OPEC Declines and the World Plateau
Posted by Stuart Staniford on May 3, 2006 - 2:50am
Topic: Supply/Production
Tags: peak oil, plateau [list all tags]
Firstly, the world situation:
As you can see, the EIA confirms the IEA's impression that February production is down from the all time peaks of May/December 2005, but still definitely within striking range. The EIA is slightly more negative than the IEA for this month, but the discrepancy between the two is not large by historical standards.
In short, the plateau continues for now, but there certainly is not compelling evidence that we have seen the all-time production peak month at present.
A quick update of the graph for the two most key players gives:
As you can see, February saw Saudi Arabian production continuing in the plateau they've been in for over eighteen months now. More significantly, Russian production in February has not resumed the upward march of the last few years, following a weather related anomaly in January. Is this due to the continued effects of the cold winter in northern Eurasia, or more than that? Time will tell...
Moving onto my main theme, here's an update of the OPEC versus non-OPEC production. Each is expressed as a percentage of the peak month (September 2005 for OPEC, and December 2005 for non-OPEC).
Non-OPEC production has been in a bumpy plateau for two years now (being within 1/2% of peak production on four occasions: Dec 2003, Nov 2004, May 2005, and December 2005). However, OPEC production was increasing rapidly through the middle of 2004, then slowly through September of 2005. Since then, production has been declining. It's too early, I think, to call the decline a trend, rather than a typical chunk of noise in the production curve, but it's been going on long enough to start to make one scratch one's head and want to investigate further.
If we stack all the production profiles for the OPEC countries we get this:
This graph makes it clear that most of the short term wiggles in the OPEC production total are caused by the gyrations of Iraqi production, but longer term trends are harder to discern here.
Instead, let's try plotting the curve of each country's production as a percentage of its peak month:
Ok, still rather tough to see what's going on in this curve-knitting soup. But it did inspire me to separate the OPEC countries into two groups. I'm calling them the regular OPEC producers, and the irregular OPEC producers. The regular ones have that name because their production profiles all follow an approximate common pattern. The irregular ones are so named because they all dance to their own individual pipers, unrelated to the common pattern.
First the irregulars:
The case of Indonesia is pretty clear: they have peaked and are now declining at a very healthy rate of knots. The others are all cases in which production is noticeably affected by internal political factors of one kind and another. Iraq is the most severe, with production all over the place depending on the relative success of insurgents and coalition/government forces. Venezuela still hasn't restored production to pre-coup-attempt levels. Since there are huge reserves there, it is hard to view this as any kind of permanent peak, as opposed to a reflection of ongoing political developments. Nigeria was steadily increasing, but the political problems that have started to affect oil production in recent months seem quite severe (see Dave's nice summary) and it's not at all clear that they are transitory, so I have placed it into the irregular group also.
The rest of the OPEC countries (the regular ones) have these production profiles:
As you can see, these countries have the common pattern of steadily increasing production in the early years of our period of interest, followed by each hitting their individual plateau production. The date of that plateau varies from mid 2004 to mid 2005, but what is significant is that no OPEC country has increased production after September 2005! That's the latest that any of these countries hit their individual production plateaus. And a few of them have declined a bit (Iran looks most noticeable in this respect, though whether this is an additional form of sabre-rattling or due to purely technical factors is unclear).
And that's a key part of the story about why OPEC production has been declining for the last six months. No OPEC country has been both willing and able to increase production to offset disruptions in Iraq and Nigeria.
So which is it: willing? Or able?
Past coverage relevant to the plateau:
- Plateau continues, aided by outages...
- Plateau Update
- Cigar Now?
- Missing Barrels
- Close, but no cigar
- November Statistics Updates
- IEA Monthly Report for December
- Refining the Plateau
- Can Acts of God and Bush Explain the Plateau?
- November IEA global production
- Happy Peak Oil Day?
- Where Supply Increases Come From
They also risk that the price will go down. And if it does go up because of this very supply being withheld from the market, doesn't putting it back on the market lower the price by about the same amount?
This hoarding issue comes up all the time and I wonder if such conspiratorial manipulation of the market is more trouble than it is worth.
Remember recent reports that Goldman Sachs was buying warehouse space in Amsterdam and millions of barrels of oil to store? A VLCC supertanker holds 2 million barrels. Those things are huge. How was Goldman planning on storing the oil - in actual barrels? On pallets, moving them with forklifts? How much warehouse space does Holland have? And two million barrels, well, that's about 35 minutes worth of oil.
Only the Saudis and maybe the Russians could hoard that much. Someone made light of the fact earlier that Ghawar is a great place to store oil, so the Saudis would be pumping it out to pump back in. Good Idea.
But I'm still open to hearing how this hoarding thing might work.
Sincerely,
Lee Raymond
Ah, but they don't have to supply the whole world, or replace their entire production. The rest of the world will still be producing. They will still be producing. There is no swing producer any more, so a few million barrels either way can make a big difference.
The question was if they are hoarding some oil. I think they could be. Surely they'd want to replace the oil they released during the Gulf War, wouldn't they? Just to be prudent.
The food in my neighbor's refrigerator is just that, in fact I don't know what's in it, nor have I ever even seen the refrigerator. But if I'm starving, hey, now my neighbor is hoarding.
The Saudis or the "speculators" weren't doing anything wrong until gas hit the still ridiculously low price of $2.90/gallon. Now they are hoarding. I think this might just be another case of Americans needing something or someone to point a finger at.
That's a big YES in my book.
The us is accused of insufficient savings. the spr is one of the few places where the us is actually storing something for future use that is likely to have value at that time.
A hidden fund or supply stored for future use; a cache. Or To keep hidden or private.
It's not really hidden, so you could argue it's not a hoard. OTOH, it certainly is "private," in that not just anyone can use it.
Personally, I don't see anything wrong with hoarding. As long as it's not carried to extremes, anyway.
i think politicos try to argue against that kind of small sacle hoarding, and set as "bad" buying extra containers & etc.
as
Storing is to Hoarding
Hoarding has a connotation of secrecy. Hoards are hidden, stores are not. Everyone knows about our SPR, but no one knows exactly how much the Saudis have.
I would think that the amount you need to be able to store to affect the price would decrease as the demand gets close to the supply maximum.
I guess it all depends on why one is storing the oil. If you really want to have a buffer, or a strategic reserve -well you need a hell of a lot of storage capacity. If you only want to affect price as the supply/demand ratio goes to 1, you may not need so much.
Personally, I think their anti-peak propoganda over the last 12 months tells us that they already know.
hint, hint...
If I stumble upon any references or links to / about it I'll post them at TOD, can't even remember the company's name atm, sorry.
This five month period of decline wouldn't be much of a concern if we didn't knew that discovery peaked in 1961, and if professor Bakhtiari hadn't written that alarming piece in the Peak Oil Review.
If Iran is permanently on the decline I do not see any other OPEC country capable of filling the gap.
Peak Oil Review Vol 1. No. 7
Scroll to the end of the file.
They have a burgeoning , young population.
They need to keep the lights on
They need to sell oil and reduce internal consumption itn order to carry on selling oil.
The alternative is an econmy based upon exporting carpets and pistachio nuts
I don't know if nuclear power is really needed in Iran. Still, they have some considerale reserves of Uranium.
They are pumping as much gas as possible into their oil fields to keep oil production up. Mexico uses Nitrogen, Iran uses Natural Gas.
In the first four months of 2006, we have seen: (1) new record high (nominal) oil prices; (2) declining US petroleum imports; (3) falling world oil production and (4) in today's NYT, a headline saying "Energy Crisis."
IMO, we should all base our plans on the following three assumptions: (1) US discretionary income will drop by at least 50% (probably closer to 75%); (2) gasoline prices will go to more than $6 per gallon and (3) your current household income will drop by 50%.
I try to think like my grandparents - they were frugal, and left an investment to their children when they died. If they bought something, they bought ONE, took care of it, and kept it forever. Of course, things were not made to be disposable then either. People do not realize how much engineering goes into reducing the cost and time of assembly, as opposed to making a better product. We see the advantage of a lower cost item, but not the disadvantage of having to throw it away after a very short lifetime. I have an old Emerson window fan - all metal, with oil cups on the bearings. Try to find a quality fan these days - half-decent ones can be found, but they are pricey!
Science usually agrees with your statement above and call it "parsimony" or "Occam's Razor". See Wikipedia's definition of parsimony.
http://en.wikipedia.org/wiki/Parsimony
In science, parsimony is preference for the least complex explanation for an observation. This is generally regarded as good when judging hypotheses. Occam's Razor also states the "principle of parsimony".
In systematics, maximum parsimony is a cladistic "optimality criterion" based on the principle of parsimony. Under maximum parsimony, the preferred phylogenetic tree is the tree that requires the least number of evolutionary changes.
In biogeography, parsimony is used to infer ancient migrations of species or populations by observing the geographic distribution and relationships of existing organisms. Given the phylogenetic tree, ancestral migrations are inferred to be those that require the minimum amount of total movement.
Parsimony is also a factor in statistics: in general, mathematic models with the smallest number of parameters are preferred as each parameter introduced into the model adds some uncertainty to it. Additionally, adding too many parameters leads to "connect-the-dots" curve-fitting which has little predictive power. In general terms, it may be said that applied statisticians (such as process control engineers) value parsimony quite highly, whereas mathematicians prefer to have a more predictive model even if a large number of parameters are required.