happen.  On the finicial side the US is withdrawing the dollar from being the standard for world trade its served it purpose. Sure there will be pain in the US for a few years but we are going to suffer it anyway. There is no way the US can escape asset deflation now.

The US cannot afford to have China unpeg. The middle class goes batty when Wal-Mart's prices go up instead of down. China all of a sudden cannot sell to its largest customer. So China cannot afford to unpeg. China has access to resources, but no way to turn them into exports. We realistically have five to ten more years until China can develop a self-sustaining middle class capable of absorbing the decline in demand in the US caused by devaluation. Until then, China continues forced savings to maintain the dollar within the trading band she has set.

Your making the mistake that the US gives a rip about the WalMart crowd. I think they have already been written off.

Where are we going to get our cheap labor to compete with China and keep our population low ?

A long running fear in America as been that one day a large underclass would form and destroy our democracy. Somtimes its phrased as the rise of a ruling class ( same difference )
In fact I think for Americans this is to consensus scenario for the end of America as we know it.

I have previously suggested that America (to the extent possible) might "engineer" a global economic slowdown/recession as a means of delaying the effects and realization of peak oil. It could also serve to allow the US to maintain its relative position atop the list of oil consumers.

I'm not sure how we engineered being bankrupt :)

No I think the US tried to engineer a growth economy based on building out the suburbs and to some extent enticing wealthy foreigners to retire in the US. I've lived on both coasts and the number or wealthy retired foreign people in the US is astounding.

In any case we let it turn into the mother of all bubbles and wrecked not only our economy but the "American Dream".

Now we are of course gaming the collapse of the US economy for what advantage we can get, but about all we can do is really hurt the Asian tigers and its not going to help the US much in the short term. I think that once the pain is over the US will actually be in a great position post peak. With suburbia dead and the US auto manufactures dead we can actually live within our means for the first time in 80 years.

memmel-

I agree with that and your above posts. The "engineering" I refer to is recent with a goal toward limiting the growth of the Asian Tigers that you refer to and their corresponding increase in energy demand.

I am amazed at the way you are glossing over things:

With suburbia dead and the US auto manufactures dead we can actually live within our means for the first time in 80 years

Best case you are talking for a couple of generations ahead, IMO... The amount of capital you just wrote off is staggering and the transitional period will certainly look like ever-lasting nightmare. Potentially escalating to hell if we decide to invest even more resources in the status quo (read wars).

I've lived through similar thing once - after the collapse of communism. Trust me, you don't want to live through anything resembling it. We better at least try to do it in the ordered and structured way. Not through the economic collapse which you and Dmitry Orlov are suggesting as inevitable.

I have a lot of friends from Eastern Bloc countries. So I do know what you guys went through. And to be honest a lot of you are scarred from the experience in the soul so to speak.

I did not mean to blithely gloss over the loss I think its self evident no reason to dwell on it.

I just think that economics issues are now very much clouding the statistics we are looking at to determine peak oil. The problem is in the past as regions peaked oil was imported from other places so economics are not so intertwined with the peak. While obviously when the world peak we have no other source and of course its a lot messier peak sloppy so to speak.

From the peak oil perspective I think it will be really difficult to determine world wide oil production capacity as this economic meltdown happens. All I can say is that we might not know we peak until the economy picks up again after this recession or more correctly tries too.

What would be cool is if someone can find or produce a graph of oil usage and recessions overlaid.

It really does not matter what the specific moment of technical Peak Oil is.

What really matters is the moment when our general society accepts that it has, is, or will happen and starts taking therapeutic measures to mitigate its effects.

I know this going to be an uncomfortable comparison and will resonate with some folk out there more than others --myself included because it has hit home-- but detecting Peak Oil is kind of like detecting a cancerous tumor.

There is going to be a technical moment when the tumor is large enough, active enough, to be "detectable" and it will usually be a much later time that the tumor is detected. It will be an even later time that the patient (and family) acknowledge the fact of the thing and start doing something about it --or not.

Certain TODder's like Kehab, Westexas, ... are like the hyper-technical doctors who debate on how to best and most accurately detect the cancerous tumor. Should we use a contrast CT scan or MRI or PET scan? Except, of course, the techno-TODder's debate is in terms of should we be using a simple Hubbert logistic or loglets or something else?

At the end of the day, what really matters is when is the patient (society) going to acknowledge the warning? Sort of like, if you keep smoking, you will suffer greatly from it --except that our message is: if you keep depleting and not finding alternatives, you will suffer greatly from it.

We had warniungs 40 years or more ago (1956). Have we kicked the habit? No.

Can we kick the habit?

WestTexas wrote above:

At the same time that the Saudis were announcing that they could not find buyers for all of their oil, and that they were "voluntarily" reducing their production, they were vastly expanding their drilling program.

But a year earlier, when they were producing 9,600,000 barrels per day a senior vice president at ARAMCO was saying that they were in steep decline.

One challenge for the Saudis in achieving this objective is that their existing fields sustain 5 percent-12 percent annual "decline rates," (according to Aramco Senior Vice President Abdullah Saif, as reported in Petroleum Intelligence Weekly and the International Oil Daily) meaning that the country needs around 500,000-1 million bbl/d in new capacity each year just to compensate.

And one year later, in September of 2006, they were producing 9,000,000 barrels per day. If their existing fields which includes all their giant fields are declining by 5 to 12 percent per year, it would be expected that they would drop some 600,000 barrels per day of production in one year.

Why are some people, even some peak oilers, in denial about Saudi production? Hell, if an Aramco vice president says they are in decline then they must be in decline.

How about it Robert, do you think this ARAMCO vice president was just telling a bald face lie? After all, in the past you have had problems with believing the Saudis would simply lie about production.

Ron Patterson

In fairness Ron, Robert said he would avoid discussing this until his reply next week.  Keep the question handy.  Robert has more inside information than most of us.  Maybe he'll find a way to answer this question without giving away too much.
I don't plan to get into a detailed discussion of Saudi in my reply to Jeffry's post, and responding to Ron might take me off on a tangent. So, I will respond here. In short, here is what I would say. Ron's quote was about their existing fields. It is not about the entire country, and does not take into account the new production they are bringing online. Even if the country as a whole was depleting at the lower end of Ron's quote, they would have already gone below 9 MMBPD. The fact is that the country as a whole is not seeing this kind of decline rate, and that is not what the ARAMCO vice president said. In my opinion, Ron has simply confused his statement about a decline in existing fields with a decline for the country as a whole, but even a cursory analysis can tell you that the country as a whole can't be declining at that rate. Ron's comments ignore new projects, which in my opinion is why so many drilling rigs have gone to Saudi.

Furthermore, I have not said that I "have had problems with believing the Saudis would simply lie about production." I have said that I have no reason to doubt when they said they had extra crude for sale earlier in the year. If you make such a statement, and people need the crude, you are going to get phone calls. Are you going to tell them you were just kidding, or just posturing?

The real problem is ambiguous statements coupled with no transparency or independent auditing.

Interpreting the limited information available then becomes a projective test, which (for people who are not familiar with psychology) means that what you think you are seeing reflects your internal state of mind, biasis and expectations beyond what information is actually there. In my opinion, this is what every observer (including myself) is doing right now. This is not directed at you, RR, but at all of us.

Yet in this case, as Testudo pointed out below, in the same article he talks about increasing production to 15 mmbpd. So, he is clearly not talking about any sort of permanent country-wide decline. Ron picked out one statement, clearly misinterpreted it, and made a false conclusion. That is selectively quoting in order to make your point, AKA quote-mining.
So we are left to guess what he really means, or if he even knows.

To peakearl:

AMEN.

RC known to you as ThatsItImout

Thanks.

I actually found myself thinking of your posts when I wrote mine originally.

I have my opinions, but I know they can't really be substantiated right now.

So we'll see...shouldn't have to wait all that long.

...shouldn't have to wait all that long.

True.  If the Saudi production manages to keep moving up juuuust enough, we will know they are playing games with us big time, but if the doomers are right, they will be like Canterell in Mexico and the North Sea, with no easy way to hide the facts, those being that we have all run out of rope...

Frankly, we should assume the worst, just in case, because the repercussions will be very dire....and besides, if they have plenty, it just means we get bled to death by a thousand cuts anyway....

RC  known to you as ThatsItImout

What was known about demand when they made the offer?  What quality crude were they offering?  Were they offering from storage tanks or current production?
But there are two not exactly contradictory points in my eyes in terms of Saudi Arabia not finding buyers for its oil -
1. At essentially the highest price in a generation?
2. To what extent is that highest price related to an economic slowdown reducing demand?

Oil as a product also involves timing - it is possible to have too much at one point of time - six tankers at a port with full storage tanks, and only one terminal to service two of them, and a refinery producing only 50% of capacity for maintenance which had been deferred for months will certainly cause some of those old supply chain problems, which would lead to some interesting effects - the 'value' of the crude in the tankers declines while the prices of the refined products increases (as always, very simplified). But in both the case of the tanker owners and the refinery owners, they are making less money than if everything was running smoothly.

I can imagine that the Saudis pumped as much as possible (both from the ground and storage) to ensure that oil supply disruptions in a vicious hurricane season would not lead to massive problems - and they, like most of us who had an opinion about the future, were caught on the wrong foot since the weather was so kind to most of North America.

This is independent of any peaking argument, I think. One thing which is very notable about Saudi Arabia since the early 1970s however, is that they seem to be utterly vicious in ensuring that the 'market' will not replace their oil until the Saudis cannot prevent that from happening. That is one of the more subtle reasons I think Saudi Arabia may be at the cusp, even if they can increase production a small amount - the European creation of renewable/bio fuel substitutes (in the sense of essential fuel use like farming) is the sort of things the Saudis would have killed in the past by flooding the market with cheap oil. Sort of like morning in America, after the old Carter conservation/efficiency/alternatives nightmare had a stake put through its heart, as OPEC doubled its reserves and jumped its production in the dawn of a rosy new day of growth and prosperity for the free market. (Which not so coincidentally, just happened to remove a good amount of marginal American oil production from the table - they are really America's best friend, full of kind hearted people who have all the right DC phone numbers, with the occasional pilot or two making a big impact on NYC and the Pentagon.)

Somehow, I don't think the Saudis are going to be able to flood the market. That the world ecomony may tank in a way not seen for decades (or generations) is not the same as saying the Saudis are still in enough control to ensure that the world views oil as the most important factor in a modern industrial economy's growth, as expressed through automobile production/driving, home building, or air travel/airplane production. Which now brings in the challenge of climate change as a political reason to move away from using any fossil fuels, which leads away from this discussion.

Ron's quote was about their existing fields. It is not about the entire country, and does not take into account the new production they are bringing online. Even if the country as a whole was depleting at the lower end of Ron's quote, they would have already gone below 9 MMBPD. The fact is that the country as a whole is not seeing this kind of decline rate, and that is not what the ARAMCO vice president said.

I think you are really confused here Robert. Shaybah, discovered in 1968, was the twenty-eighth oilfield found in Saudi Arabia and the last of any great size. It was brought on line in 1999 and is the only new production anywhere in the country.  Here is where most of Saudi oil came from in 1974, in thousands of barrels per day.

Ghawar.....5,353
Safaniya....1,436
Abqaiq........831
Berri...........766
Total.........8,386

Then by 1994the picture had changed only slightly:

Ghawar......5,000
Safaniya.......960
Abqaiq.........650
Berri............400
Zuluf...........500
Marjan.........400
Abu Sa'fah....150
Total..........1,060

And that was the last data we had out of Saudi Arabia. But the most remote field, Shaybah, deep in the Empty Quarter, has since been brought on line, the very last giant field in Saudi Arabia.

What you do not understand Robert, is the existing fields are the only fields in Saudi Arabia that are capable of producing any great amount of oil. There are no new fields of any great size anywhere in Saudi Arabia!

Of course if you believe there is 264 billion barrels of proven reserves in Saudi, then there must be more oil in Saudi. That is the point of contention here. Are those reserves a myth. Well, the list of "new projects" that ARAMCO plans to bring on line are all new wells in old fields discovered half a century ago. Only the planned  250,000 barrels per day of new oil from Shaybah can be considered "new" oil. And since 600,000 barrels per day is already coming from Shaybah, there is some doubt that it can be increased this much.

I repeat, all the rest of the planned new production in Saudi comes from old fields. Here is a perfect example of what you some are calling planned "new" projects.

Khurais: Khurais was discovered in the early 50's and brought on line in 1959. Khurais produced from 20,000 to 40,000 barrels per day during the 60s and 70s. The field was upgraded and in 1980 Khurais produced 68,000 barrels per day. Then in 1981 Khurais produced 144,000 barrels per day, an all time peak. The next year production from the field fell off dramatically. Then Saudi instituted a series of gas injection programs in order to improve production from the field. The program failed and the field continued its decline.

But a new day is dawning, or so some people think. Saudi has a plan to rejuvenate the field with a massive water injection program. At first they said 800,000 barrels per day could be achieved from this old worn out field. Then later that figure was upgraded to 1,200,000 barrels per day. Saudi plans four new gosps, (gas oil separation plants) on the field, each with the capability to handle 200,000 barrels per day. But I am sure they will build these gosps one at a time, and stop when production goes no higher. I expect only one gosp will ever be built there.

But the point is, the existing fields produce all but a trickle of oil coming out of the country. If those fields are declining by an average of eight percent per year, then all Saudi would be declining by at least 7.7 percent or greater.

Ron Patterson

Correction

That last total should have been 8,060 thousand barrels per day, not 1,060. Sorry about the typo.

Ron

I think you are really confused here Robert.

There is no confusion on my part here, Ron. There are two pieces of information that indicate your interpretation of his comments was incorrect. If he was saying that the  country was declining at that rate, then they would already be below 9 mmbpd. They are not.

Second, he obviously didn't mean the country as a whole, or he wouldn't have talked about getting the country up to 15 mmbpd. Now, I don't believe they will get to that level, but it would be totally ridiculous for him to claim that they are going to be able to increase rates much higher in the long run if they are in decline. Think about it. Run the decline rates out for a few years for the whole country, and it becomes obvious that he could not have meant that the country is in decline.

Nope, you are still confused Robert. Do you remember a 300,000 barrel a day addition to Haradh that came on line in February of 2006. Then there is the 250,000 barrel per day addition to Shaybah that is schedule to come on line by 2008. And since that is a relatively new field, it will probably materialize.

The article clearly says that they must find new oil to offset the decline. They have found some new oil, but not enough to replace the decline. And I suspect that trend will continue.

And yes, they really believe that they have a motherload of new oil out there somewhere. They really believe that they have 264 million barrels of reserves. They truly believe that they will produce, one day, 15 million barrels of oil per day. Those reserves are purely mythological. They do not exist.

And NO he did not mean the whole country was in decline, he only meant existing fields. That is, the fields that are producing oil right now. And yes, there are a few places that they can come up with a few more barrels. There are fields, like Khurais where they may come with 200,000 thousand barrels per day, and Shaybah, mentioned above. And there are a few other very small fields that were mothballed because of low production. These fields will be reopeaned and milked for every barrel they have.

No, they will not decline by 8 percent. I expect that they will, in the next 5 years, decline by from 3 to 5 percent. After that it will creep a bit higher.

Ron Patterson

To be honest, Ron, you aren't making any sense to me and it feels like I am wasting my time here. I said I wasn't going to get in a debate about Saudi peaking, and I now find myself regretting getting into a conversation in which the "proof" is "They must be lying."

Look back at your original post:

But a year earlier, when they were producing 9,600,000 barrels per day a senior vice president at ARAMCO was saying that they were in steep decline.

Of course "they" being individual fields, not the whole country. And given that the country has not been in decline, that means they have successfully brought 500,000 to 1,000,000 barrels of new production on each year to make up for the declines, and then some.

How about it Robert, do you think this ARAMCO vice president was just telling a bald face lie?

This completely confuses 2 concepts. I have never argued that individual fields don't undergo decline, or aren't in decline. So why on earth would I think he is telling a "bald face lie"? That question simply makes no sense.

Of course the article also says:

In June 2005, Saudi Aramco's senior vice president of gas operations, Khalid al-Falih, stated that Saudi Arabia would raise production capacity to more than 12 million bbl/d by 2009, and then possibly to 15 million bbl/d "if the market situation justifies it." Falih added that by 2006, Saudi Arabia would have 90 drilling rigs in the Kingdom, more than double the number of rigs operating in 2004.

So let me guess. You do think this is a bald-faced lie, but you accept that the statement about the decline is true? When do you decide to accept that they are telling the truth? When they say something you accept? And they are lying when they say something you disagree with?

Furthermore, for some reason you think that I might have an issue with a statement that indicates fields are in decline. And you "know" that they are in decline, while they are saying that they will increase production. Let me ask you a question, so I can get you on the record. What will you say if they push production to 10 million bpd in the next couple of years? I mean, you are laying your credibility way out there, Ron. If they increase production, I suspect your feet will be held to the fire.

I mean, seriously, some of your comments are so far at odds with what they are suggesting, that somebody is so wrong it is unreal. Again, I don't believe they can get to 15 million bpd, but they will lose all credibility in the world if they are in decline, and yet promising to increase production over the next couple of years. They still have to do business with the rest of the world in the future.

I really don't know what else to say.

Let me ask you a question, so I can get you on the record. What will you say if they push production to 10 million bpd in the next couple of years? I mean, you are laying your credibility way out there, Ron. If they increase production, I suspect your feet will be held to the fire.

YES, emphatically YES! I will go on record as saying Saudi will not push production to 10 million barrels per day in the next couple of years. Hell, I will go on record and say they will never push production to 10 million barrels per day average for one year.

Roger, please forgive me but you simply have never grasped the gist of what I am trying to say. I am saying that most of the world believes Saudi Arabia has 264 billion barrels of proven reserves with perhaps another 200 billion barrels yet to be found. I am claiming that this is a complete myth.

Saudi Arabia is currently in steep decline. All their existing giant fields are declining from 5 to 12 percent per year. This means some of them, they are about 5 of them, or 7 if you count a couple of lesser fields, and they all have different decline rates. The least decline rate is 5 percent and the greatest decline rate is 12 percent. At least that is how I interpret the Vice President's statement. These giant fields produce about 90 percent of Saudi production.

They truly believe they have lots and lots of other fields out there, just waiting to be discovered. But it is highly likely that the insiders at ARAMCO know better. That is why they are concentrating their efforts, in the near term, to reviving some of the fields that were placed in mothballs earlier.

Those massive reserves in Saudi Arabia are a pure myth. They simply are not there. Ghawar is in decline, Safaniya is in decline, Abqaiq is in decline and Berri is in decline. Eighty percent of Saudi Arabia's oil comes from these four fields. Another ten percent comes from Zuluf, Marjan and Abu Sa'fah. And these fields are in decline also!

But Saudi is counting on new oil! They believe that they have 264 billion barrels out there....somewhere...just waiting to be tapped.

But yes, you are wasting your time on me Robert. And I am wasting my time on you. You simply do not understand the true situation in Saudi Arabia and no matter how I try to explain it, I seem to hit a brick wall. So we can call it quits for now, with me going on record as saying that Saudi Arabia is in a decline from which they will never recover.

Okay, I have the balls to go on record with my position. Do you? Will you go on record as saying that Saudi will eventually produce 12 mb/d, before it becomes obvious even to a stone blind man, that they are in decline? I will not ask you to predict that they will eventually produce 15 million barrels per day. Hell, I doubt if anyone on this list is so damn dumb as to believe that.

Ron Patterson

*All figures and predictions are crude + condensate. That is all I deal with.

Roger, please forgive me but you simply have never grasped the gist of what I am trying to say. I am saying that most of the world believes Saudi Arabia has 264 billion barrels of proven reserves with perhaps another 200 billion barrels yet to be found. I am claiming that this is a complete myth.

First of all, Roger is my brother. Common mistake, but usually by people that know us both. :-)

Second, I understand full well what you are suggesting. Always have. But your statements from the initial comment to me above simply haven't made sense. Your interpretatios of the comments simply can't be correct. Otherwise, they wouldn't believe that they can increase production. Simple as that. They don't say "We are in decline, and by the way we will be increasing production in a couple of years."

How much oil do you think they have? As I have said before, we can't actually confirm their reserves. I can't say they are being honest or dishonest here. But I will note that Kehbab's graph of Saudi suggests 185 billion or so as the URR. What do you think it is?

The least decline rate is 5 percent and the greatest decline rate is 12 percent. At least that is how I interpret the Vice President's statement. These giant fields produce about 90 percent of Saudi production.

So are you suggesting that these fields just went into decline a year ago? My point, which you didn't grasp, is that I understand that declines are part of the business. But so is developing new fields. Given that their fields didn't start declining yesterday, they have been able to more than replace the declines with new production.

You simply do not understand the true situation in Saudi Arabia and no matter how I try to explain it

Assertions, even if you put them in bold letters, are not evidence. What you are doing is making assertions. You are quote-mining, and being selective with which statements you choose to believe. This is no way to conduct an investigation, nor is it any way to convince a skeptic. Extraordinary claims require extraordinary evidence. You know, like some references (not selective quoting) that back up your claims.

Okay, I have the balls to go on record with my position. Do you? Will you go on record as saying that Saudi will eventually produce 12 mb/d, before it becomes obvious even to a stone blind man, that they are in decline?

My position is that they are not in decline, and you will see in my response to Jeffrey why exports have looked as they have. I don't know if they will reach 12 million. I do predict they will reach 10 million, and I predict that they are not yet in decline.

*All figures and predictions are crude + condensate. That is all I deal with.

Don't worry, I don't think they will be starting an ethanol program any time soon.

Okay Robert, we must close this thing now. You think Saudi is not in decline and I say they are. But I must reply to this silly statement of yours:

So are you suggesting that these fields just went into decline a year ago?

Good lord man, did I ever suggest such a thing? NO, some fields have been in decline for years and some just went into decline. That is how it works with any nation. And remember, up until a couple of years ago, they were deliberately choking off production. So finally when all fields were producing flat out did the last fields peak out.

My point, which you didn't grasp, is that I understand that declines are part of the business. But so is developing new fields.

Yes, and this your greatest error, and everyone else's greatest error as well. There are no new fields in Saudi Arabia! None of any size anyway. The last field of any size, Shaybah, was discovered in 1968, and began production in 1999.

Given that their fields didn't start declining yesterday, they have been able to more than replace the declines with new production.

Well, up until recently they did. But new production has not been that great. Haradh 3 came on line this past February with 300,000 barrels of new production. But the decline rate has been greater and as a result production is currently down about half a million barrels per day.

I repeat, Saudi Arabia is in decline, a decline from which they will never revover! New oil is simply not keeping up with the decline. That is largely because there are no new fields in Saudi Arabia.

Ron Patterson

I will go on record and say they will never push production to 10 million barrels per day average for one year.

Ron, you are certainly standing up and being counted here. How about a \$1,000 bet between you and Robert Rapier on this exact question? The money could be held in escrow by one of the editors here. You'd have to work out some details such as the data source, the type of oil being counted, the expiration date of the bet, etc.

Ron, you are certainly standing up and being counted here. How about a \$1,000 bet between you and Robert Rapier on this exact question? The money could be held in escrow by one of the editors here.

Calorie, I am retired and live on a small retirement check from Boeing and my SS. I do not have \$1,000 to put into escrow. However I do have an old 34 foot sloop that I would be glad to bet against anything of equal value. I will bet that that Saudi will never top their previous peak of 9,900,000 barrels per day which they averaged in 1980.

The boat is old but has a solid hull, a Yanmar diesel engine and pretty good sails. She is worth a lot more than 1,000 dollars.

Ron Patterson

What no playboy?
I suspect, as of this date, they both have a 50-50 chance (IMO) of being correct, however they would never bet on 50-50 so if they bet they must have some numbers they are hiding.
Good lord man, did I ever suggest such a thing? NO, some fields have been in decline for years and some just went into decline.

So then you acknowledge, even though you say that there are no new fields, that they have been able to bring up to 1 million bpd of new production on year after year in order to offset declines? Don't you see that? They bring new production online all the time. Have been doing it for years. Have had to in order to offset declines. They can't do it forever, but I am certain your call of peak in Saudi is premature.

And remember, up until a couple of years ago, they were deliberately choking off production.

And yet they say that's what they are doing now. Yet you don't believe them. Why? Why do you only believe the statements that you think support your position? You are very selective with the evidence you choose to accept.

There are no new fields in Saudi Arabia! None of any size anyway.

Yet somehow they have managed to bring on an extra million or so barrels a day, year after year, in order to offset declines.

But the decline rate has been greater and as a result production is currently down about half a million barrels per day.

You have absolutely zero evidence to back this up. You are just making assertions. That doesn't work with me. You can't demonstrate that a high decline rate is the reason production is down, when in fact they have said they have extra oil for sale, and in fact world demand is down, which backs up their claim of excess oil on the market.

I repeat, Saudi Arabia is in decline, a decline from which they will never revover!

Again, assertions, even if they are in bold, or color, or ALL CAPS, are still not the same as evidence.

This is a situation for which there can be no evidence. THat they did not sell more when price was at 75/b is sufficient evidence for me that they had none to sell, excepting, perhaps, a bit of very heavy sour that they felt was worth more than the market would pay. And, there is no doubt they are trying with rigs looking for oil up 3x. So, if you are not interested in darwinian's boat, I will take a flyer on an even money \$1k bet that they do not exceed 10Mb/d for any year between now and 1/1/2010.

Many don't like betting. Look at this as an opportunity, not a challenge.

I did a simple matrix today on excel. Barrels per day on left from 1 million to 12. Prices at top from \$50-\$90.

That way I can figure in two secs what they are, would've, or could've of.

Becomes pretty clear what's been going on when you do that.

Anybody can use a calculator or a pencil to figure the same thing. I just like my excel spreadsheets cuz I can figure the whole range inside of 2 minutes.

Why do people here think Saudis can't grasp this? I took advanced calculus classes with Saudis. They ain't that dumb.

Neither are the people running xom. Just answer what is in their self interest... both want consumers to continue and even accelerate consuming, which drives up prices, profits, shares, options, bonuses, swiss bank accounts.  Announcing they're running out invites revolution in both kingdoms and board rooms. Honesty in Kuwait is only happening because their parliament has a small measure of independence.

Today's thread on ng is most interesting for investors, and helps explain how the 700bcf surplus declined to 200bcf. For some reason I thought the drop would not hit until 2010...  I am diversifying a little from ard/gpor to gmxr.

I agree. Nice post. Wish others could read it the way I do. Very concise.
Please look at the dates of discovery for recent and planned sources of new production in KSA.  ALL were found 30 to 50+ years ago !

Recently on TOD they had a plot of wildcats vs. % of total reserves in KSA.  The last 20% of wildcats appeared to find ~1% of reserves.  Still money is those plays (imagine an oil company finding 1% of KSA reserves anywhere else in the world :-) but not a "solution to the problem".

Aramco had an extreordinary set of discovered prospects stored for decades that they have been developing as needed.  I suspect that they still have some quite small reserviors (range 10,000 - 50,000 b/day) left in their cupboard, but everyone >150,000 b.day appears to have been developed or is in the process of development.  Essentially, the cupboard is bare except for crumbs !

I do not think that there are any more undiscovered new prospects that can produce significant quantities of oil in KSA.  And even if they missed one 250,000 b/day field, it is not enough to make a difference.

Alan

Hello Darwinian,

This would be a nice time for Heinberg's 'undisclosed inside source' to give an update to Richard, and/or email Prof. Goose, and for additional corroboration to be found.  Recall the following from his Aug 4,2006 article on EnergyBulletin:
--------------------------------
At the ASPO conference a well-connected industry insider who wishes not to be directly quoted told me that his own sources inside Saudi Arabia `insist` that production from Ghawar is now down to less than three million barrels per day, and that the Saudis are maintaining total production at only slowly dwindling levels by producing other fields at maximum rates. This, if true, would be a bombshell: most estimates give production from Ghawar at 5.5 Mb/d.
----------------------------------

New info would clear this issue up nicely between you and R-squared.  I don't have the link handy, but recall WT's post on the Saudi stock market crash--was this cliffdive started roughly around the same timeframe as Heinberg's bombshell?

Hello CIA/NSA, KGB, and ARAMCO: anybody there want to give us a hint?  Valid info could really help with Peakoil Outreach.

Bob Shaw in Phx,Az  Are Humans Smarter than Yeast?

Now that would be a scoop.

Let's just see if any of these folks have an ounce of morality to become TOD's "Deep Throat".

Man...this is becoming a Tom Clancy novel.

A quick summary on the divergence on Saudi production between Darwinian and Robert Rapier.

Darwinian processes the input from Aramco Senior Vice President Abdullah Saif which state that existing production is declining 7-12 per cent, and since no new big fields is found or being developed, such decline is not likely to be offset unless they can reverse the decline from the existing (now declining) base. He thinks small fields can offset some of the decline, but not 100 per cent - and certainly not more than 100 percent.

Robert Rapier believe that they can increase production, and to some extent he build his arguments on faith on Aramco statements, and that they have managed the decline in the past.

The weak RR argument:

Again, I don't believe they can get to 15 million bpd, but they will lose all credibility in the world if they are in decline, and yet promising to increase production over the next couple of years. They still have to do business with the rest of the world in the future.

The stronger argument from RR:

I have said that I have no reason to doubt when they said they had extra crude for sale earlier in the year. If you make such a statement, and people need the crude, you are going to get phone calls. Are you going to tell them you were just kidding, or just posturing?

My take:
Given that the old fields can't reverse the decline, and that the smaller field can't offset the net decline - it's clearly an inconsistency between those assumed facts and statements from senior Aramco management. They are either lying or believing the assumptions above is false.

It's important to remember that the major players do have an information strategy, that to some extent they have an instrumental relationship to the truth. This is generally true in a corporate or political reality. So when Darwinian  believe that the Saudies are lying, it's not a very sensational suggestion. But my question would be: why lie? On the surface one would think that they would benefit from underestimate their production capability (drive up the oil price). Why would they lie or communicate the most optimistic scenario?

It would be valueble to have some empiri on how reliable statements on oil production from major players has been in the past. I believe that they tend to be optimistic. Anyone here with insight on for example the information strategies from major players in the U.S. at time of peak production?

The first argument from RR isn't very strong; I think that one need very little credibility to sell oil in a post peak world. The second argument is, for some reason i can't express, more confusing. They have oil, but not buyers at current pricing. I welcome comments this argument.

Ps: Pardon the spelling, there is no spellchecker installed on this computer.

Ron (Darwinian) said something VERY profound here:
"Of course if you believe there is 264 billion barrels of proven reserves in Saudi, then there must be more oil in Saudi. That is the point of contention here. Are those reserves a myth"

That is EXACTLY the cutting edge of the whole "peak now" argument.  And not just for Saudi Arabia but for the world.

As Westexas and others were a part of an earlier discussion we had about this, they are very familiar with our difference on this issue.  I call it "the Mystery of Disappearing Reserves."  One must believe that until just the last year or so, no one had any idea how much oil reserves the world was considered to have, and then believe that suddenly, they just vaporized!

After the energy crisis of the 1970's, however, reserve estimates, widely known, have been part and parcel of the oil trade.  Oh, yeah, they existed before that, but who read them?  Every just assumed that reserves would grow faster than production, so everything was cush.  Why did we suddenly start caring?  Because we had seen how a half decade of decline in oil production in the early 1980's told us NOTHING about the real condition of available oil reserves, and when I say "available" I am referring to "geologically available" as opposed to  "logistical availability".  Now the "peak now" argument seems to be (a) we do in fact know the URR of the world (I differ) and that reserves have virtually nothing to do with potential production (I differ) and that a short period of production decline indicates that the producers are unable due to geology (not just unwilling or unable due to logistical/political/economic problems) to produce oil (I differ).

I do agree with the "peak now" believers that the time is getting crucial.  Even if you take the high side estimates of world URR, we are starting to cut it close, and if you take the low side estimates by "peak now" believers, Peak is ALREADY BEHIND US, by possibly 4 years or more.  I say that not in sarcasm, because by shifting suppliers, sources, types, and stockpiles, production numbers can be fudged.  On the flip side of the coin, Peak may be 20 years or more in front of us.  Small adjustments in URR can make a big difference.  We KNOW the world had oil in the ground only a few years ago.  How much?  If we assume that it disappeared, where did it go?

So what am I trying to say, you ask?  Let's do this one more time:

1. PRODUCTION NUMBERS TELL US NOTHING about when peak will occur until we see YEARS of production declines.
2. URR numbers are guesses, and cannot be relied on to assure or deny peak, with spreads in world URR estimates of 300% percent and more, by so called reputable sources.
3.  If you take long accepted URR stats (before "inflation" for political reasons) and current production stats, you have to assume we may be in grave jeopardy of not having  enough crude oil to match the assumed demand VERY SOON, and plan accordingly.
4.  Here we go again..I am going to say it, of course:  We are runniing completely in the blind, and that is the most serious danger that can be imagined.  Betting without hedges in EITHER DIRECTION can wipe you out.  Caution, serious conservation, "case hardening", strategic diversity and and decentralization must be done NOW.  It is the only sane energy policy for any nation that hopes to survive into the future in control of it's own destiny.  On that, I think "peakers", "agnostics, and even "non peakers" can agree.  There are a thousand good reasons to change our energy policy in a radical way.  "Peak now" is just one of them.

Roger Conner  known to you as ThatsItImout
Roger said: "Even if you take the high side estimates of world URR, we are starting to cut it close, and if you take the low side estimates by "peak now" believers, Peak is ALREADY BEHIND US, by possibly 4 years or more."

This statement is plainly wrong on both counts.  Most estimates of past consumption are 1043-Gb to 1078-Gb.  If Peak was indeed past us, URR's would have to be less than 2086-Gb to 2156-Gb.  Unfortunately the lowest published URR is OPEC's 2187-Gb.  The avg of the 16 published URR estimates is 3252-Gb.  The high by IEA (5200-Gb) would indicate that we are less than 1/4 thru URR and Peak is 25 years away. Your "starting to cut it close" is quite an exageration for the optimist scenario.

Anyone espousing that we are past Peak is yanking your chain or you are confusing conventional oil with all liquids.  Conventional is very likely past us and nobody that i know is defending that case.

Individual wells exeperience these decline rates, but the entire complex can continue to increase production as more wells are drilled and more infrastructure put into place.  Granted, the article says that the "fields" are declining, but it is more likely a sloppy phrasing by the author than it is a admission by Aramco that Ghawar has peaked and is in decline.

After all, in the previous paragraph the Aramco official is predicting that they will reach 15 mbpd.  You cannot pick and choose your sentences, you have to look at the entirety of data.

Granted, the article says that the "fields" are declining, but it is more likely a sloppy phrasing by the author than it is a admission by Aramco that Ghawar has peaked and is in decline.

Surely you are joking. The Vice President would not be conserned with individual wells, fields would be his concern. And when all the wells in a field start to decline, you cannot just drill new wells in between them and compensate for it. All Saudi's fields are covered like a blanket with horizontal christmas tree wells. Only in new areas like Haradh and Shaybah have any areas to drill new wells. And after all the EIA states that "500,000-1 million bbl/d in new capacity each year just to compensate." Do you think the EIA really misunderstood the Vice President's remarks? No, I think it far more likely that you misunderstood them!

After all, in the previous paragraph the Aramco official is predicting that they will reach 15 mbpd.  You cannot pick and choose your sentences, you have to look at the entirety of data.

I am not choosing anything. I know the Saudis truly believe that they really have 264 million barrels of proven reserves. I have stated that many times on this list. They simply believe that eventually they will tap into this vast reservoir and get their production up to 15 million barrels per day. No, they are not lying here, they really believe that.

Testudo, you should really study the situation a little closer and you would not make silly mistakes like thinking they meant "existing wells" instead of "existing fields". The Vice President likely knew exactly what he was talking about. He knew exactly what "decline rate" means. How foolish of you to think he could make such a stupid mistake.

Ron Patterson

You are stretching, careful you don't pull something.  : )

ARAMCO's company line is that they can achieve 15 mbpd for 50 years.  I'm skeptical, to say the least.  A former ARAMCO official who has been booted out (I don't have the link at the moment but it is not hard to find) has publicly come out as saying he believes they can get to 12 mbpd but will fall short of 15.  He is a credible "dissident".

Arguing that KSA has already peaked, when you take into account the increased non-OPEC production and soft pricing, is simply not credible.  It is based on faith, not evidence.

If the Saudis peak out at 12-15, hell even if only they make it to 15, that's a huge freaking deal.  It means that we are staring peak in the face in the next few years.  That's the real story.  Trying to convince people that peak has already occured, without credible evidence, is counter productive because it exposes you as a sensationalist.

ARAMCO's company line is that they can achieve 15 mbpd for 50 years.  I'm skeptical, to say the least.

Well hell, I thought you believed everything they said. Now you are cherry picking what you wish to believe.

A former ARAMCO official who has been booted out (I don't have the link at the moment but it is not hard to find) has publicly come out as saying he believes they can get to 12 mbpd but will fall short of 15.  He is a credible "dissident".

Testudo, I am a "Saudi follower" and I have never heard that one. Would you please find it and post the URL.

Arguing that KSA has already peaked, when you take into account the increased non-OPEC production and soft pricing, is simply not credible.  It is based on faith, not evidence.

What increase in non-OPEC production? In December 2003 non-OPEC production, crude + condensate, came to 42,783,000 barrels per day. In September 2006 non-OPEC production, crude + condensate, came to 42,531,000 barrels per day. Non-OPEC production has bounced up and down in a very narrow range for almost three years. There has been no increase in non-OPEC producton.

And it is aduacious of you to say that what I have posted is based on faith instead of evidence. I have been the only one in this debate to post evidence! I have posted field by field statistics. I have posted URLs. I have posted where the new oil is coming from and where it is not coming from. You have posted not one whit of evidence. It would behoove you Testudo, to post some damn evidence yourself, even if you have the gall to say that I have posted no evidence when I have posted all the evidence that has been posted.

Trying to convince people that peak has already occured, without credible evidence, is counter productive because it exposes you as a sensationalist.

I am not trying to convince you of anything. I am simply giving you the facts, facts which you simply ignore. But the facts are there. Here are the facts!

Saudi reserves of 264 billion barrels is a myth.
Middle East reserves of nearly 700 billion barrels is a myth.
Ghawar peaked in 1981 at 5,694,000 bp/d.
Safaniya peaked in 1981 at 1,544,000 bp/d.
Abqaiq peaked in 1973 at 1,094,000 bp/d.
Berri peaked in 1976 at 807,557 bp/d.
Saudi Arabia peaked in 1980 at 9,900 bp/d.

Those are the facts Testudo, that is the evidence. So let' see some of your evidence. But you cannot produce any. And since you have not posted one whit of evidence, one must assume everything you write is based on faith.

Ron Patterson

Correction

Saudi peaked in 1980 at 9,900,000 barrels per day average for the entire year. (Not 9,000 bp/d as I stated above.)

Ron Patterson

Ron,

You probably should clarify whether you are talking about C+C or Total Liquids (I assume the former).

A former ARAMCO official who has been booted out (I don't have the link at the moment but it is not hard to find) has publicly come out as saying he believes they can get to 12 mbpd but will fall short of 15.  He is a credible "dissident".

Testudo, I am a "Saudi follower" and I have never heard that one. Would you please find it and post the URL.

I think this may have come from Sadad al-Husseini, retired Aramco top executive for exploration and production, as reported to Peter Maass in the New York Times Magazine article The Breaking Point, published August 21, 2005.

He says

Although Matthew Simmons says it is unlikely that the Saudis will be able to produce 12.5 million barrels a day or sustain output at that level for a significant period of time, Husseini says the target is realistic; he says that Simmons is wrong to state that Saudi Arabia has reached its peak. But 12.5 million is just an interim marker, as far as consuming nations are concerned, on the way to 15 million barrels a day and beyond -- and that is the point at which Husseini says problems will arise.

...

Experts like Husseini are very concerned by the prospect of trying to produce 15 million barrels a day.

...

"You could go to 15, but that's when the questions of depletion rate, reservoir management and damaging the fields come into play," says Nawaf Obaid, a Saudi oil and security analyst who is regarded as being exceptionally well connected to key Saudi leaders.

This was Ali Naimi's comment to Petroleum World in Oct/2005:

"The upstream expansion projects now underway in Saudi Arabia represent a combined production capacity addition of around 3mn b/d, part of which will be utilized to offset natural decline and the rest to expand capacity. By 2009, Saudi Arabia's maximum sustainable capacity will reach 12.5mn b/d. Other projects have been identified and can be advanced, if necessary, to meet additional supply requirements. Saudi Arabia has prepared a production capacity scenario of 15mn b/d, which can be implemented in response to growing market demand."

It differs from Saleri's CSIS presentation in this way:  While both are commenting on "capacity" and desire 1.5 to 2-mbd spare capacity, Saleri saw the 12.5-mbd "capacity" attainable in 2016.  Saleri agrees that 15-mbd is attainable, but production at that rate from "proven reserves" would only be for 34 years.  To continue for 50 years, their "probable reserves" would have to come to fruition and he sees no impediment.  His prefernce is clearly to maintain production capacity at 12.5-mbd for fifty years from proven reserves and only ramping up to 15 "when global disruption" presents itself.

With both gentlement speaking of capacity and defining spare capacity, it is not prudent for non Saudi's (including IEA & EIA) to prepare Outlooks that assume SA production exceeding 10.5-mbd (all liquids) in the future.

On a tangent, I would not mind if US implement any measure to conserve oil.  I am pleasantly surprised to hear Supreme Court arguments on Global Warming related issues to mention that it is bad to have rules/laws that prevent large size SUVs from being built.  I don't see anything wrong with outlawing SUVs, but I guess I am minority.

Now, back to your OP, I think you should mention why KSA could not find buyers for their crude oil.  They are saying no one will buy their crude at the price they set.  The price they set corresponds to refine product margins.  Please note there is a positive correlation between dropping refine margins and dropping crude prices.  It looks to me KSA is true to their words that they will price oil according to demand.  Also, please note that other oil producers are not able to find buyers for their crude production.  This is not limited to just KSA.

Also, you pointed out that "someone must be conserving" seems logical as we have some conflicting data.  Oil production is down, but oil demand is up in most major markets like US, China, etc...  These discrepancies could not be answered by reported storage.  I do not have an answer to this one, but would like to point out that there are significant new oil reaching the market due to pipeline operations bringing Caspian oil and Canadian oil sands that were not available last year.  Could these pipelines be bringing oil to the market, but not increasing the stats for world oil production as they went into production in the past?

The question of whether domestic demand is going to be satisfied before exports needs a little more analysis.  It is not true for third world food production.  Export crops typically take priority over domestic needs.
What won't change is that oil goes to those who have money to pay for it.  However, the national income of the exporting nations will tend to rise, while the national income of the importing nations will tend to decrease, so you may be right in the end.
"While there are many suggestions for alternative energy sources and for the expanded use of other fossil fuel sources and the expanded use of nuclear energy, the reality in my opinion, is that the Net Oil Export Crisis is hitting so hard and so fast that our only recourse is to effectively implement a triage operation, where large portions of American suburbia are effectively abandoned."

Triage includes an explicit decision making process.  Who will make the decisions about which parts of the American suburbs, currently home to tens of millions of people, will be abandoned?

Will these decisions be enforced by military force?  Will those displaced people be bought out?  If the latter, at what cost?

Where are those displaced people expected to move?  There's not nearly enough room in cities for that many additional residents, at least not without a massive investment and building program.

Please understand that I'm not trying to be argumentative; I hear this notion of abandoning the suburbs a lot in peak oil discussions, yet I never see anything approaching a detailed analysis of how it can be done given where we are right now.

My opinion is that we're stuck with the suburbs (simply because of their size) and it makes more sense to invest heavily in R&D and implementation to electrify transportation, and build out solar, wind, wave, tidal, and geothermal power as quickly as possible.  But even that is a daunting task; if I'm wrong then someone PLEASE present a detailed transition plan for de-suburbifying America.

Tent cities, like during the Great Depression?  IMO, people will go where the jobs are, and that won't be the suburbs.

As I've said, the obvious solution is for people to double up (or more).  I think it will happen naturally.  People will move in with friends or relatives.  It's only very recently that we've considered a 3,000SF McMansion with multiple bathrooms and a separate bedroom for each resident a necessity.

Only a few generations ago, taking in a boarder was the classic way to make ends meet.  Some people still do it.  I suspect a lot more will.

"As I've said, the obvious solution is for people to double up (or more).  I think it will happen naturally.  People will move in with friends or relatives. "

And that's happened in the Russian Collapse as described by Dmitry Orlov in his "Closing the Collapse Gap" posted yesterday.

I don't think the de-suburbanizing of america will follow any "detailed plans."  The mechanisms of displacement/abandonment may vary but not knowing exactly how it could happen will not prevent it from happening.

The market will take care of this, Lou.  Coming from you, this sounds like a trick question.  Transportation inefficient locations will see a decline in value commensurate with their increase in transportation costs.  The declining values will discourage development there.  People will have the choice of moving to a more transportation efficient location or staying put while their property value declines.  Housing in transportation efficient locations will go up in value and encourage building in those areas.

Frankly, if we didn't have a socialist road infrastructure system, the market would take care of the transportation system as well.  Electric rail lines would be seen as good investments, while road infrastructure would be seen as a poor investment.  More rail would be built and roads would shrink as demand fell.

I have my doubts that the market will create much additional supply, but if allowed to, the markets will take care of the needed demand destruction just fine.

It's definitely not a trick question.

I see nothing in a market approach that's compatible with an overt triage operation.

But even ignoring the "triage" loaded word, it's not as simple as saying economics will provide an incentive to move people back into the city.  Before a significant percentage of people move, their demand for cheaper transportation will drive the move to electrified transportation and new mass transit projects.  If they can find or get acceptable (to them) transportation, then they'll stay where they are.

And again, people will only move if there's a place for them to move to.  Right now, it would take a massive amount of development to create that much additional housing.  And even if it is built and people want to move, what becomes of their current home?  People won't lock the door and walk away.  If they sell, it will be to someone else who wants to live there or to someone who wants to tear down the house and repurpose the land.  If it's the latter, they won't be willing to pay what the current owners want.  (Who would buy farm land at several hundred thousand dollars per 1/3 or 1/2 acre lot?)

My ongoing problem with this issue is that I think a lot of the discussion includes too much over simplification.  Until I see a plan that actually addresses the issues I keep harping about, I'll consider to be extremely skeptical.

Tour the slums and abandoned housing that still exist in many US cities.  These were almost uniformly thriving neighborhoods with good property (not outstanding) values on V-J Day.

But all too often the returning veterans could not buy a house down the street with their VA loan. Add gov't freeways. See result.

It is NOT pretty, but it is a good comparable.

I live in a well-to-do 1890s home that has been split into 5 apartments.  Some costs to add extra bathrooms, walls, etc, but "affordable".  Several downtown office buildings and dozens of warehouses have been turned into condos & apartments in New Orleans.  We even have a "Warehouse District" bordering the Lower Garden District.

Why must the Suburbanite's suffering be taken care of, or there is no "plan" ?

For many, bankruptcy & foreclosure. If still employed, move to a cramped apartment or back with family and pay off debt (see new bankruptcy law).

Add unemployment and you get homelessness.  That is the American Way.  We fund shelters for the homeless and these will likely need to be enlarged.

BTW, New Orleans, which already had a high density, had 40% of the population with 20% of the housing stock.  I know a Tulane professor that spent months sleeping on a mattress in the hallway (a couple had the living room) of a friend's house and an MD sleeping on a futon in the living room.

High status individuals, cramped conditions for up to a year.

Reality need not be pretty, I know !

best Hopes for Accepting Reality,

Alan

Plans I am aware of today in New Orleans. 8 story office building in flooded area of New Orleans (Chef Mentaur & Industrial Canal).  Create "3 plexes" of single rooms (each with shower & toilet with short wall between) and shared kitchen & living room.  Aim for 'affordable market".  Unsure of total in 8 stories but "a lot".  And with 2 elevators, rent one of the lower floors !

No #s but "we" can certainly afford to remodel !

Reality.

Alan

Triage is not a matter of choosing which wound will receive care, but rather which patient or level of injury will receive care in what order.  Think of the individual suburbs as the "wounds" in this case (I'm not implying a value judgement), and the transportation arrangements as the patients.  It would be perfectly reasonable, explicit triage to say that we cannot maintain the current road subsidies and are shifting funds from road construction to road repair, transit systems, and nonmotorized transportation.  Local authorities can always choose to make important roadways toll roads to pay for their maintenance.  If this happens to result in the the exurban development "patient" dying, so be it.  We can't fix everything at the same time.

Using our triage analogy some more, the "doctors" would then focus their efforts on ensuring that existing roads are repaired and transit systems and conditions for nonmotorized transportation are improved.  Developers are fairly bright people; they will notice the change in transportation subsidies and alter their development practices to match.

If this process isn't fast enough then we alter the triage decision making again, so that when repairing roads we downsize them so that we can afford to repair them in the future (more likely, just repair the portion we can afford to repair and let the remaining lanes fall apart), and we further increase the share of funding for transit and nonmotorized transportation.  As in a real triage ward, you keep making adjustments as needed to save as many patients as possible.

As to where we put people moving into cities; take the existing housing and put more people in, either by dividing the houses up into apartments or just putting more people in the same space; or use the building funds available to build many small units.  People are very good at finding alternatives when they need to.  What happens to their suburban house?  They sell at a loss, or attempt to sell but realize it's futile.  They may leave expecting to return when things get better.  Looters end up taking things of value and don't bother to lock back up.  Squatters may move in.  The owners eventually come back and see a house not worth moving back to, or hear from someone who stayed, and abandon it to the government.  That's what happened to the abandoned areas in New Orleans, right?  It certainly describes the abandoned areas of Detroit that I've seen.

Do US 1950 to US 1970 in reverse.

One possibility, copied from VA loans post-WW II (effectively VA loans were only for new construction.  These VA loans had "standards" that only new construction could meet).

Add zero risk premium to mortgages within 1 mile of an Urban Rail line station, +1/8% if within 2 miles, +1/4% if within 4 miles and +1/2% elsewhere.  Only on new mortgages, Fannie Mae & Ginnie Mae.  If a new rail line is under construction, then that "counts" for risk premium reduction.

Exurb + Suburban homes would be difficult to sell and many would be boarded up.  Likewise malls that serve them. Just a repeat of what happened to central cities and downtowns post-WW II.

No gov't program to cover the home owner or shipping cneter losses (none 1950-70).

And cut maintenance on suburban & exurban highways to very close to zero.

After stacking the deck, then let the free market do it's wonders !  (Again, a repeat of 1950 to 1970).

Best Hopes for Exurbia,

Alan

Hello Alan,

Very clever financial thinking--Kudos!

In the mid-1980's in the Houston area we had a huge local recession caused by the Reagan-Bush deal with the Saudi's dumping crude on the markets and causing giant lay-offs in the domestic oil industry. People in the suburbs did in fact just walk off and leave their homes to get work elsewhere, and the whole character of many Houston neighborhoods changed. Lower middle class suburbs in Alief, Missouri City, Sugarland, Sagemont, and Aldine were foreclosed in mass and the houses sold off by the lenders at a huge loss. As an example, I had a good friend buy a townhouse in Aleif for \$10,000 that was built new for \$60,000. The neighborhood changed to a mostly immigrant area with a high Vietnamese and Nigerian population.
I had another friend, an old maid school teacher , put her savings on a duplex in Sugarland. She lost her roommate and had to walk on her mortgage because the place was so much less valuable than when she bought it because of the depressed real estate market. She did the double up thing and moved in with a friend near her work for a few years.
My point to these stories is this is the pattern I expect to see in the suburbs again-they will be just abandoned, foreclosed and the losses tacked on to our good ole national debt. Some people will buy undervalued assets and do well, and many people will have their dreams and lives crushed. So heed WestTexas when he says Economise, Localise, Produce.
The old fashioned virtues of hard work, thrift and helping your neighbors that he is advocating are true conservatism in its best sense, the conservatism of my grandparents. They did not tout their conservatism-they lived it. Those are the truly great values of the United States, and the people of the world. If we reflect on how they survived their depression and went on to prosper we have great examples. Learning to power down and make do is possible.
Actually, we already have a foot in that door.  Fannie Mae's Location Efficient Mortgage gives people moving to locations with good transit, walking, and biking opportunities extra consideration for mortgage affordability.  It's currently only available in four large cities and it only applies to single-family detached houses. There's no reason it couldn't be expanded to all metro areas and altered to apply to all housing.

Combine that with the reduction in highway repair money that will happen anyway (is already happening), and a greater emphasis on transit and nonmotorized transportation and we'll see outer sprawl abandoned and redevelopment in cities.  It won't take much, and some of the people who will be taking control of congress in the new year may well have these kind of changes in mind.

The only question in my mind is will it happen fast enough.

Unfortunately, No.

No as in the sense of preventing widespread suffering and social stress (think suicide rate and what causes a spike, and why Russian men have such short lives).

However, stuff we do in the next few years can mitigate things "a bit".  Build out that list I developed of "on the shelf" Urban Rail projects that can start throwing dirt in 1 to 3 years (ROUGH guess \$125 billion) and we can actually make a difference (small blip in context of entire nation).  Add \$450 billion for Phase II and the blip gets larger, enough to transform dozens of US cities.  But completion date for 90% of Phase II is 2018 at best.  Phase III would be built deep in post-Peak Oil.  Add electrification of mainline railroads in 6 to 8 years, with branches after that.

Glad to hear about the Location Efficient Mortgage.  Only downside is that it allows for a higher mortgage, not a lower rate.  But baby steps :-)

My goal is not to save this nation from itself (impossible IMHO), but soften the downside blow.  Provide a partial shelter from the harsh realities of post-Peak Oil, a "way out" that is incomplete but workable.

These are my Best Hopes,

Alan

Switzerland will not be finished till 2020 with it's 31 billion Swiss franc# Trans-Alp and related programs that will, among other goals, displace almost all heavy trucks in Switzerland with (hydro) electric rail.  Improved rail passenger service is another goal. 1 billion Swiss francs just for quieter rail cars.

2020 !? But that is too late !

A significant tunnel will be opened in 2007 and others in stages after that. The key tunnel (57 km) is due to be finished in 2017. Supplemental tunnels and other improvements may be delayed till after 2020, due to cost overruns on key projects.

IF Peak oil exports were in 2005, or will be in 2010, Switzerland will wish that they had started in 1990 instead of 2000.  But their credit is good, currency sound, exports solid and they have almost as much gold as the US.  They can outbid others for the still large volumes of oil being exported as they finish this massive project and make other efforts to reduce their dependence on oil.

The first few years post-Peak Oil/Exports will not be the toughest years.  Depending upon the rate of decline and adjustment, a quick and appropriate response (not ethanol or hydrogen or other nonsense) at affordable levels can make a difference as we slide deeper into the post-Peak Oil/Exports world.  Once people see that we have a "solution", the US can build massive amounts of Urban Rail within a dozen years.

I want to start pushing on that boulder now, to get it barely rolling, starting the ramp up.  That can cut years off the eventual solution.

Best Hopes,

Alan

# Adjust for population & currency and = to US spending \$1 trillion on improving our railroads

Alan, please spend some time analysing disposable income.  If & when there is a peak oil or post peak crisis, the pain will not be equal.  Folks are still buying SUV's because it doesn't hurt most.  If gasoline/diesel doubles or triples, u will be amazed at the lack of consequence.  Middle and upper class will maintain status quo.  G-20 countries will not see huge consequences compared to "the rest".  You are generalizing far too much w/o regard to demographics, finacial thresholds and energy components share of CPI.
"Where are those displaced people expected to move?  There's not nearly enough room in cities for that many additional residents, at least not without a massive investment and building program."

You Americans have no idea - lucky you! Here's the capacity of a two-bedroom apartment, 1000 square feet/90m2, in a set of different reference frames:

America: 2 people
Germany, ca. 1960: 4-5 people
Germany, 1946: 8-10 people

No building program necessary. Just double up. This has the added advantage of providing some heat.

"There's not nearly enough room in cities for that many additional residents"

With peak oil I doubt there will be enough resources to maintain the infrastructure of most cities for very long with or without additional residents.

Jeffrey - curiously I'd suggested to Leanan this weekend that you should be invited to do a guest post - so this is very timely. I'm officially abstaining from commenting these days - so all rules are made to be broken.

I gotta go out this evening so will be brief through neccessity:

1.  A agree with a lot of what you say, and you may be right about peak now.  However, like Robert I think that peak still lies a few years away.  I've stated on several occasions 2012±3 - based largely on the work of Khebab. But supported by the likes of Campbell and Michael Smith.

2.  I see a danger in pinning too much on peak now - remember the boy who cried wolf - so I would say 20% probability of peak now.

3.  I see a danger in pinning too much on peak at 50% of Qt.

The UK peaked at 67% of Qt.  The UK North Sea + other regions like West of Shetland, Liverpool Bay, Wytch Farm are to my mind highly analagous to KSA.  The UK North Sea is a sub-set of the whole North Sea - as is KSA a sub-set of the whole Arabian Gulf basin. KSA has some different regions / plays - the deep clastic light oil reservoir S of Riyadh, and most importantly, both regions resources have been developed in stages, moderated by oil price.  You can read some of my UK descriptions here:

The double peak in UK productiom is not the direct result of Piper Alpha - as you frequently say, but is in fact initially the result of the oil price crash of 1986.

In summary, I'd be cautious about writing KSA off too soon.  Sure they are past their best - but most of their production to date has come form around 6 fields, so what about all the rest?

1. We have had a lot of discussion here on TOD about modern technology actually distorting the bell curve in a way that may bias peak to beyond 50% of Qt - mainly related to a variety of new drilling technologies - so again I'd be wary of pinning too much on 50% of Qt.

2. I'd be wary of saying Yibal is an analogue for Ghawar - they may both be developed using multi-lateral horizontal wells - but that is not enough to make them anaologues IMO.

3. Falling Global production this year, is IMO a sign of falling demand - so that comes back to your comment about falling production in KSA- we just don't know what this means.

For the last 25 years, global oil production has been rising at a rate of 1.1mmbpdpy - and as Khebab has pointed out this is amazingly well correlated with population growth. The last couple of years it got a little bit above trend, and this year, IMO it is just getting back onto trend.

1. I agree strongly with the points you make about bidding wars and poor countries getting squeezed out.  I think there is great danger here that some developing countres will become destabilised to the detriment of the whole world.

2.  For me one of the sure fire signs that PO will have arrived is that falling production will correlate with sharply higher price. That will be the key difference between falling supply and falling demand.

Any way I gotta go now, may call back later.

Euan  ... fire away

Regarding the UK, I agree with Khebab that extrapolating from a 30% P/Q intercept is wildly unrealistic.  I'm not aware of any large producing region, including the UK, that has shown a sustained 30% P/Q intercept.

The P/Q intercept for KSA is very similar to Texas, and these have been the two principal swing producers, and KSA is now showing lower production at about the same stage of depletion at which Texas started declining.

Also, based on my C+C HL plot, total North Sea production peaked at 50% of Qt.
Jeffrey,

I'm not entirely satisfied with the brevity of your reply, and would prefer you to go into a bit more detail.  In particular, do you think that modern drilling technology might distort the bell curve in a way that leads to peak at lets say 55 or 60 % of Qt - followed by more rapid decline thereafter?

Heres a plot from the UK Nelson Field - no bell curve here.  Stack a lot of these on top of each other and you get an assymetric distribution that's front loaded.

And here's a plot of new production in the UK showing in part the impact of pre-drilling wells and subsea technology on bringing production on early. And this in part explains the gob smacking rapid decline of UK production - if you get production early - decline when it comes is more severe.

Luis sent me a paper by either Defyes or Laherre that provided a comprehensive list of HL limitations - hopefully Luis can call by to explain.

Re: Stack a lot of these on top of each other and you get an assymetric distribution that's front loaded.

This point has been the source of a lot of debate on TOD: Why the sum of asymmetric curves should result in a symmetric one (Gaussian or Logistic)? One interesting case is Norway, where the fields are also very asymmetric but represents a poster child for the HL:

src: GraphOilogy

I believe it has to do with some kind of Central Limit Theorem for a large number of random contributions. I've tried to simulate simple triangular oilfields and try to find the necessary requirements to get a symmetric production curve:

The Central Limit Theorem is limited if one element is too large. Is Ghawar too large ?

IMHO, 6% of world oil from one field is not "too large" for the overall world, but a sharp "discontinuity" down in that 6% near the apex WILL show up as a max.  OTOH, a gradual decline in that 6% will not.

WT has noted that several large fields (total ~12%) seem to be almost in parallel for peak, if not downslope angle.

IF Ghawar is in the early days of a crash, my analysis of the CLTis that we are at peak.  OTOH, if Ghawar is in an undulating plateau trending down, we might not be.

If Ghawar trends down, Cantarell crashes, Burgin & Daquing (sp ?) trends down, then we are almost certainly VERY close to Peak Exports (if not there already) and Peak Conventional Oil is close behind.

IMHO, the Law of Large Numbers applies once one is beyond the "elite" super-giants.

WT may be calling it early (I do not know), but I think his date is closer to reality than RRs 2010+.

Perhaps what I am proposing is a "bottom up" analysis of the world's largest fields (add Kashagan) and a top down HL for the rest.  Do an independent analsysis of the data outliers and group analysis of the rest.

The only flaw I see ?  Was exploitation delayed in smaller KSA fields because of the cheap & easy Ghawar oil, and hence "other" KSA fields do not follow HL principles ?

I do NOT know the answer.

Best hopes,

Alan

The only flaw I see ?  Was exploitation delayed in smaller KSA fields because of the cheap & easy Ghawar oil, and hence "other" KSA fields do not follow HL principles ?

I've attempted to answer this by comparing the Lower 48 and the North Sea to each other.  These are two vastly different regions, in terms of field size distribributions, but they both peaked at the 50% mark.  Therefore, I don't see why KSA should not follow the same decline pattern as Texas.

Fundamentally, regardless of the region the first 50% appears to be a good predictor of the second 50%.

See an old comment of mine here on a guest post by Roberto (for TOD:UK -- Chris) regarding the central limit theorem and Hubbert modeling.

Stuart and Khebab have pointed out at the possibility of the central limit theorem applying to oil production to give a normal distribution. But what I am saying is that the central limit theorem does not apply at all well directly, because there are a few fields that are much larger that the rest and have been discovered very early. If you leave out these aberrations first, the central limit theorem will work much better, and will give you something close to a normal distribution.

So Roberto & you apparently agree with my suggestion to take out the largest fields, model them seperately, and use the Central Limit Theorem as an approximation of reality for the balance :-)

I may be slow, but I tend to get there.

Best Hopes,

Alan

Also, regarding the Norway fields, they do not look so assymmetric to me...

Khebab, I note a lot of your triangles seem to look quite symetrical, so it would be intesting to look at stacking Nelson type wedges - I might get around to it one day.  One of the over riding driving forces in the oil industry for the last 25 odd years has been to get production early - even at the expense of overall recovery. The main issue with KSA, however, is the potential for non-linear HL stemming from economic / political drivers.

On the other hand of course, Norway is interesting from the angle that there was a political will to develop resources slowly - but it still peaked just 2 years after the UK.  The second UK peak of course just made it in no more - as a result of all those fields they brought on with pre-drilled wells.

My triangle based model was very simple but could be refined with different basic shapes.

One main difference between the UK and Norway is that the top fields have very asymmetric profiles whereas for Norway, the top fields are rather symmetric (except maybe for Ekofisk):

Below is Norway's top field (Statfjord):

Hello Khebab,

You are such a data-freak genius that I believe you would be `totally accepted on TOD as totally impartial to the WT/RR debate.`  Would you be willing to also generate specific charts for RR's rebuttal next week if he emails you a request?

Sure!
Central limit theorem does not apply to temporally causal systems like these as the tails do not extend to -infinity.  A much simpler explanation is the multiplication of stochastic variables.  It works out nicely and passes Occam's razor, as this approach has been used by mathematicians through the ages to explain away scores of physical phenomena involving random rates.

For example, a 6th-order gamma distribution derives from stochastic rates and you really can't tell the difference between this and a gaussian-shaped curve in the meaty part of the curve (which is all that really matters, since the gaussian is completely wrong on the leading edge, and no one has waited long enough on the trailing edge to get good statistics).

Hello WebHubbleTelescope,

I am having trouble understanding your post.  Perhaps you can tell me if I am on the right track.  Is the yellow track in your graph: the gaussian that is completely wrong on the leading edge [because it doesn't start at zero]?  And the red track is the math-stat corrected path after controlling for all possible random rates and noise?

Could you possibly restate how this effects oil predictions?

Can a layman like me be given a link to help quickly grok this topic? Thxs.

Bob Shaw in Phx,Az  Are Humans Smarter than Yeast?

Since you can't wind back the clock to -infinity, a gaussian has to start at a non-zero value. Unfortunately, no physical phenomena allows it to start at a non-zero value; i.e. the calculus will not allow it.   This is really what engineers, physicists, and mathematicians like to call sanity-checks -- what it does is gives us enough reason to not waste any time following this path.

Alas, I am likely the only one pursuing an orthogonal angle, as nearly everyone else (exception: Khebab similarly seems to try new approaches) throws in with the gaussian/logistic heuristics crowd.

I'm not entirely satisfied with the brevity of your reply, and would prefer you to go into a bit more detail.  In particular, do you think that modern drilling technology might distort the bell curve in a way that leads to peak at lets say 55 or 60 % of Qt - followed by more rapid decline thereafter?

Euan,

If I had my way, I would drive a stake through the heart of the UK analogy and bury it--partly because when I debated Michael Lynch and ExxonMobil, Lynch threw out the UK as an example of where HL has not worked, and I didn't get a chance to rebut his point (I'm still pissed).

The question that I continually ask is why use the UK, a sub-basin, within a large productive basin, when you can use the entire North Sea?

Granted, for modeling purposes I am separating the Lower 48 from Alaska, but they are separated by half a continent geographically and separated in terms of development by decades.

I think that the whole two HL models for the UK is an illusion, since there is no case history of a large producing region showing a 30% long term P/Q intercept.

If you want a model for KSA, why not use the prior swing producer, Texas, which, like KSA, went for long periods of time producing at less than capacity?

I think that the HL method gives us a pretty good idea of the area under the curve (Qt), and when regions do peak later than 50%, they tend to have sharper post-peak decline rates than those regions that peak at about 50%, e.g., Texas versus the Lower 48.

The primary argument against technology making a difference is that the Lower 48 and the overall North Sea (C+C) peaked at the same point, right around 50% of Qt, 29 years apart--1970 and 1999.

Jeffrey, as I said I'm in non-commenting mode at the moment - so this will probably be my last comment tonight:

I just want to draw your attention to my original post above where I make the point that the UK is a sub-portion of the whole North Sea, where economics has influenced the development history.  KSA is a sub-portion of the whole of the Arabian Gulf basin (which also includes UAE, Kuwait, Iraq and parts of Iran) and that KSA too has been subject to economic and political control of its production history.  So, IMHO, the possibility exists that the HL for KSA develops some features in common with the HL for the UK, though probably not as extreme.

The latest from John Lhaerrere shows this what I call dog leg up feature - which I believe is dominated by un-used capacity in the ME just getting switched on.  So this shows Qt potentially getting stretched way out - and the world no where near 50%.  I don't happen to believe this interpretation either - thinking it goes too far the other way. If I live long enough I may post on this some time in the New Year.

To recap my principal position - you may be right, there is a cetain (IMO low) probablity that we have peak now.  More probably, decline in production this year reflects soft demand and that peak lies some point in the near future.  Qt, as defined by HL can be variable - not a constant, that will respond to oil price and mans ability to build drilling rigs fast enough for less energy than they will ultimately release from the Earth's interior.

Latching on to the historic notion of Qt - my feeling is that peak will occur at some point beyond 50%.  I think it is a mistake right now to over state a case based on 50% of Qt and historic analogs such as the lower 48 which are founded on drilling and production technology that is 40+ years old. If you're right, you will be a hero.  If you're wrong, no one will listen in the future.

CW

I think it is a mistake right now to over state a case based on 50% of Qt and historic analogs such as the lower 48 which are founded on drilling and production technology that is 40+ years old.

That's the point of the Lower 48 and North Sea comparisons--vastly different regions, that peaked 29 years apart (much better technology in the North Sea), but they both peaked right at 50% of Qt.

Also, we have tried virtually everything in Texas and the Lower 48--3D, horizontal drilling, tertiary recovery, etc.

BTW, the world peak prediction is not mine, it's Deffeyes.  The only really semi-original contribution I have made to the debate is the Peak Export issue.

The Laherrere Linearization is not unique.  The IFP Linearization projects a URR of 4028-Gb.
Your point that the north sea makes more sense as a model than either norway or the uk brings up the point below that the persian gulf could be modeled as a single region.  What would hubbert predict for a persian gulf peak?
Hello Euan,

Regarding your top chart of the UK Nelson oilfield: was this field `from the get-go` developed with bottle brush wells and injection exotica plus almost immediate hookup to nearby existing infrastructure?

What explains the superfast upramp, then rapidly falling from 800kb/d to 400kb/d IN ONLY SIX YEARS [by eyeballs- early 2000]?  The initial high prod. period [June94 to Jan97 by eyeballs - 2 & 1/2 yrs] also looks like a `very short plateau before the depletion starts kicking in: so could one say that 50% production reduction took roughly 3 years?`

If this also applies to the infield bottle brush wells in KSA: could we say that `sufficient quantities of bottle brush wells have had sufficient time to traverse their 3yr production plateau, then the bottom falls out?`

Thus, as mentioned earlier by you & other TODers below my posting: the stacking of production profiles like this Nelson oilfield, if it applies to KSA and other fields doing extensive infills, could be leading geologists in the field to think that everything is just peachy on this very short lived, but flat plateau/bottle brush, because the stacking process leads to rising production overall, but then very suddenly--it is downhill from here on out?

`How long has KSA been doing infill horizontal bottle brush wells with quick hookups and high initial max extraction to offset the natural depletion from older, standard wells?`

`Is the high porosity and permeability of KSA geo-structures perfect for this scenario to happen?`  Consider the example of sucking iced soda pop with a straw: the early sucks are easy because the fluid flow is not hindered by the floating ice, but when the ice hits the bottom of the glass you have to suck harder to get the remaining fluid to flow around the ice to the straw.  `No well 'coning' for a short period, then it happens bigtime?`

Frontierenergy, Pluckyunderdog, HO, Dave--is this a valid comparison?

Bob Shaw in Phx,Az  Are Humans Smarter than Yeast?

4:42 Bob Shaw
Hello Bob.  Up until about 1998 I'd worked on almost every appraisal well drilled on Nelson, I'd seen all the cores, smelt the oil, looked at all the logs studied the pressure data.

The reservoir is a Paleocene turbidite that was shed off the East Shetland Platform, and it lies to the immediate SE of the Forties Field and is essentilly a Forties satellite. So we're talking sanstone reservoir - sheets and stacked channels, interbedded with mudstones.  The reservoir has nothing in common with the fractured and stylotised carbonate reservoirs of the ME.

The field was developed by Enterprise Oil using a single dedicatd steel jacket platform with oil export going via a pipe line link to Forties (I think).  I believe most of the early production wells were pretty standard vertical and deviated wells (though some horizontal wells may also have been drilled - I can't remember).  What I do recall is that the early production wells came on at tremendous flow rates. The plateau was probably reached with a handful of wells - and the plateau is probably facilities constrained - i.e. as much as the platform could handle.  Owing to rapid production, pressure depletion sets in and flow rates subside. More wells are drilled to keep things going and water injection will be inititiated.

My guess would be that comming off plateau will reflect water break through and the remaining history is one of increasing water cut relative to oil.

So not a good analogy for the multilateral wells used in the ME carbonate fields at all.  One thing most peolpe don't realsie is that a large number of the ME reservoirs are actually poor quality - porosity is quite high but permeability can be low.  Permeability anisotropy is also a significat problem - the so called super K problem.  That's why complex multi-laterals are required.  Nelson in complete contrats is a sandstone reservoir with fabulous reservoir quality.

Hope this helps Bob - any more questions then fire away - but I gotta finnish off an article today.

All countries, not least china and the US, are experiencing lower growth (and energy consumption) on account of high energy prices than they would have if prices were lower.  The ones where the squeeze will be most visible will be those that had low or negative growth prior to higher oil prices, eg most of sub-saharan africa and parts of asia/s. america. Of course, the major reasons for economic performance, good or bad, is the specific combination of wages/corruption/education/savings/gov control prevalent in the region.

China remains very poor per capita (indeed their low wages are a major export advantage), but has had and will continue to enjoy strong growth because their level of low wages/corruption/education/savings results in highly competitive labor intensive exports.  WHile they must eventually reduce corruption to continue high growth, they are still making up for low growth under communism. So, the us will continue to reduce energy consumption wrt china because china will continue to experience a substantially higher growth rate.

You cannot say low levels of corruption and china in the same sentence its not allowed.

Ever hear of a place called Shenzhen ?

China is a pure wage slave economy. I've been in the factories and eaten in the mess halls. I assure you the one or two meals these young people get at a factory makes a huge difference to the worker in China.

China is run almost exactly like the early 1800's in the US.

The latest info is that all liquids production was up maybe 1Mb/d in 3q06, and further that quite logically oecd stocks gained around 100Mb during the period.  If true, this neatly explains the drop in prices and interest in po.

SO, how is a large increase in oecd stocks explained if exports are declining? Maybe ethanol and tar sands production is up; no matter if both are essentially a conversion of ng to liquid fuels - we will see more of this. Regardless, 3q data clearly questions the export model.  It seems appropriate that the export model make an attempt to show how falling crude exports, if true, is consistent with surging all liquids stocks.

Hopefully, we will not see claims that reduced opec output from 11/06 is proof of anything.  Note that prices stabilized only because opec is cutting and is promising more cuts to further shore up prices; clearly, if the world is producing 1Mb/d more then opec must cut 1Mb/d to offset the new production plus maybe another 1Mb/d, for a few months, to soak up current high stocks.

Reports of opec's demise were premature. Oil investors and, presumably, po'ers everywhere are reflecting how useful it remains.

I commented on OPEC's "demise" long ago. There is no demise here, just a loss of economic/political power. At one point, OPEC could drive the price of oil downward as far as they wished by swamping the world in cheap oil. That no longer appears to be the case. However, in a tight market where no producer has large amounts of slack volume, any major player can drive prices upwards by cutting production. And so it is with OPEC - they can force prices higher but there is a floor below which they cannot currently send prices. In fact, that threat to lower prices is precisely what Saudi Arabia did to the USSR at the request of Ronald Reagan. There is serious doubt in many corners about whether they can do this again to Iran.
opec's raison d'etre, like any other cartel, has always been to maintain or raise prices. opec would not exist under the premise of lowering prices to allow one opec member to destroy another.

Your assumption that sa did, in fact, flood the market for the specific purpose of hurting russia may or may not be true, but russia's own large and growing production, along with the north sea and north slope, was also affecting price during the late eighties. One might just as easily say that all of these regions were boosting output to hurt opec.  A simpler explanation is that the cartel had difficulty reigning in their own produciton to accommodate surging non-opec production, as routinely happens at least occasionally with all cartels. opec is by far the most successful of all commodity cartels, but there is no reason to assume that whenever they mess up it is on account of deviousness as opposed to the difficulty of persuading a large number of actors to voluntarily cut their income.

A look at sa's fiscal deficits that occurred up until very recently shows that sa is very happy with 60+ nymex, certainly given that the high prices have not seriuosly affected their major customers. sa rulers are of course concerned with a nuclear iran, and are certainly pissed that iraq, the natural counterweight to iran, is being dismembered as a result of us actions. However, they are concerned with many other things, too, not least holding power and lining their nests as the world passes po, and lower oil prices are not likely to help achieve either objective. At any rate, if they wanted to flood the market to hurt iran they would not have agreed to the current cuts or have supported the proposed new ones being discussed for this month.

I think your missing one of the big symptoms of peak oil.

Oil is now scarce so you have a hoarding effect going on.

Thus the tendency is to hoard when prices are expensive and this drives down prices in this case.

Because of the hoarding effect you will see stocks balloon then shrink to almost nothing before people start buying again.

So its going to be hoard->high prices-> stop buying->run stocks down.

In the case of the US the scare of the hurricane season and the war caused people to buy more at any price ( hoard).

We are just seeing this work itself off this year.

Now elsewhere in the world outside the OECD peak oil is already well established the third world peaked in 2005.

A lot of peak oilers are a bit myopic looking at the wealthiest countries and when they will peak. Peak oil consumption happen at different times for different countries. I mean its obvious that for KSA peak oil is probably 50-100 years off.

You have to look at consumption country by country and see if they have peaked consumption and are in decline. This is the demand destruction side of peak oil. And the poor countries cannot hoard oil btw.

Now with that said the Oil producers don't like oil hoarding one bit since it causes wild swings in prices but this is to be expected. Of course these swings just reinforce the hoarding effect.

For decades the oil market priced futures lower than spot, obviously always expecting prices to fall, and the reverse of the metal markets. After around 2003, with china consumption surging along with prices, oil futures reversed and priced futures higher than spot. This strongly encouraged refiners to buy more than normal, so US stocks logically climbed as production and consumption stagnated from late 2004. However, in 3q06 we had a surge in production of all liquids, around 1Mb/d to over 85Mb/d as I noted earlier, and this increase in production had to go somewhere, so it went into stocks.  Stocks rose past what refiners wanted, maybe to the point where they literally had no place to put it, so prices had to fall, and did even though futures remain higher than spot. Record high production in excess of consumption, to the point that refiners are out of room, which subsequently leads to crashing prices and calls among opec to cut production, is not what one might expect at po.

THe current situation is one that invites complacency, which is what we are getting from the press and public. So far I have not seen any discussion that both predicts imminent po and explains why this is or might be important considering what is happening with all liquids production.  If, say, all liquids is surging on account of higher ethanol/tar sands, why should the public worry that crude is flat or even declining? The critical question is quite simple: can one can fill the hummer at a price one can afford? Absolutely nothing else is of interest.

As an aside, the desire to hoard had nothing to do with commercial stocks but did, perhaps, affect the US interest in filling the SPR, completed in mid-05. Note that until 3q06, when all liquids surged, oecd stocks were at a ten-year low even as US stocks were at a five year high, presumably because foreigners have been expecting the dollar to fall, which has in fact been happening and thereby further lowering the cost of foreign oil purchases.

Agian the rise in the US stocks are directly related to the non-hurricane season. We over bought as you see no one else did. This excess will be worked off before winter is over.
This was classic hoarding. Also I believe we entered recession this summer or early fall and it took a while for this to percolate through. As far as the 1Mb/d gain in all liquids I think thats noise in the stats we can't account for production to that level.

Your putting way to much weight on statistical noise. I for example won't believe we are post peak world wide till I see at least a 4Mb/d drop in oil output. Anything else is to close to the noise in the number. On the same hand till I see at least a 2-3 Mb/d increase I don't believe increased production on the upside. The reason for the uneven distribution is there is a lot of oil in transit and storage on any given day so it takes a long time for "real" production cuts to have and effect while announced production tends to lead the actual supply of the oil.

Maybe Kehbab would like to suggest his take in the uncertianty in  total production numbers.

Next no one knew which way the dollar was going to go till this fall and it became obvious the US housing bubble burst.

Once our stocks fall you will see another round of price runups as someone decides to go into hording mode. Now with the dollar falling and probably sliding in the near future your probably correct in that outside the US there will not be a big stock increase its hard to say. At some point oil prices in dollars will have to correct for the weaking dollar sending the cost of oil for the US up.

I think for next year at least the big factor is going to be how far the US economy slides and along with it the dollar.

I'm pretty sure we are seeing the last days of the PetroDollar.

In anycase the finicial markets unwinding over the next few years will drown out the real economy for a while.

A lot is happening economically right now outside of oil and it does not bode well for the US. Once China unpegs its yuan and we move to a basket currency then oil will enter center stage. In the mean time the US will probably be able to buy oil cheap as its economy slows and the dollar drops faster than the Oil futures market can respond.

Its a tough call since the dollar is in a unique postion as the currency for oil transactions.  If I had to guess and if China has the storage I suspect they will try and convert as much of there dollar holdings to oil as possible over the next year. Same with Korea and Japan.

But its really tough to figure out how the economic game will play out next year what is a fact is the US economy has reached its breaking point and must reset.

My guess is we are heading for a global recession with oil prices varying widely. We won't actually see real peak oil effects in the US until 2010 or later.

Remember that the baby boomer retirement happens right at 2010 so the US economy may never recover in the sense that it might be 2020-2030 before we could start growing agian but by that time everyone agrees we will be at peak oil.

Generally everything is pointing to demand drop in the US or at least stagnant demand for the next several years and during the next two years monetary events will overshadow the real economy so we will have to wait till the smoke clears.

Very interesting post, WT.

You might be interested in this presentation, made last week by two economists at CIBC (one of the biggest banks in Canada). Slide 10 is called "OPEC Consumption Will Cut Into Exports" - I think this is the first time I've seen an "export land" model discussed by a mainstream financial institution.

CarterganSweater

Jeff Rubin and his team at CIBC are very sharp on PO. Chris Skrebowski at ASPO Pisa used their forecasts in his presenations. They predict a mean price for oil next year of \$70/barrel

They also have a very good presentation on water as well if its of interest to anyone.

Thanks for pointing this out. A couple of slides will be of interest to those who think that China's welfare is inextricably tied to the health of the US economy.
Guniea: I think we need a post on what countries are being hit with high oil prices, prices that are sparking conservation or civil unrest.

Lots of points to to cover (might take a couple of posts). Following are suggestions.

1. A list of those countries
2. At what price did conservation take effect?
3. At what price did civil unrest occur?
4. Usage before #2 and #3.
5. Usage after #2 and #3.

We might be able to divide the world into various tiers.

Getting a handle on what is happening first in poorer countries would give us a better idea how PO will proceed, both in terms of demand and effect. It is clear, for example, that \$60/bbl did not cause a real stir in the states or in the world's economy.

Given that America is probably entering the biggest recession ever I'm not sure that peak oil and even 60 a barrel oil is not having a huge effect. I'm pretty sure high gas prices are a important factor in both deflating the housing bubble and rising building costs.

Certianly the recent wild speculation going on in the worlds markets has its own causes but peak oil has had a big effect on bringing economic growth to a standstill.

I think that even now with housing tanking if oil dropped to 10-20 dollars a barrel our economies would start growing agian. Its not 20 a barrel.

It just takes time to unwind be patient we will get our just rewards.

Is there a corrolation in GDP and oil consumption?

Example:

If GDP growth is 0, demand growth zero, or does it actually decline?

Or if GDP growth is 4 percent, demand increases 2 percent, etc.

With a possible possible recession on the horizon, it can certainly change the Peak Oil scenario for years to come, and certainly the Export Land model if we take everyone with us.

Yes. there is a very strong correlation - historically at least. Between 1900 and 2000 total global energy consumption rose 18x and real GDP 19x.

What is extremely interesting is the recent US case: between 1980-2005 US real GDP doubled whereas total energy use went up just 25%.

As for oil: in 1980 the US consumed 1.21 bbl of oil per \$1000 of GDP and today it takes 0.68 - inflation adjusted. Yes, there was a response to the oil crisis of the 70's and 80's but there is a lot more at work, chiefly debt.

OK, now, looking at Khebab's graph of oil + product imports by the U.S. -- which shows a big drop lately -- and the fact that U.S. gasoline demand, as compiled by the EIA, is high lately, then I only have one simple question --

????????

In other words, it appears that this data is shit.

I think that we are just meeting demand by drawing down inventories, which can't go on forever.

The "American Way of Life" is based on an expectation of a steady exponential increase in imports, but IMO, we are facing an exponential decline in exports.  If I am correct, we are facing an explosive increase in oil prices.

Don't buy it, Jeffrey. Yours was the only answer but it is not reflected in the price -- this is about the only thing oil buyers & sellers are good at -- tracking inventories. Look at the EIA here.

I will say this, we are now getting below the historical range for stocks but that's just very recently -- we were way above it most of this fall.

The fact that the data is crap -- I still think this -- is an interesting observation all by itself.

Just a few more graphs.

If someone is going to say the sky is falling -- and it clearly is not -- then they need to provide good evidence to back that up. If you're going to say the sky is about to fall, then I'd like to look at that also. All this requires further analysis and better data.

If someone is going to say the sky is falling -- and it clearly is not -- then they need to provide good evidence to back that up.

Rather than get all hung up debating prices versus US inventories, I prefer to stick to the basics.

The US is assuming that we can continue to increase our total petroleum imports at close to 5% per year, while the latest data are showing declining world exports, in a year when we have seen the highest nominal oil prices in history.

Is that reported decline in exports unreasonable?  No.  I predicted it based on mathematical techniques that have worked before.

I think that we are simply in the early rounds of another bidding cycle for declining exports.

There is also this:

Imports are down as stocks of crude are high?
Exactly, high stock levels are inconsistent with an imminent peak. I wish somebody could give me a good explantation on why we have record levels of inventories. One possible explanation is that crude stocks are mainly sour/heavy crude but we have no data to prove it.
One possible explanation is that crude stocks are mainly sour/heavy crude but we have no data to prove it.

Refiners don't buy what they can't process, so it is unlikely that inventories are suddenly different than they have been in recent years. The inventories have probably heavied up as refiners have retrofitted to handle heavy crudes, but that has been a slow process.

The reason we have record levels of inventories, in my opinion, is that some oil companies changed their philosophy on how much oil to have on hand after Katrina. I think over time, the excess will shrink back down as Katrina fades from memory a bit more and inventories will slide back down.

My long-standing theory on this is hoarding behaviour.  Knowledge that shortages might come soon, but are not here yet.
I don't find it that hard to explain. When refineries were running near capacity gas and diesel stocks were building and crude stocks were dropping. Now that refineries are running at 87-88% gas and diesel stocks are dropping and crude is building. A little more demand and refineries will not keep up, and when more product imports are not available all stocks will be dropping.
Simple question - does a barrel of heavy crude, refine out to the same volume of refined products as light crude ?
Khebab,
See Matt Simmon's comments on extra fuel blends in FSN interview with Jim Puplava on November the 25th
Re:  US Crude Oil Inventories

Several Points (that others have made before)

US inventories are only high by recent (1999 and later) standards.  From 1982 to 1998, for a period of 17 years, the average late November crude oil inventories were 337 million barrels.  Over this time period, the average four week running average of crude oil inputs (for late November) was 13.5 mbpd, a day's cover ratio of 25 days.

From 1999 to 2006, a time period of 8 years, the average inventory for late November was 302 million barrels, with average (four week running average) crude oil inputs of 15 mbpd, a day's cover ratio of 20 days.

The most recent inventory number of 340 million barrels, versus the input of 15 mbpd, gives us a stockpile of 23 days consumption, 8% lower than the 1982 to 1998 average.

So, relative to crude oil inputs, we are below the long term average, but above the average of the past 8 years, which brings us to the crude oil quality issue.  We simply do not know what percentage of crude oil inventories consists of light/sweet versus heavy/sour.  We do know that the price spread between the two has been at record levels in recent months, which suggests that heavy/sour is more available than light/sweet.

Finally, the US is not the world.  Large parts of Africa are being forced to conserve because they could not afford to buy the oil.  I believe that the current round of bidding for declining exports will be a lot tougher for the US.

Jeffrey,
An explanation for higher US stocks maybe as Matt Simmons explained in his November 25 interview in FSN with Jim Puplava that there are more boutique fuel grades having to be held. New super fine diesels and gasoline blends that won't mix for summer and winter requirements are needing to be held and this will come down soon.
Mr. Cohen I think we are at the cusp of seeing the inventory data move the market. Looking at your graphs the only one to me that seems out of whack given the seasonal trends and excessive hurricane build is the Gasoline Days of Supply still holding fairly steady while the Demand and overall Stocks numbers are showing we should be liquidating inventory.  My only guess to this aberration is the consumer has adjusted to falling prices and as a result isn't topping off his tank as often as when prices are going up in fact they to maybe running down their higher priced inventory to replace it by even cheaper priced gas.  Small change in behavior over 200 million drivers could easily fudge this number. Now that prices have turned we may see this adjust however with the holiday season at hand who knows?
I would be scared now, if not for one thing: The American Way of Waste. Let's assume that we are looking at a 5% decline per year. Over then years that adds up to a 40% decline in overall  oil consumption. At least for the transportation sector it can be said that the average American can save 50% gasoline readily by switching to the vehicle he needs, replacing the vehicle he wants. While I do acknowledge that this switch is a severe setback to certain egos, it does not constitute a life-threatening event. The technology to make cars with high gas milage is well known: four instead of six cylinders and 1.4l instead of 5.8l engines. Diesels and hybrids can do another 20-30% better. Packing two people into the same car during commute saves a factor of almost two and reducing driving speed by 10% saves almost 10% in fuel. Already I have been able to cut gasoline consumption in less than half... by simple measures. Some aviation fuel can also be saved easily: by making sure that less miles are flown. Moving accross the country is mostly a luxury, not a necessity. Raising ticket prices by 20% by introducing taxes on aviation fuel will get the job done.

Similar things can be said about transportation. Do we need more Walmart junk for Christmas? No. We could do a lot for our enegy independence if the money to transport cheap toys and tasteless decorations was spent on renewable energy sources.

How much money are we talking about? Holiday sales are expected to reach \$450 billion this year. I believe our oil imports are somewhere around \$250-300 billion? Let's for a moment assume we spend just 50% of our holiday shopping on renewables and research... the possibilities boggle the mind. Well, they boggle my mind. It seems the general public cares more about the stuff they will hate to get for Christmas than about the future of their children.

Now, I am sure someone will bring the "Yeah! Let's bomb the US economy back to the stone age!" sledge hammer argument. I don't think that is what I have in mind. But we could probably go back to e.g. 1985-1990 for a few years... as far as I remember, I was a rather happy person back then with only half the money spent. But maybe that's simply because I did not find the store where they sell "Happiness" for the Holidays.

While I've looked forward to this debate, I've sort of dreaded it, too, thinking I would have to throw up my hands in despair of understanding it. But, WT, you've presented about as clear and articulate a case as I could hope for. Let's hope for the same from Robert. My expectations are that I will not be able to come to my own conclusion, though...

Nevertheless, someone once invoked the saying, in regard to your model, "extraordinary claims demand extraordinary evidence." (Perhaps it was RR?) After reading this, I must say I see NOTHING extraordinary about this claim. This is dirt simple.

And that makes it all the more frightening.

One caveat: when you begin to talk about abandoning suburbia, etc.--that is, speculating about the EFFECTS of your Export Land model--then I'm not so sure.

Human reaction to crisis is such a wild card, I don't think anyone's predictions will get it right!

There was an interesting column today in the WSJ on cognitive dissonance--basically the triumph of emotion over facts, or people believe what they want to believe.

In the article, they actually used examples of cults, where the cultists argued their points even more forcefully when their predictions of End of the World scenarios did not come to pass.

The question is:  who are the true cultists today?  Those who believe that a physical world has physical limits or those who assert, like Peter Huber, that we can increase our rate of energy consumption essentially forever?  Or Yergin, who asserts that the peak is decades away?

And not to stress the point too much, but what I warned about in January--lower oil exports--appears to be coming true.  In contrast, Yergin has been consistently wrong about his predictions, and in response he has only increased his efforts to persuade us that the peak is decades away.

If we see, as I expect, an explosive increase in oil prices, the cognitive dissonance will be something to behold.

Gotta go finish a project.  See you guys later.

There is absolutely nothing new about this phenomenon. One can see the same dynamics in "discussions" about global warming and creationism. Religious beliefs always trump knowledge and empirical data. These religious dissonances always end the same way: with the natural departure of the religious person. Quite literally, death is the only force that manages to erase these kinds of ideas in the true believer. Thankfully in most cases the majority of followers abandon these belief systems when a majority for the intellectual position forms. They do not follow the reason, though. They simply follow the herd.

In our case the thing will play out as follows: oil prices will go up again and well managed automobile companies etc. will be succesfully diverting the egos of millions away from "bigger is better" to "more efficient is better". They will use the usual tools in the toolsbox of the ad agencies: sex, angst and inferiority complexes. And as usual it will work like a charme.

The question is:  who are the true cultists today?  Those who believe that a physical world has physical limits or those who ...

... who worship the powers of the Invisible Hand and of the Magical Mystical Markets?

A cult is a group that absolutely keeps out contrarian thought patterns. TOD is not a cult because we bring in and examine closely the counter arguments of people like Peter Huber and Daniel Yergin. We allow for debate amongst the different model builders.

Smithian economics is a cult because it excludes thought patterns that attack the possibility of non-growth sustainability. If you dare to question the Smithian religion you are instantly labeled a "commie", an enemy of the state. You lose your job, your livelihood and all credibility even before you can mount your case. That is a cult.

We live in a cult distortion field and we don't even know it. Daniel Yergin is the Reverand Moon of the Church of the Never Ending Oil Flows. Peter Huber is the High Priest of the Infinite Markets movement. If you challenge their ways you will instantly be labeled a "peakist" and a "doom and gloom" loonie.

Also, the cults are blessed with Certainty. They are Right.

Here at TOD, however, there is such DOUBT it is killing me.

We were groping for a word to possibly describe our energy plight. But an email with a suggestion from an Indian professor arrived.
I might as well toss in my observations as well. I think the main point under discussion is whether the decling exports in KSA, Russia and Norway imply an impending (< 1year) very large increase in price, and/or demand destruction.
My issue with assessing the significance of the declining export observation is I would need to know how to place it quantitatively within the context of the global oil market. For the time being anyway the price of oil is being set in this global market. Before I can estimate how declining exports from the top 3 exporters would affect this market I would want to answer at least the following questions.

1. What fraction of the global market do the exports from these top 3 exporters represent?

2. What fraction of  of the total 84 mbd, or so, actually participates in this global market? For example the subsidized consumption in KSA may not, and perhaps not long term contracts.

3. What fraction of global consumption does the rising consumption in the exporting countries represent? This would represent how much the global production/consumption patterns would have to adjust.

While the subsidized consumption in a number of countries does keep global consumption/price up to some extent, I don't have the numbers, or analysis, to quantify the effect in the near term. I think it is important to look at any proposed model from several different viewpoints, or contexts, to assess its relevance. Since I have very little time, with my work, to explore these issues on my own I'll just have to offer these observations to be used by others as they wish.

Tony

Mexico needs to be included in export declines as well as the "Top 3".  Their decline in 2007 exports may be larger than the decline in Russian exports.

(I remember the Russian Economics (not Energy) Minister predicted a +1% increase in production and a couple of % decline in exports for 2007).

Judging from production to date, Cantarell seems to be on a midrange decline of -25%/year. (midway between high & low estimates of -14% & -40%/year).

"Other fields" in Mexico have been increased in what appears (to me) to be a one time increase in 2006.

Best Hopes,

Alan

Resolved: World Net Oil Export Capacity is Now Declining Because of blah, blah, blah...

To make this case you need to first show that world net oil export capacity is now declining, before going into why. But you have failed to reach even this first milestone.

You provide two links to exports for 2004 and 2005:

Can someone check my arithmetic? I added the total exports for the top 14 producers in each year:

2005: 38.9
2004: 38.32

Total world oil exports were increasing as of the latest data. What statistical evidence is there that oil exports are now decreasing?

Some of you guys are stealing my thunder!

Just kidding, but I can't believe it took that long for someone to ask that question. In fact, I knocked out most of my response today, and I traced export data right up to the present. :-) I will still wait a week to post it, though.

I was just fast-scrolling and saw Halfin, then saw your response.

With all due respect, Robert. I think you are stealing Halfin's. Westexas used to try to pull this with my Gas-Tax proposals. Until I realized he didn't know.

Westexas still doesn't pay any attention to me. And all of you have forgotten about a gas tax. Yesterday's news. The only solution.

No wonder I hang out with Hothgor and Cry Wolf.

Gas tax? You mean we should take the leap of faith and agree with the rest of the world that taxes are the most powerful instrument of the government to alter consumer behavior?

Are't you asking a little bit too much of a nation which looks at taxes as the single most powerful way to create enormous wealth for the rich and amazing poverty for the rest?

But don't worry... you are not the only one who gets ignored. I haven't gotten any replies to my observation that we are spending almost twice as much on Christmas than on oil imports.

:-)

We have lotsa sin taxes in Canada.  Gasoline, tobacco & alcohol.  The monies go to General Revenues ... not respective program spending.  It has helped us attain Budget Surpluses since 1997.  Not a single Deficit.  And we missed your Y2K recession up here.  We have used those accumulated funds to paydown our National Debt by 15%.  It presently stands at \$481-Bil.
Wow... that means Americans could basically buy the Canadian national debt for Christams. Now wouldn't that be a nice gift?
Easier than u think.  they probably own a third of it already.
Why wait?  Why not just get the thing out there?  The momentum of attention at this very moment (as revealed by intense discussion of the posts on this thread) would seem to warrant this.
Using the data published by BP on its Statistical Review of World Energy of 2006, Luís de Sousa proposed the following projection:

According to his projection, exports should be down by 1% in 2006:

Total world oil exports were increasing as of the latest data. What statistical evidence is there that oil exports are now decreasing?

Halfin,

Did I ever once state that 2005 exports were lower than 2004?

Have I ever stated that 2005 exports were lower than 2004?

Why are you arguing a point I never made when the largest exporter in the world is down more than 7% from its 2005 peak and probably showing about 13% drop in net exports (as of 12/06 versus 12/05)?

Halfin,

By the way, the EIA shows the 2004 to 2005 increase in exports (from the top exporters) to be 580,000 bpd.  The graph of the long term increase in US Total Petroleum Imports shows a long term rate of increase of about 4.8% per year, as our consumption (historically) has been increasing and as production has fallen.

Assuming that we needed at least 12 mbpd in 2005, the 2004 to 2005 increase by the top exporters would basically only meet the increase in US demand, with nothing left over for the increased demand from the other importers.

Do you think that the fact that we are now, in 2006, seeing lower production from the top exporters might have something to do with the highest (nominal) oil prices in history in 2006?

A fourth example.

Surprise: Oil Woes In Iran

Flagging output from its vast reserves could diminish Tehran's influence

by Stanley Reed

... Iran has a surprising weakness: Its oil and gas industry, the lifeblood of its economy, is showing serious signs of distress. As domestic energy consumption skyrockets, Iran is struggling to produce enough oil and gas for export. Unless Tehran overhauls its policies, its primary source of revenue and the basis of its geopolitical muscle could start to wane. Within a decade, says Saad Rahim, an analyst at Washington consultancy PFC Energy, "Iran's net crude exports could fall to zero."

Gee, maybe it would be smart for them to use another source of energy internally.  I understand that they have extensive Uranium resources......
Looking at this article I see the quote: That's not to say Iran doesn't have abundant resources. The country's 137 billion barrels of oil reserves are second only to Saudi Arabia's

Where did they get those numbers from?

On this page I see only 93 not 137 and it includes suspect upward reserve revisions of 44.5.

On this page I see an "ultimate recoverable" of 120 not 137

On this page I see a reference to someone who says "137"

Kish Oil, Gas, Petrochemical Exhibition Opens

... deputy head of Majlis Energy Commission Mohsen Yahyavi ...

... Speaking in the inauguration ceremony, Yahyavi underlined the need for attracting and increasing investment in the energy sector. "Iran has 137 billion barrels of exploitable oil...

Remind me again

When are you guys starting this debate? Now? Like in this thread. I followed this thread earlier today, I couldn't make any sense of it. Westexas is kicking it off now, but Robert is not gonna reply until next week. But he's replying now. You guys are gonna keep it all in one place. So you are going to warp the space-time continuum so next week and now appear simultaneously to concerned reader.

Is everybody else going to be able to contribute? Obviously. 160 posts confirm that.

Haven't you two already had this argument at least three times? Robert has won every time. That's cuz he's using my logic and my numbers.

Aaggggggghhhhh!!!

I was going to suggest a referee. But then I thought a three-judge panel would serve better.

I'm thinking Myself, no fuck that, five-judge -

Myself, Tim Russert, Ann Coulter, Katrina Vanden Heuvel, and Rummy. I'd be kinda like the swing vote. I could answer any questions the others have about oil.

Like I said above, RR, why wait?  If your response is ready to go, just put it out there now!  Why keep the rest of us foaming and chomping at the bit?
Hi Jeff nice post, sorry for my belated comment.

You make very good points, I agree with you that for both US and Europe Peak Oil Exports will be the critical point and not Peak Oil itself.

There's one thing worth checking, from BP's data I got this graph for Norway:

I got nowere near 11%, how did you got that number? Is it for 2006 over 2005?

Some guy named Luis. 4:42.

Luis is definitely a dumbass. He never talked to me. The smnartest mutherfuckers always talk to me. I'm concerned about the girl's with the biggest titties.

Oil CEO

I am sure that in your case CEO stands for CERTIFIED EXCEPTIONALLY OBNOXIOUS

Luis,

I used the EIA's number for the change in consumption from 2004 to 2005.

A final word from John Laherrere

A simple Hubbert curve may be ideally applied only in the following cases:

-Where exploration follows a natural pattern unimpeded by political events or significant economic factors, as for example when OPEC artificially cut production: Hubbert modelling should not be used for the swing producers (Persian Gulf).

-Where a single geological domain having a natural distribution of fields is considered, political boundaries should be avoided.

Hubbert should not be applied uncritically to the UK - which is a case study in itself of where Hubbert should be used with care.

And for the same reasons Hubbert should not be applied to KSA - uncritically.

And not to the World either! Jean uses three cycles to model the world.
Hubbert modeling should not be used for the swing producers (Persian Gulf).

So, if we are going to use HL to model a swing producer, shouldn't we compare swing producers to swing producers?

KSA is now declining at the same stage of depletion at which the prior swing producer, Texas, started declining.

As many of these analyses make use of month-to-month export data and often appear to draw certain conclusions based on relatively small differences between large numbers, I'd very much appreciate someone out there answering a question I have.

The question is this: Take Saudi Arabia for example, exactly at what stage is a barrel of oil logged in as being 'exported'.  Is it,

a) When a customer calls SA and places an order for oil to be shipped?

b) When that barrel of oil is in a tank farm at Ras Tanura and slated to be loaded onto a tanker?

c) When that barrel of oil has actually been loaded onto the tanker?

d) When the tanker departs Ras Tanura?

e) Other?

This question is probably not terribly relevant in the grand scheme of things, but I sometimes wonder whether some of the difference in exports between two back-to-back months is merely an artifact of the accounting method.

For example, if an order for shipment is placed on November 30, but the tanker doesn't depart until December 2, is the oil in that tanker counted as a Novemeber export or a December export?  It is not hard for me to picture two months having identical export orders but showing very different export numbers just due to the way those orders are counted. (Of course this is far less important when view year-to-year export numbers).

Is this a valid question, or am I making a big deal out of something that doesn't matter?

The other question is: Are these export numbers completely self-reported by the exporter, and is there any auditing system in place to make sure someone doesn't fiddle the numbers a bit to make things look better (or worse) than they really are?

This gets back to a question I have raised in the past: What is the expected confidence level in oil import/export data?

It would really help my understanding if I had a better understanding of how these export numbers are generated.

IMO, we can argue why exports are falling, but I don't see much argument as to whether exports are falling.

Nov. 28 (Bloomberg) -- Frontline Ltd., the world's second- largest oil-tanker operator, posted an increase in third-quarter profit that missed analyst estimates as more vessels were put in for repair, and forecast a ``weaker'' fourth quarter.

The fourth quarter is on course to be the worst for supertanker earnings since 2001, according to data from the London-based Baltic Exchange, which sets the benchmark for hire rates.

``The third quarter of 2006 was stronger than expected, but we have so far seen that the fourth quarter will be weaker,'' Frontline said today.

Members of the Organization of Petroleum Exporting Countries are curbing exports to prop up oil prices, limiting tanker demand. Crude-oil supplies from OPEC members will fall 1.1 million barrels a day this month, according to the Geneva- based consultant PetroLogistics Ltd. OPEC pledged to cut production by 1.2 million barrels a day in October and said it will consider more reductions next month.

That's all very interesting, but it doesn't answer my question at all.
But there is a big difference between reduced exports due to producer nation inability to produce and a voluntary reduction in exports due to producer nation desire to prop up prices.

The referenced quote would suggest that this is a voluntary reduction. It does not in and of itself provide evidence of a geologic peak.

Great debate, by the way.
"The referenced quote would suggest that this is a voluntary reduction. It does not in and of itself provide evidence of a geologic peak."

True, but again the question is not whether exports are falling.  The question is why are exports falling, when oil prices are trading in a range 50% to 100% higher than the previous (nominal) peak in 1980 (and 100% higher than their "ceiling" price of a few years ago)?

If the decline in Saudi oil production is involuntary, due to depletion, and not a voluntary reduction, would you expect them to admit that the production decline is involuntary?  Note that they promised, and failed, to increase production after the hurricanes.

westexas,  i am on your side of this debate.  SA is in permanent and irreversible decline,  involuntarily I may add.

Actually WestTexas that leads to the macro argument I'm making. Is it voluntary or not or we even going see peak oil in the sense that most people on this blog mean.

The point is at peak oil economic factors become a big part of the actual total number of barrels shipped. On one side we have OPEC claiming cuts and this completely hides peak oil. On the other side we have the US in recession starting late this summer or early fall and this declining consumption hides the peak. I'm pretty sure the US economy is going to go into a much deeper recession soon. This will hide the peak. And on the OPEC side they will try in vain to cut production to prop up oil prices. This may go on for several years. So we might not know that we peaked until 2010 when the economy finally rebounds and we find that oil production does not go up.

So for the sake of argument assume we peaked in 2005 and lower oil consumption from late 2006 through next year at least drops because of a US lead worldwide recession. What happens. Well "peak" oil is a bit delayed lets say by 4mbd to be generous. That's 1,460 mb of oil which has delayed extraction. So what does that gain us ?  Not much really maybe a low plateau for a few more years ?

I mean this delayed production does have and effect and my 4mbd is a big decline in demand but the point is the peak is very very muddy because of external factors.

My best guess is that the combination of OPEC cuts and tanking economy will first delay peak by some time but also it will make it impossible to see clear signs of peak oil since we won't know when geologic depletion actually caused the voluntary cuts to be real. Actually about the only way we will know is if KSA continues to press for OPEC cuts once oil passes 70bl. Then we know they are lying. On the consumption side we won't know until the current stocks decline.

I for one find the timing of the cuts just too convenient considering we are getting credible reports that Ghawar is declining.

Isn't this "westexas" the guy who predicted that Q4 oil prices will be "interesting" after the record prices of summer. Certainly they are interesting after holding in about 60\$/barrel despite the voluntary OPEC production cut. Unfortunately I think they are "interesting" in the wrong way in this case.