Thursday, June 30, 2011

Latest Saudi Oil Stats


Above are the latest oil production statistics for Saudi Arabia, along with rig counts.  The production statistics come from five different sources, but most people will just want to focus on the heavy black line, which is the average of them.  Production is on the left hand scale, and is not zero-scaled to better show the changes.  Meanwhile, the red curve by itself is the number of oil rigs in country according to Baker Hughes, and is on the right scale.  Click for large version in a new window.

Before the beginning of 2005, the rig count was low and didn't change regardless of what happened with production.  My interpretation of this is that Saudi Arabia had spare capacity such that they could just turn a tap in order to increase production.  Notice, for example, the huge increase at the start of 2003, when, in a very short period of time they added 1.5mbd to production to buffer the world from the loss of Iraqi production due to the US invasion of that country.

In late 2004, they reached a plateau of 9.5mbd (amidst rising oil prices and a rapidly growing world economy), but then production fell slightly right at the end of 2004, and it is at that moment that the rig count starts to increase.  My interpretation is that they were struggling to maintain production of 9.5mbd, due to depletion in some of the older oilfields combined with long underinvestment.  Indeed there was a further dip in 2006-2007, as oil prices went even higher and Saudi Arabia, the traditional swing producer, should have been increasing production to moderate them.  Then, presumably as the delayed effect of all the drilling began to come onstream, production slowly increased again back up to 9.5mbd.

At that point, in summer 2008, as the global financial crisis hit, demand fell and Saudi Arabia sharply reduced production to support prices, and the rig count started to decline as they canceled and delayed projects.  Even in 2010, as production increased in line with the recovering global economy, the rig count continued to decline.  My assumption up until very recently was that they could turn on the taps and go back to at least 9.5mbd when they wanted to.

However, what we seem to have instead is that in January 2011, production reached a new and lower plateau at around 8.5-8.7mbd and has stayed in that range through May.  At the same time that plateau was reached, the rig count started to rise very steeply again.

While there's obviously a considerable amount of guess-work and reading between the lines here, the following appears to me to be the natural interpretation of this data:
  • Saudi Arabia is managing its oil production in a completely reactive manner with very little planning ahead for forseeable rises in demand.  They only start amping up the rig count when they actually hit a situation where they'd like to produce more, or maintain production at a certain level, but can't.  There's then a significant delay before they can restore/increase production.
  • Saudi Arabia currently is producing at capacity, which has eroded from 9.5mbd in mid 2008 to 8.8ish today.
  • If that's right, then oil production will not go to 10mbd by July.  Thus the IEA is going to be disappointed in its hopes, and world leaders will have to decide whether to keep draining the SPRs or not.

4 comments:

Dr. Blaine D. Pope: said...

Greetings Dr. Staniford:

Thanks for sharing your powerful insights on what I’ll call “our energy predicament.” Your current analysis seems to be in line with prior analyses from the likes of Ken Deffeyes, Richard Heinberg, the late Matt Simmons, and the late Samsam Bakhtiari, to name a few. I agree with the basic thrust of your point(s) in your post of 30 June 2011, with the possible exception of the following:

***
"At that point, in summer 2008, as the global financial crisis hit, demand fell and Saudi Arabia sharply reduced production to support prices, and the rig count started to decline as they canceled and delayed projects."
***

Here is where I’ll introduce a possible “chicken-and-egg-type” counter-point, focusing on events leading up to the Financial Crash of ’08, though still rooted in the fundamentals of chaos / complexity theory:

• Since the early 2000s, oil prices had started trending upward
• Since about 2006, we’d been in a creeping crisis in housing and finance, in the US [medical metaphor: we’d been on a bad financial diet, and our arteries were clogging]
• By summer 2008, we hit a crisis point in the global energy market, with the Oil Price Spike of ’08
• By fall 2008, rapid price increases in oil / energy had exacerbated a priori contradictions in the markets (especially in what I’ll call “the housing-financial complex”) to the breaking point [medical metaphor: we had a financial heart attack.]

My basic point: it was the energy price spike in the summer of ’08 which then precipitated the subsequent financial crash in the fall of ’08. Let me be clear here: I am not saying that the price of oil was the only causal factor in the timing of the Financial Crash of ’08; instead, it was merely the primary causal factor—among several other factors—in catalyzing that crash. In simple terms: the bubble that the housing-financial complex had become collided with the bubble that was world oil prices; furthermore, upon collision, both collapsed. The rest that was to follow, as they say, “is history.” The one deadly omission from that history was, and continues to be, the unique role that energy prices played in catalyzing the financial crash of ’08. Again, I am otherwise in basic agreement with all that you’ve stated here.

Enter Saudi Arabia: the “swing producer” of last resort. For neigh on three plus decades now, when all else failed, Saudi Arabia could (when it chose) seemingly ramp-up or ramp-down its powerful oil spigot. This Saudi-induced change in supply could affect everything from world oil prices, to Middle East political dynamics, to the US Consumer Price Index. And now, to the seeming utter shock and chagrin of many, it would appear that those halcyon days of relying on the Saudis are over. Furthermore, Saudi Arabia’s apparent decline (as a swing producer) will likewise probably still influence oil prices, regional politics, and consumer prices in the US (among a myriad of other complex factors, of course).

You analysis here serves as yet another strong piece of evidentiary material in making the case for a Saudi oil extraction peak. I myself tend to agree with the thesis of the late Matt Simmons: If Saudi Arabia has peaked, then the world has effectively peaked. There’s a world of daunting implications in all of this, of course. Alas, those will have to be the topics of possible future blog posts.

Thanks again for sharing your insights on this.

Blaine D. Pope, Ph.D.

Derwein said...

Stuart,

Thank you for your excellent compilation of data. Your interpretation of the data also seems highly plausible. Reading it, however, make me wonder about one thing.

If it is just (or just about) a matter of costs of rigs why don’t the Saudis employ a number of rigs that would keep the spare capacity somewhere in line with what they officially state? (IEA or EIA numbers)

I made a quick calculation. Keeping 20 more rigs working would cost about 146 MUSD per year. That is if they would not have reduced the number of rigs to about 20 but rather kept them at present number of about 40. (At USD 20 000 per rig per day. Approximate present rate for North American rigs according to Patterson UTI. Hopefully it is somewhere near that also for SA. )

Now that (146M) is a lot of money by most standards. However, compared to yearly revenues from oil sales (at 80 USD/bbl) it would be no more than 0,06 percent. If they consider keeping some 3-4 MMbls spare capacity an important goal and it is more or less a question of investment why don’t they just invest enough?

Any comments anyone?

galacticsurfer said...

Saudi is a pretty closed state but ARAMCO are pretty smart people. We would assume a smart technocratic (ala Exxon) decisison making process there. Unless it is more like in Mexico or Venezuela where they are very reactive and short sighted and ARAMCO is just a cash cow with a lot of corrupt princes making all the real decisions over the heads of the engineers and starving the drilling budget. Maybe a former expat engineer having lived in Saudi knows more about the situation. I thought they were pretty professional in Saudi Arabia however from what I had read up till now. Maybe cash has been getting short since the financial crisis, a new generation of people are coming up who are unreliable, etc. Maybe I should read Al Jazeera on this topic.

Blue Peter said...

What does this say about Saudian Arabian spare capacity?


Peter.