Saudi oil policy not hostage to Iran worries

BEIRUT - Saudi Arabia might seek to brake any new oil price spike, mainly to protect a fragile global economy and prolong its own role as the world’s top oil producer — and if that hurts regional rival Iran, it will shed no tears.

Immediate pressure for Riyadh to use its vast spare capacity to pump more crude has faded somewhat as US crude has dipped back below $80 a barrel, after hitting $82 last week, its highest level this year.

But a Saudi government adviser, who asked not to be named, said the price had reached ‘the high end of our range’ and any further rise could prompt the kingdom to react.

‘Especially now that the global economic system is recovering, we don’t want to be seen as letting the oil price spiral out of control and affecting the recovery,’ he said.

One feature of this year’s ASPO conference that I most enjoyed was the contradiction amongst presentations. Marcio Mello gave an animated talk on Sunday night about the pre-salt formations off the coast of Brazil quoting that there are upwards of 500 billion barrels of oil available, an extravagant estimate that peak oilers are unused to hearing. Monday morning two talks on natural gas were juxtaposed in tone and content, one claiming that natural gas is the “American Treasure” and the other claiming that shale gas is marginally profitable, let alone a “treasure.”

Contradiction in this kind of academic setting magnifies the awareness of all involved by broadening the scope of the discussion.

No bell curve in the jaws of peak oil

If levity were allowed in the serious matter of running out of cheap oil, one might say “A funny thing happened on the way to the peak.” The maximum rate of global output may be somewhat higher than the already reached ca. 87 million barrels per day, but world oil does not want to go there. Like a frightened horse in a dark forest, it has stopped; keeps neighing and shaking its sweaty head, letting the rider (global society) know that this is it. No further! A clear sense of direction has been lost and those mysterious lights that flicker here and there only make our mobility provider turn its insides out.

The notion that accelerated drawdown of a nonrenewable resource must reach a climactic bliss point of intensity beyond which market incentives move into high gear to substitute away from it is beyond debate. But oil is a resource like no other. The economy’s ever more evident inability to reduce dependence on it while retaining growth raises the strong possibility that the peak -- as rationally defined, rather than empirically experienced -- will never be reached.

Global oil supply: Separating fact from fiction

Steven Lynch's opinion piece published in the August 25 edition of the New York Times, “Peak Oil Is a Waste of Energy,” contends that there is no danger of near-term decline of production rates because great volumes of oil are believed yet to be discovered. This simplistic view fails to recognize that an aging handful of giant and super-giant fields (only 320 of the world's 16,000 oil fields) provide nearly 60 percent of global oil supply. We provide an alternative view that field size, not just total undiscovered volumes, will determine future production rates and costs.

To illustrate this point, compare an oil field to a glass of water with a straw (our capital cost) as the means of extraction. A single glass of water can be drained by one straw at a very low cost. To drain the glass faster, add multiple straws for a higher extraction rate and higher cost. Consider that same volume of water poured onto a table. There are now many much smaller puddles that require their own straws. Not only is the unit cost of extracting each small puddle much higher than in the case of the glass, the productivity of each straw is much lower. In practice it is not possible to produce from the multiple puddles at the same rate as from the glass. We have “drunk” most of the oil from the giant and super-giant fields. What we have left are a few glasses and many, many puddles. Even though there may be many puddles yet to be discovered, it does not change the fact that they produce at a lower rate and at a higher cost than their larger brethren.

Current giant and super-giant fields are soon destined to be so depleted that no leap in technology or increase in price will prolong their life. Oil is a finite resource. Because the amount of oil has been underestimated in the past doesn't mean it is today or will continue to be.