I updated my graph (above) of Saudi oil production with the latest numbers (up to December from at least two sources). The graph shows five different data sources, together with an average index (thick black line) which summarizes the various data sources into something that is hopefully within hailing distance of the truth.
The interesting thing going on at the moment is the trend in the last six months for Saudi production to creep up. The most recent data strengthen this impression. It is only a few hundred thousand barrels/day at the moment - nothing like the events of early 20003 or early 2004 when Saudi Aramco just turned on the taps to the tune of a million bpd or a million and a half within a single month.
Still, it's an interesting trend, and it will be even more interesting to see if they sustain it over the next six months as we go into the summer driving season in the northern hemisphere with oil prices already fairly high. Or, in the alternative, is the return of rhetoric about how "the market is well supplied" from Saudi and OPEC officials the precursor to a refusal to raise production higher in the face of high prices?
Update: and here's the latest oil rig counts in country:
I interpret the ongoing decline as evidence that the Saudis are comfortable, for now, with the amount of spare production capacity that they have.
Or the question might be, can they even increase much more?
ReplyDeleteWhy would Saudi Arabia fail to increase production in, say, March of 2008? Or the next month. Or the next month.
Unless they knew that they only had a very short few amount of mb/d left(maybe even less than two) and the cost to stabilise the market would essentially have bought them very little time before they officially peaked.
And once that happens, all their power, which lies in the speculate nature to convince gullible people to think they still have a lot left to put out, would be finished.
By 2012 there will be a complete even picture in regards to supply and demand. By 2015, according to both the IEA and the JOE 2010 of the Pentagon, there will be a shortfall of 10 mb/d.
'Our friends the Saudis' are just trying to squeeze the last bit they can before all becomes apparent what people, including you once upon a time, said all along.
Emil - yes, my interpretation of the data is that the decline in production from late 2006 on was because they couldn't sustain 9.5mbd, given the state of depletion of some fields, especially the northern half of Ghawar, and the historical low rate of investment over the prior twenty five years of low oil prices. However, as they ramped up the rig count and new projects, they were then able to increase production again up to 9.5mbd by mid 2008, only to then voluntarily cut production to support prices during the great recession. They also started delaying new capacity projects around the same time. I assume they can now increase production up to at least 9.5mbd again fairly easily (though I would guess we would then see rig counts increasing and projects being accelerated again).
ReplyDeleteSo, 9.5 is their limit, even with an increased rig count? Which is down, now. I think Emil's conclusion will be supported. The Saudis lost control of price in 08, just as the US lost control of price in the 70's. Two years on, after they've pumped ~8.2mbd, their reserves are that much more depleted. It will be interesting to see if they can match what looks like their past limit. My bet is they've hit the wall.
ReplyDeleteMr Sunshine - no, I disagree. My belief is that if they were at or near the limits of their capacity, the rig count would be rising, not falling, as they made increasing efforts to maintain/increase production.
ReplyDeleteHowever, I think there's some question as to under what circumstances they'll choose to deploy whatever spare capacity they may have.
Despite what the Saudis claim, I don't think they have the reserve capacity. Even IF they could easily produce 12 m/bd that still wouldn't meet the world's exponentially growing energy needs in say 2020. The evidence is all in their production during the price crisis of 2008...did they flood the market to drive prices back? NO! Why not? It takes TIME and investment to ramp up production especially in declining fields where lots of small wells have to be drilled to compensate (temporarily) for the decline of the mega giant resevoirs. The spike in rig count alone shows a country struggling to keep up production at current levels. I'd say it's doubtful they ever are able to produce more than 12 m/bd and that's in a good scenerio.
ReplyDeleteThe IEA projection that the Saudis will be able to produce 20 - 25 m/bd is absolutely ludicrous. What a pipe dream. Anyone who has spent anytime around the oilfield knows this is not how production trends work!!!!
Only the top at Aramco really knows what they have and how easily they can produce it...which in my opinion is why they shroud themselves in secrecy. The nature of secrecy shows outsiders that indeed...there is something to hide.
Texan - I'm very sceptical of 12mbd too. My best guess is that they could move back up to 9.5 pretty easily, and then they could start inching up from there if they really wanted to. Maybe they have a bit more in reserve for a really rainy day.
ReplyDeleteHard to say for sure, though, for all the reasons you cite.
Stuart, I concur...the lowered rig count surely must indicate some headroom. It's important to remember Aramaco knows a lot more about their own production numbers than we do. The best we can do is look at what they are doing physically (rig count, production methods) and try to piece together the clues by imagining ourselves in their shoes. We just don't have transparent, allocated production data; so this is the best we can do. Matt Simmons was the king when it came to this. He knew the industry backwards and forwards. I put a lot of stock in his opinions. Very astute gentleman RIP.
ReplyDeleteI will admit, I'm surprised at the drop off in rigs. I would expect them to constantly be drilling in order to offset decline of existing wells IF the biggest fields were in terminal decline. When Ghawar and some of the bigger fields have truly peaked, I expect to see a sustained drilling frenzy in Saudi.
On a worldwide scale I think we are going to see another shock in prices needed to justify the costs of exploration...most hopefully, as the world declines as a whole we will continue to see higher and higher prices support the plateau of production so that the current population is able to sustain. However, this does not solve the problem caused by the fact that our whole economy and monetary systems are founded on the paradime of eternal growth. Sustaining and growing are two very different concepts. Growth requires cheap, abundant energy.
I think it's true that we could produce expensive energy for some years to come...the question is how long will it take the economy to completely crumble under the higher energy prices??? In my opinion, NOT LONG. Inelastic demand is finite, just as the whole economy is.
Well, there is certainly a lot of uncertainty given the above data. Perhaps the reduced rig count comes from the realization (circa 2008) that the Kingdom alone cannot stop the price ascent once it has begun no matter how much they drill, so why overdrill now? Why not preserve the resource for the future and use the current surplus capacity, assuming any still exists, to simply moderate the price climb? Perhaps what the Saudis learned from 2008-09 is that a price spike is not the end of the world, it just means a recession in the OECD. Well, if that is what is going to happen, why try to fight it? The West will learn to conserve, or endure high levels of unemployment, or something. We're not at the breaking point, not yet anyway ....
ReplyDeleteNo not yet, but I think we are seeing the first rifts declining oil production will cause globally in places like Egypt...it's been my theory that oil prices were as much a cause of the recession as sub-prime mortgages. The supply and demand production of oil and gas is so sensitive and just in time. I think we will be living in an increasing oscillation of boom/bust in the near future. Economy starts up, gets going, only to sputter and die under the weight of energy prices...and round and round we go, where we land nobody knows.
ReplyDeleteBTW...Ken, I think those are some very plausible insights into what the Saudis may be thinking.
In terms of a breaking point, I think we need to all remember that peak oil means more than just unemployment and depression. Peak Oil = Peak Food. Peak Food = Peak Population. I wish we could feed the world by hand, but it just isn't so. Even moderate oustripping of supply by demand could have dire consequences. Especially in a society like ours.
Re: the rig count in the Kingdom:
ReplyDeleteIf we had access to the actual data that the Saudis do, and we knew the overall supply levels and the production decline rates and forecasts, and that they perhaps were not as publicly disclosed, perhaps we'd not waste money bringing in new gear to deplete the remaining reserves faster. At some point, drilling more wells is similar to just writing checks because there are still checks in the checkbook. I think I'll stand by my guess that 9.5mbd was about it for the Kingdom. Lack of investment in growth probably means the real data doesn't justify it.
The Saudis said in Oct 2010 that they were basically "saving what's left for their own people in future generations" .. evidently they are.
Mr Sunshine:
ReplyDeleteWe know a lot more than you think about Saudi reserves. Read back through the last few years of Saudi posts on the The Oil Drum, particularly anything by Joules Burn, Euan Mearns, or me.
Basically there's no way that their reserves are so small that irreversible decline is imminent. However, it's also true that they are developing them in a slow and conservative manner designed to maximize ultimate recovery and not near term production. For example, most of the fields have been consistently developed with peripheral water injection, even though they are huge and this limits the rate of production (relative to sticking a bunch of infield injectors in everywhere).
I am also skeptical of a sudden drop in Saudi production, but equally so of anything above their previous peak.
ReplyDeleteAlso, they have a very brisk pace of internal consumption growth which limits their net exports.
The Oil shock of '08 did not come, as might be thought from the wording, as a shock. It was a shock in terms of effects but not in the way it arrived, which sets it apart from the 70s shocks.
Remember, back in '06, the world was still learning to deal with oil around 50-60 dollars per barrel on a consistent basis.
Prices crept up incrementally for a number of years and if the Saudis indeed did have all that reserve capacity which we've all been told for years then, again, why did they fail to use it in the first months of 2008 and ahead until the early summer of that same year?
Unless you think they were clumpsy or acted in a conspiracy to bring the world economy down, there has to be a rational(at least from their narrow national, or geologial, perspectice) reason for this.
Yes, it takes time to produce new oil but Aramco has some of the best people employed by them from overseas and they've been in the business for a very long time now.
If laymen like us can predict rough oildemand and what's needed to meet it based on production data from across the world, it would be foolish to think that Aramco can't, given all their genuine expertise and massive resources at hand.
I'm sorry, there are too many inconsistencies to just accept flatly out of hand for me to drop this on it's face and just carelessly move on.
Saudi Arabia continues to be the puzzle of which the Peak Oil event, when it will occur and how serious, continues to hinge upon. And while I didn't dabble in Simmons' prophecies of doom, I still found it closer to the mark than the conventional wisdom spouted by the MSM and the Saudis themselves(Perhaps the most amusing one was the Economist statement in 2006).
Wikileaks has data which appears to support Matt Simmons' thesis:
ReplyDeleteWikiLeaks cables: Saudi Arabia cannot pump enough oil to keep a lid on prices
US diplomat convinced by Saudi expert that reserves of world's biggest oil exporter have been overstated by nearly 40%
http://www.guardian.co.uk/business/2011/feb/08/saudi-oil-reserves-overstated-wikileaks