Forget ye not the reddits and the diggs, nor the link farms. This is a debate that needs to get as many eyes as possible...let's help Euan get readers!

One of the things to keep in mind is that the Saudi King was replaced in August 2005. The policies in place before August 2005 are not indicative of the policies in place post August 2005. Specifically, the concept of what is the fair price for a barrel of oil. In August 2005 the Saudi's view of the fair price of oil moved from $25 to $60.

Ever notice that people don’t trot out their articles when the data contradict their prediction? But since the data support the prediction, here it is again.

http://www.energybulletin.net/16459.html

Published on 24 May 2006 by GraphOilogy. Archived on 25 May 2006.
Texas and US Lower 48 oil production as a model for Saudi Arabia and the world

by Jeffrey J. Brown & "Khebab"

In summary, based on the HL method and based on our historical models, we believe that Saudi Arabia and the world are now on the verge of irreversible declines in conventional oil production. While there will be massive efforts directed toward unconventional sources of oil, we predict that unconventional sources of oil will only serve to slow and not reverse the decline in total world oil production.

Texas, like Saudi Arabia, produced at less than capacity for long periods of time, thus the following plot, based on the assumption that Saudi Arabia was likely to start declining at the same stage of depletion at which Texas started declining.

Texas, in 1972, relative to Saudi Arabia, in 2005:

http://static.flickr.com/55/145186318_27a012448e_o.png

In regard to oil prices, the average monthly Brent spot crude price was $38 in the 20 months prior to 5/05, versus $62 in the 20 months after 5/05 (within a range of $54 to $74). And of course, 5/05 was the highest crude + condensate production so far (EIA). The cumulative shortfall in what we would have produced at the 5/05 rate and what we actually produced is on the order of 366 million barrels of crude + condensate (through 12/06). BTW, I would put the most recent Saudi peak at 9.6 mbpd, in 9/05.

In my opinion, we have seen some reduced demand, primarily in poorer regions like Africa, because of a physical inability to buy energy. I think that $62 has been sufficient, so far, to balance reduced demand against lower supply. But I suspect that we are about to start a new round of bidding for declining production--and especially declining exports.

In regard to the HL model, to expect to see sustained rising production from the 60% of Qt mark, which is where Saudi Arabia currently is, is to expect to see that which we have never seen, insofar as I know, in any large producing province (60 Gb or more).

In fact, Saudi Arabia is right between the 50% mark at which the North Sea peaked, and the 70% mark, where the North Sea is currently. No one (outside CERA at least) questions the reality of the North Sea decline, so why is the Saudi decline so shocking?

While it is true that the Texas HL plot was quite noisy prior to the peak, we can get an accurate HL plot for Texas now, and the Saudi HL plot has been quite consistent. The infamous “dogleg” in the last three or four years of Saudi data was also seen right before the Texas peak.

Also, on an annual basis, the 2005 to 2006 decline in Saudi production of 4.3% (C+C) is quite close to the long term Texas decline rate of about 4%.

One thing that puzzles me is why were Iraq, Russia and “Other” able to find buyers for a total increase of about 900,00 bpd (12/05 to 12/06, C+C), but Saudi Arabia had to cut their production by about 700,000 bpd?

Euan - Dumb questions, from your post...
average porosity
19(%) vrs 14(%)
19 is 135% more than 14
average permeability
617 vs 52
617 is 1,186% more than 52

These two figures are extreemly different, and I assume permeability must be the most important one for rapid extraction. hence which field gets developed first is because of this. Is this correct?

Euan, Thanks for the additional educated perspective.
RE inventories: It has been mentioned, on occasion, how crude inventories can be a contra-indicator of crude scarcity. If a refiner has spare tankage and anticipates higher prices in the future (contango) he would tend to fill the tanks to the max, whereas in a market that anticipates lower prices (higher supply at the oil field) he would be relaxed about leaving a few tanks empty. Do you think this may play a part in how we read these tea leaves?

Great data in this story by Stuart:


http://www.theoildrum.com/story/2006/1/28/01820/6609


He describes a slowing North American economy:

Look at 1984-1985 for the closest precedent. So that suggests that the chances we'll drop to GDP growth at or around zero in the near future are excellent.

Oil consumption tends to decline along with GDP. I'm sure that KSA observed the same economic trends as Stuart and made a decision to remove production from the market and seek to maintain pricing.


As for the bet, we need Stuart to clarify what period of time is represented by "sustained" Saudi production. Euan, if you were to take Stuart up on his bet, I'll take a quarter tranche from you. Maybe RR will take another quarter tranche and then we just need a final fourth party. Note that the bet stipulates an infinite future so we can wait forever for KSA to report that 10.7 million barrels.


Of course this also means we wait forever to collect from Stuart :-)


Cheers!

There is no hard evidence to support that this fall in production is involuntary

There is no hard evidence to prove it is voluntary

There is no "hard" evidence.

There is endless nonsense, however, and since I love that stuff, keep it up!

Bring it on!

The Staniford Post on KSR has now reached mention in the Wall Street Journal, in today's WSJ Energy Blog.

March 6, 2007, 5:06 pm
Blog Roll — Pondering Saudi Arabia’s Falling Production

Writing on his blog, The Cost of Energy, Lou Grinzo ponders the reasons for Saudi Arabia’s falling oil production last year, according to OPEC data (discussed at length in this Oil Drum post on Friday). “Clearly Saudi Arabian oil production is lower. The magic question is: Why?” he asks. “Have they hit peak production on enough of their fields that they’re…at their all-time peak? Or are they ‘merely’ at a local peak that can be overcome via enhanced oil recovery techniques…? Or is it simply that they really are telling the truth, and they’ve voluntarily cut production for one or more reasons?” He warns against jumping to conclusions about the development, which he sees many doing. “No self-congratulatory doomerism here,” he writes. “I’d rather stick with militant agnosticism, even if it’s more than a bit frustrating at times.”

Blogging

Blogs We’re Reading:

* The Cost of Energy
* The Energy Blog
* DeSmogBlog
* Rigzone
* Joel Makower

– Mark Gongloff
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http://blogs.wsj.com/energy/

Gregor

Stuart has here what is known as a 'sucker bet'.

1. If the Saudis get their oil production over ten million barrels a day, he wins.

2. If the Saudis don't get their oil production over ten million barrels a day, he pays you off with a post hyperinflation aluminum alloy 1,000 dollar coin he got back in change at Starbucks.

Euan, great post.

According to EIA crude oil had so far nominal high endings in early August 2006.
………

Brent spot ended at $79,26 on August 09. 2006
WTI spot ended at $77,05 on August 07. 2006
……….

According to EIA STEO Mar 2007 the OECD Commercial Oil Stocks were building towards a high in early July 2006.

Looks like OECD was buying oil for storing while prices were high, and drawing them as prices cooled down.
……..

Further, EIA IPM March 2007 reported SA (C+C) at 9,300 Mb/d for Jul and Aug 2006 and down to 8,750 Mb/d in Dec 2006.
From Aug 2006 to Dec 2006 the remaining OPEC members reduced their production with 0,495 Mb/d.

SA having approx 30 % of OPEC production took 50 % of these cuts.

EIA STEO March 2007 lists SA production at 8,600 Mb/d for Feb 2007, down 0,700 Mb/d in six months. The same STEO indicates SA cuts of 0,158 Mb/d of the February 2007 OPEC cuts (0,500 Mb/d) which is close to the fraction of their production.

From May 2004 to Jun 2004 SA (C+C) jumped from 8,500 Mb/d to 9,500 Mb/d, which just temporarily helped cool down oil prices that then ran indecently high at $35 - $40/b.

For the same months all reported OPEC production increased 1,189 Mb/d, in other words SA alone stood for more than 80 % of the reported increased OPEC production.

The future SA production numbers will obviously become very interesting, but I got a feeling that SA production numbers also should be seen in relation to total OPEC production.

NGM2

High oil prices worked their magic, dampened demand growth and stimulated a global exploration and production effort with the oil industry working flat out, everywhere. There is no shortage of oil throughout the OECD. US and European inventories remain high.

How are you measuring Inventories? On an absolute, or days supply basis? Also, what do you mean by shortages? You use the word "shortage" as though that were relevant to a bull market in oil. Shortages means that some buyers cannot buy oil, that there's none available. The use of the word shortage, in the context you are using it, presents a false dilemma.

Also, how are you measuring the oil price? Front month contracts? You are rebutting the large question of KSR declines, and using front month oil price, to do so?

My response to a series of RR comments on the previous thread, regarding these issues of Price, Inventories, and the Futures Curve is here:

http://www.theoildrum.com/comment/reply/2325/165766

I must say, I am seeing a real dearth of mention of the crude oil futures curve, out to 2012, here at TOD. More than germane, it is central to any discussion of Peak Oil. Topical too given that the CFTC recently did a major study of participation, in the long end of the curve.

Gregor

To me the sum of your argument rests on the assumption that KSA has reduced production by shutting in wells that have high water content.

I agree with the concept that they probably pump from regions and fields with lower water cut esp new fields brought online in preference to watered out regions.

But I don't see how this argument means ghawar or at least the northern half is in decline. One piece of evidence that could clarify maybe is quality ratio of the oil they have shipped last year. If its tending toward grades that are not produced from ghawar the then their is a good chance ghawar is declining.

So the bottom line is that its a safe bet that wells were shut in that have high water cut. By resting these wells they can offer a brief surge this summer bringing them back online. Also I suspect they are filling or have filled all the tank storage they have in preparation for a summer surge. My opinion was that any additional production would come from tanks this summer. But I'm fine with the concept that some wells that had a high water cut can be rested and produce at a higher rate for a short period of time this is a known solution.

All this points out is that KSA is preparing for a mini surge to head off high oil prices this summer or probably more realistic to take advantage of higher prices this summer.

Thus since I believe they are declining and they have chosen a fairly reasonable way to manage their dwindling resources.

They cut back production rest wells and fill tank storage while demand is relatively low as demand picks up in the summer they surge the rested wells and empty the tanks at the highest yearly price. As they decline the floor price rises higher but they get the best returns with this model.

This of course means KSA believes that the world has peaked thus they are safe in following this course.

Next year of course we will see the same pattern but with a more constrained oil supply and lower surge peaks.

The important point is that if KSA thinks it can get away with managing its production to sell oil at the highest price each year this means they believe the world has reached peak production.

I agree that their production cuts may have not been 100% because of decline but if its 80% and they can increase production for a short time in the summer they stand to make a lot more money. Only if they believe that the rest of the world cannot undercut them and is decline.

If this is the case we will see that after the summer surge if we have the peak prices in the fall I've predicted KSA will not be able to increase production. Nor will they be able to increase next winter but they will have to husband their resource to surge once a year in summer. And with that I can't see them maintaining a higher production rate for more than 90 days since draw downs from their tank farms would be a big part of the supposed production increase.

If my hypothesis is correct then their is a good chance that KSA will increase its tank storage capacity. This can be used to level production shortfalls.

They are in fact doing this for china
http://www.tmcnet.com/usubmit/2006/01/23/1308516.htm

I can find no information on if more farms are being built inside KSA. But even the work with china points out that they may feel they cannot meet peak demand anymore and must use large tank farms too try and bridge production/demand gaps.

Also its not clear that the storage is needed depending on their true capacity. So a negative does may not mean much but I can't see any reason for them to increase storage internally since they are probably restricted by the export terminals.

In short I do not see that the argument presented here proves anything in fact it furthers the case that KSA is probably declining and has changed to the model that makes the most sense which is to husband their production so they can surge it at the periods of highest prices. It does say that the surge will not just be from tank farm draws but also from temporary increases from some well that are still producing but shut in. This makes sense. How does it prove they are not in decline and also again more telling that they are safe playing this game since they believe the world is in decline ?

But I contend that they can only do this now once a year and each year the surge will be lower and the base production rate will be lower. And more telling they will not be able to handle increased fall or winter demand with increased production. This trick will work this summer but 2008 is iffy and I doubt that its worthwhile by 2009. It basically a one shot strategy for the first and maybe second year post peak. Notice that the decision to increase the SPR and china 's tank storage will help later as full production for the entire year is needed to meet demand. After that ...

There seems to be quite a fixation here on looking at the raw production numbers in bbl's, be they of "C+C", "All Liquids", etc. which, beyond a certain point does not seem too helpful.

I say this because it seems to me that what is really of "real world" significance is not how many barrels of flamable liquid are being produced, but how much net chemical potential energy is being made available.

By tracking only the barrels of output, and not subtracting the barrels of fuel invested in the whole petroleum industry [treating them as an "externality", and thus ignoring them] it seems to me that with every month that passes these graphs, accurate though they may be in one sense are giving a more and more optimistically distorted picture;

Drilling in exotic locations uses more fuel, recovery measures from old wells uses more fuel, extracting upgrading the greasy sand of Canada, shipping a greater fraction of the total around the world in tankers as more countries become importers, feeding the increasingly bloated "financialization tail" of the industry i.e. the oil speculators and associatied camp followers, "Stabalizing" the oil producing regions via military and other interventions, yada yada, yada, all these things are getting more energy expensive by leaps and bounds.

Anyone got any idea what a graph of "net liquid fossil fuel energy extracted" would look like? I'd be amazed if such a graph did not show a clear peak some decades ago...

Again... thank you for piling on the data and asking the right questions.

This is what I love about The Oil Drum (it seemed to be lacking over the past few months... not sure why... just did).

Every time someone posts from a particular point of view... the call should go out...

"PROVE THE ABOVE WRONG" and hopefully there are plenty out there to take up the call on all sides.

Euan Mearns wrote:

Similarly, there is no hard evidence to prove it is voluntary. But given the long history of Saudi Arabia acting as global swing producer, in my opinion, hard evidence would be required to prove that this had ceased to be the case. Such evidence may include: 1) falling global oil production 2) escalating oil prices and 3) falling OECD inventories. Right now, none of these tests are satisfied. [my emphasis]

What the hard evidence requires depends on how much is at stake for you and yours. And you act accordingly.

This is really not an academic discussion because there may be substantial risks -- beyond one's career -- associated with being wrong for all involved. One assesses the risks and one jumps (or not).

Stuart, where are thou?

I will respond in detail to Euan's contentions in a post-in-preparation.

I just wanted to make one point here - the bet is serving its purpose of flushing out what people think, and what it reveals here is that Euan and I do not disagree very much. He considers it "long odds" that Saudi oil production would go to 10.7mbpd for any length of time. But that is what they stated is their sustainable capacity today. So he, like me, doesn't really believe them.

My guess is Euan and I could not bet because our views of the relevant probability distributions overlap substantially. Maybe my estimate of the 5 year off Saudi production is 7 &plusmn 1.5 (1 sigma error bar). Maybe Euan's is 8 &plusmn 2.5. So our distributions overlap greatly, and there is no bet on which the opposite sides are going to look attractive to both of us.

But there are people who believe, or at least publicly claim to believe, that the answer for 2012 Saudi production is 12.5mbpd. And I want some representative member of that faction to put his/her money where his/her mouth is.

I will have more to say - much, much, more - on Thursday morning (US).

Upcoming 2007Q4 Oil Price Shocks and Saudi Arabia's "Surplus" Capacity

Thanks, Euan for the post - it's important to have discussion representing both sides of Saudi Arabia's potential production capacity.

EIA has just released the Mar 2007 Short Term Energy Outlook.
http://www.eia.doe.gov/emeu/steo/pub/contents.html

According to the EIA, Saudi Arabia's C&C production for Feb 2007 was 8.6 Mb/d with surplus C&C capacity of 1.9-2.4 Mb/d. (Jan 2007 was 8.75 Mb/d C&C.)
http://www.eia.doe.gov/emeu/steo/pub/3atab.xls
No other country claims to possess surplus capacity close to Saudi's surplus capacity.

This EIA slide shows that world spare capacity is about 2 Mb/d for both 2007 and 2008.
http://www.eia.doe.gov/emeu/steo/pub/gifs/Slide13.gif

The EIA's forecast total liquids supply and demand:
http://www.eia.doe.gov/emeu/steo/pub/3tab.xls

For 2007Q2 EIA forecast world demand has dropped to 84.8 Mb/d. EIA’s 2007Q2 supply is 84.9 Mb/d and my forecast supply is 85.5 Mb/d. So there should be enough oil to meet demand in 2007Q2 – no price shocks. 2007Q3 should also have no price shocks.

2007Q4 becomes interesting. EIA forecasts demand at 88.6 Mb/d and supply at 87.2 Mb/d for a gap of 1.4 Mb/d. Thus this gap of 1.4 Mb/d would have to be met by stock draws or demand destruction. (EIA assumes that Saudi Arabia is drawing on its “surplus capacity” as EIA forecasts OPEC-11 production to increase from 33.1 Mb/d in 2007Q1 to an optimistic 34.9 Mb/d in 2007Q4.) Note also the increase in EIA forecast demand from Q2 to Q4 - a whopping 3.8 Mb/d!!

My forecasts for 2007Q4: World demand is 87.0 Mb/d and supply is 85.4 Mb/d for a similar gap of 1.6 Mb/d which would be met by stock draws or demand destruction.

The worst 2007Q4 scenario is using EIA forecast demand of 88.6 Mb/d and my forecast supply of 85.4 Mb/d. This gives a massive gap of 3.2 Mb/d! (This assumes that Saudi Arabia has no surplus production capacity of about 2 Mb/d).

If Saudi Arabia has surplus capacity of about 2 Mb/d and uses it in 2007Q4, the world will have an unfavourable supply demand gap of 1.4 Mb/d at best and if no surplus Saudi capacity exists then the gap becomes worse at 3.2 Mb/d.

If it is assumed that Saudi Arabia has say 1 Mb/d true surplus capacity, then the gap drops to 2.2 Mb/d in 2007Q4. This will still result in 2007Q4 oil price shocks.

Conclusion

Even if there are no supply disruptions through to the end of 2007Q3, severe oil price shocks over $US70/barrel could easily occur in 2007Q4. I guess that the probability of prices exceeding $US70 in 2007Q4 is at least 80% because it is assumed that Saudi Arabia has maybe 1 Mb/d "surplus" capacity.

Also given that the world focuses on demand of total liquids rather than C&C demand, I don’t think that there will be a serious response to peak oil reality until these price shocks occur.

Euan fantastic post by the way !

This is why the OilDrum is how to say it for real.

Robert promised a post on the error in HL analysis.
And I wish all the number crunchers on peak oil will try to take a stab at error analysis.

In this post you have not estimated the number of producing but high water wells that may have been idled for example.
If you had thought about error some maybe you could have made at least a reasonable guess. I'm not detracting from the post its great but I will start trying to harp on people
at least guessing error's percentages etc. We have to deal with very high error terms here and the lack of discussion about errors leads to erroneous discussions :)

The point is your article has a error range of wells shut in because they were not worth producing and ones shut in to rest the wells. We can guess to some extent since we know from Texas how many wells benefit form pulsing production.
Since you did not give a reasonable estimate its hard to determine how much production loss can be attributed to shutin wells that are being rested and producing wells that are shutin and won't benefit and wells simply watered out.

Robert Rapier of course is the prime target for my error bar campaign :) But everyone needs to try to discuss error please. I will of course continue to make seat of the pants wild ass guesses so that approach is covered :)

If Stuart was so confident that Saudi production was heading south for good then he would not have set the bar so high.

So high? There seem to be quite a few people here who appear to take Saudi Aramco at their word. They said they would increase capacity to 12.5 mbpd by 2012 (hope I got those numbers right), and then further later. 10.7 mbpd will be enough below target capacity for them to likely produce at least that, in a sustained fashion, particularly as the rest of the world production declines.

If anyone accepts what the Saudis say, they should be very confident of taking this bet; it's not a high bar at all. Why don't they?

Tony

hey euan,

great stuff, even if i'm more inclined to sit on the other side of the fence. it doesn't seem like we'll need to wait very long for the world to really want some extra Saudi production. then we'll know (almost) for sure.

i'm definitely interested in more info on the rig counts. I acknowledge that rig numbers have been low until recently, but I'm not sure how valid the comparison of Saudi to the US is. The US oil producing region is probably that same multiple larger than Saudi Arabia (I read something about that recently). There may also be a bunch of rigs digging away in Saudi that don't fall under the Baker Hughes count?

it's obviously true that the first seven Saudi peaks were voluntary, but that observation won't help us anticipate the first one that isn't. i have to admit that i find the HL plot for Saudi pretty powerful in this regard. are you saying you don't believe the HL plot has any predictive capacity? even what the US companies knew about Saudi geology before they got booted out supports the HL reserves estimate to some extent. we're still producing from mainly the same fields that they had discovered back then?

how about the fact that they didn't expand production after US hurricanes? and why was their production broadly flat for well over twelve months while prices continued to set new records?

then of course there is matt simmons and others saying the saudi fields are struggling. nobody said that before the other seven peaks? the pattern of vertical wells, which worked for decades, being replaced on an enormous scale with MRC wells is also suggestive of trouble?

in short, i don't think it's true that there is no (hard) evidence to say this time they're not in control. given the level of secrecy, i think we've got all the evidence we are ever going to get.

keep it up!

cheers!
phil.

Hi Euan,
Thanks for an excellent additional analysis of Stuart's work.
The top chart in your article is interesting for a number of reasons, but one has not been mentioned at all, that is, the change in volatility of the oil supply.
Until the plateau in supply in mid 2004, SA supply stayed above 8.5 for only brief periods, but for the past 18 months SA has had to provide continuously at or around 9.0.
It seems the slope downward is now SA supply is reverting to the mean from exhaustion, which would necessitate a serious fall to well under 8.0 for quite some time (18 months?) to balance out the long period of high flows. This doesn't necessarily have to do with whether it has peaked, but everything to do with sustainability.
Do you see this as significant?
Ian

Kunstler's recent article references Stuart Saniford's post.
http://www.theoildrum.com/node/2325

http://www.atlanticfreepress.com/content/view/1101/81/

Excerpts:

"Evidence now conclusively shows that Saudi Arabia's oil production was down 8 percent in 2006 over 2005, even while the number of oil rigs went up substantially — indicating that the Kingdom is drilling as fast as it can and still losing ground."

"No amount of corn is going save the Happy Motoring utopia, and that's really all our economy is now based on."

His article is good for a laugh - even of some of his predictions become true.

Euan, you state:

Similarly, there is no hard evidence to prove it is voluntary. But given the long history of Saudi Arabia acting as global swing producer, in my opinion, hard evidence would be required to prove that this had ceased to be the case. Such evidence may include: 1) falling global oil production 2) escalating oil prices and 3) falling OECD inventories. Right now, none of these tests are satisfied.

Yet the truth is that global production of C&C is down since May 2005 and that OECD inventories are down since July 2006.

So, since July 2006 we have at least 2 of your criteria met. Further, we've all discussed here ad nauseum the sometimes slow response time of the market to actual supply and demand so I suspect that you are wishing for too much if you expect prices to instantly head back up (although they are, of course, headed back up even now anyway).

In short, I don't think you reviewed the data. Two of your criteria are already met.

Ghawar Is Dying
The greatest shortcoming of the human race is our inability to understand the exponential function. - Dr. Albert Bartlett

Such evidence may include: 1) falling global oil production 2) escalating oil prices and 3) falling OECD inventories. Right now, none of these tests are satisfied.

1. Global production did fall, 06/05, 200k/d.
2. Prices are now rising, from under 50/b.
3. OECD inventories have fallen steadily, around 700kb/d, from mid-oct.

BOth you and robert say prices and sa production declined together. The graph above shows sa production began declining 3/06, went down steadily as prices climbed over 70 in june and stayed above 70 to mid july. So, for 4-5 months sa chose, or were forced, to turn away sales (no buyers) while prices surged, goosing the rest of opec to sell every barrel they could squeeze out of their fields... to the point that, in jul/aug, production surged higher than ever, even as sa production continued to slide. And, this was months before stocks rose to the md-oct peak and opec began to worry about falling prices.

As an aside, the administration was begging their sa friends for more oil to help bush in the election. No oil was forthcoming.

Very well done Euan, that’s an equilibrated analysis.

What do you think of the hypothesis of this just being an intermission period where heavy oil production isn’t yet filling the gap left by a crash in light oil production, like Dave pointed?

THIS ONE IS A KEEPER

Of all the TOD strings I have read and commented on, only a small number have been put into my favorites file, so that I can go back and refer to them, because they capture the problem of predicting and basing action on the timing of peak oil so well. This string will be one of them. What are the gems that make this string of posts stand out, the complicated chess gaming that keeps the ball in the air and the game in motion? To whit:

1. The second chart from the top, with the blue line, and the numbers 1 through 8 on it.....see it? Please, take a hard look at that chart. I am interested first in one set of numbers, one place on the chart, between 3 and 4. Look at it. Even today it is AWE INSPIRING. From over 10 mbd to barely over 3 in barely 3 years! Oil production in 1984 that barely matched 1970 production! This is the world I grew up in. WE HAVE SEEN PEAK. Any thinking person was sure at the time that Saudi Arabia may regain some production, but they would NEVER see the old 10 mbd peak, NEVER.

22 years on, they were only back oat the 1978 levels! Does this seem suspicious to anyone? My interest now moves to the second, and as much fascinating place on the chart, between just before number 4, right at the bottom, to number 6, pretty recent history really, in about 1997 or so, not too long before the recent "weirdness" hit. Between 3 and 6, a cliff down, and
a wall up, all without benefit of geology or "geological peak", just like turning a tap.....turn the oil off, turn the oil on....at will. Does this bother anybody but me? This little piddly shiit drop and rise we see today wouldn't even be a pizz in the sea compared to what we have already seen, LASTING A DECADE AND A HALF AT A TIME. Who would think they could possibly prove a catastrophic end time peak with a few months or a year, or even two or three year drop? Does this not defy all criteria of "proof" given what we have already seen. What would you folks say today if you were looking at a chart in say 1982, more than 60% percent off of peak production, down for 5 years! Can you imagine the hysteria, the complete meltdown of confidence in the "age of oil"? Can you imagine the repurcussions to the world economy, the loss of faith in the world economic future. Well, those of us of a certain age don't have to imagine it. We lived it.
It just astounds me how easily so many have forgotten it. It is a cautionary tale indeed. BE VERY CAREFUL in how you plan for "peak" as you percieve it, and think before you sell the retirement plan, the nice suburban home, and hike into the wilderness.

2. Did anyone bother to go and check out the link provided on Khurais:
http://www.hydrocarbons-technology.com/projects/khurais/

Man, this one bothers me. Light sweet crude, pilot drilled in 1963. And then, not developed....(??!) Simmons says in "Twilight" that it was because the oil quality was inconsistant, and it just wasn't there in volume.....(??), he and others say it is a bluff, and can't deliver.

But the Saudi's are now spending 3.5 billion dollars on a bluff (??!)
If, and this is a big IF for sure, Khurais can deliver what the Saudi's promise, some 1.2 million barrels per day, of "of high-quality Arabian light crude", it instantly becomes one of the worlds super giants, and makes up for all the hysteria concerning Mexico's Canterall, and much of the North Sea drop. And it begs a greater question: Are there anymore surprises out there in the Saudi outback, or off the Saudi shore? Who can really know? No Western power has been privy to Saudi exploration work since truly modern methods have been developed. Remember, that the U.S. bowed out of Aramco at the time people still had Commadore 64 computers storing recipes, and the storage media was a cassette tape player.

Matthew Simmons often talks about the volume of water injection telling something about the volume of oil expected...." does "4.5 million bpd of treated water" tell us anything? Do the water cut math yourself, either they are expecting to move a great deal of oil, or they know they are spending 3.5 billion dollars, and runnning pipeline all over the desert to retrieve "oily brine". Would they do that? (??!)

Westexas may be right, the game may be up. Staniford may be right, the game may be up. I am troubled because I have read so much of their writing, and find so much they have to say convincing and compelling. It was Westexas that first showed me the exact nature of true "geological peak" as it applied to the lower 48, and caused me to accept in an even deeper way than I had before the need to CHANGE NOW. I still believe that we must change, now more than ever.

But Saudi Arabia worries me. Not they will peak, I have been worried about that since 1978, I am used to that.

I worry about something else. That they have a few big cards up their sleeve, and they will not play them until it will do us the most complete and disabling damage. If they can, I think they will choose their time carefully, and then end the U.S. attempt at conservation, deep offshore exploration, and alternative energy, and put those industries back in the shape they were in 1983. Complete collapse.

American arrogance and elitism is once again a great danger, clouding our view: We persist in believing that the Saudi's and OPEC are ignorant, despite the fact that they have beaten us again and again at this game. (this was the Saudi's great compliant against Simmons' book, "Twilight In The Desert". I heard one Saudi official on public TV when asked why he would not reply to Simmons contentions, say, "why should we? He essentially calls us liars and ignorant at the same time.")

Yes, this is a string I will keep. It may have great historical significance someday. :-)

RC
Remember, we are only one cubic mile from freedom

This is, frankly, tiresome. All we can do is wait (and prepare, if you've got half a brain).

It occurs to me that we're arguing over the fate of a single country because the fate of the world's oil supply hinges on the fate of a single country.

Reason enough to panic.

Hello TODers,

If we take the word of Heinberg's inside source that Ghawar was under 3 million barrels/day, then add the now online 300,000 b/d of Haradh III: Can the other KSU oilfields make up the difference? Could this be a another method to help predict the possibility and error bars of KSU being postPeak?

http://energybulletin.net/18904.html
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[4 AUG '06] What happens next? It depends on the real condition of Ghawar. Perhaps a heroic drilling campaign could result in a temporary bloom in production, lasting perhaps three years, followed by a swift, terminal collapse. On the other hand, it is possible that the field has been so thoroughly exploited already that we are seeing the irreversible, rapid decline. 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.
-----------------------------------------

If one looks at SS's graph [green background with the two hand-drawn lines above]: this bombshell of info was right when Haradh III was turned on. So, is this a valid equation?--> 9.2 - 3.3 for Ghawar = 5.9 mmbpd for the other KSU oilfields. Is this even possible for the queens, princes, and barons: Berri, Abqaiq, Zuluf, Marjan,etc?

So if Ghawar is dying, but the other oilfields last Aug had the capability to be only temporarily ramped up to cover this decline-- does that help explain all the unsold heavy crude and the further decline since last Aug?

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

Has no one noticed that, according to EIA - International Petroleum Monthly,
(1) the world without Saudi Arabia had an absolutely flat production curve between Feb 2006 and June 2006 (around 63,950 mb/d)
(2) Saudi and therefore total world production was declining by around 400 kb/d
(3) the oil price was increasing up to $70 a barrel in this very period

Month.....World.....Saudi Arabia......World without SA
2/2006....73,496.......9,500............63,996
3/2006....73,285.......9,350............63,935
4/2006....73,333.......9,350............63,983
5/2006....73,113.......9,200............63,913
6/2006....73,052.......9,100............63,952

Then, in 7/2006 - when the price of oil dropped - there were some one-off production increases totalling 900 kb/d in various countries including Saudi Arabia out of which 550 kb/d have since evaporated, leading to a reversal of downward oil prices.

So we already got a foretaste of what it means when the rest of the world is flat: we slide down together with Saudi Arabia, just as Matthew Simmons described it and the prices go up. Some tension in the Middle East gives it an additional push.

My message2

My message2

First off, kudos to Euan and Stuart for excellent articles...

An old saw from my grad student days was "If you torture the data, it will confess", my take is that the data as presented is still not fessin' up.

What is missing is a breakdown of Saudi production by heavy vs. light. (yes, I am aware, state secrets etc...) Based on evidence, the data suggests that the Saudi's likely have spare sour heavy capacity which is currently unmarketable and that their lighter sweeter grades have probabaly peaked, at the very least, logistically. This conclusion is based on their recent "cancellation" of Asian delivery contracts. There is also the statement that "no buyers existed for their heavier crude at $70 back when spot WTI was $78. It is also fairly clear that the Saudis are willing to use the $60 floor to justify easing up production in a bid to buy time.

Looking at the Manifa project, I interpret that the Saudis will try to replace domestic consumption with heavier unexportable grades in an attempt to free up premium light grades for export. The key question is whether the Saudi projects in the "pipeline" will allow them to maintain lighter exportable grades.

Unfortunately, I don't have my table of viscosity and sourness of the Saudi fields at hand to correlate the new projects to determine if the above hypothesis stands up to scrutiny. It definately does appear that the Saudi's are making an effort to increase the value-added component of their oil resources.

It would be very instructive to find out world refinery capacity as a function of viscosity and the breakdown of the SPR stockpile.

No matter how you slice the data, it is clear there is a transistion underway in the kingdom.

(don’t grasp where this comment will show up, it is general.)

HL is good for massive data; for an individual field (for ex.), forget it, though useful tools are always ..conceptually vital. Obvious point, from Statistics I. Still, where is the line between inspiration, pondering, hypotheses, discussion, and validity?

Not dismissive, just it IS a tough call. An impossible one.

The secrecy that surrounds ‘oil reserves / production’ shows that oil is a card in the sleeve. Information about it hidden and manipulated, as it represents a source of power. *DUH!*

The present ‘wars’ in the ME, and elsewhere, are oil wars, or more generally wars for the control of resources, which includes agri, land, water, transport and pipeline routes, and policing (not to say decimating..) the ppl on the ground, at the strategic spots.

Saudi is hanging on by the skin of its teeth. Its long relationship with the powerful protector, helping it to maintain a ‘Royal’ class of potentates - hypocritical, repressive, domineering, self-serving in the name of a religion which provides excuses for endless sins, wasteful, rapacious - has now become difficult. They either have to keep it up, perform, deliver, or concede some kind of inadequacy or ‘defeat’, a loss of control. As they have nowhere to retrench to, they have to keep on with the same strategy.

Their lack of confidence, their hapless moves to conform (Saudi banished slavery in 1962, to reach back in time...), their spending of petro dollars or arms and grandiose projects, etc. signal the end of an era for them. Their moves against ‘terrorism’ and towards ‘democracy’ signal hypocritical capitulation towards the super power, simulacrums tossed out to please temporarily, moves to make nice and look good, pending. More could be said along that line but it would raise very controversial topics. (9/11 for ex...)

Pending!

(Of course the US does not give a fig for democracy in Saudi, this is all part of the game, pressure etc.)

They are at ‘peak’ or after it or close to it.

Prince Bandar knows. (I guess.)

Euan's post helps point out why The Oil Drum is such a valuable site. He intelligently and professionally posted a contrary interpretation of the data that Stuart wrote about. I thrive to hear contrary views as long as they are done in a respectful and thoroughly thought out manner.

The problems TOD has had with trolls in the past has hurt the site’s credibility - IMO. But it is nice to see that a contrary view can not only be submitted but be given top billing as a lead story. After reading Euan's post you can see that there are many ways to look at the same data and different conclusions can be constructed from the same data set.

It is too bad that the data transparency of SA isn't better so that we could begin to formulate a more accurate picture of the overall production situation. Until SA shares their data, and no one is holding their breath waiting for that to happen, we will continue to make educated guesses as to the state of world oil production. That is the true value of TOD. Too bad this topic is so important to modern human civilization that we have to keep making guesses.

I agree with Euan's conclusions about Stuart being a bit premature with calling the demise of KSA's oil production.

For me, the major problem rests with the ultimate recoverable reserves ("URR") of KSA and the ratio of annual production to URR. If we take 8.5mm bpd as the average production for a year, then the annual production will be 3.1 billion barrels. Even the lowest estimates of the KSA's remaining recoverable reserves claim it is more than 100 billion barrels. Since most Hubbert Linearization people here believe that the world's URR is around 2.1 Trillion barrels. If we are at the peak, that means that 1.05 Trillion barrels are still left. It stands to reason that KSA has at least 10% of that, which equates to about 105 Billion barrels.

Now we get to the problem. With 105 Billion barrels of recoverable oil left, the ratio of reserves to annual production for KSA is about 34 years.

The problem with this figure is that anyone who covers the oil and gas industry knows that companies with a ratio of reserves to annual production above 20 can easily raise their production levels by 5-10% annually for at least 5 years, maybe more. It's when companies have reserves to annual production ratios of less than 10 that the depletion causes problems so that increasing production becomes very hard, and decreases become common. (Note that by saying "able to raise production", I am saying that there are no physical or capacity constraints on increasing production.)

With KSA having AT LEAST 34 years, it stands to reason that their recent production cuts WERE VOLUNTARY, and that they could increase output by 5-10% per year for the next 5 years pretty easily.

Why would they cut voluntary? Simple. In a world where the KSA figured out that there is no other swing producer, why produce 10mm bpd @ $50, when you can produce 8.5mm bpd @ $60 and make more money, while saving your precious resource for the future (where prices will likely be higher).

Maybe KSA just got smarter.

Now that the dust has settled, discussion of the recent posts "Saudi Arabian oil declines 8% in 2006" and "Saudi Arabia and that $1000 bet" seems to have resulted in the agreement that there are multiple hypotheses (decline versus witholding capacity) that equally well can explain the results. The issue, of course, then becomes how long we must wait before one of these hypotheses emerges as the more likely explanation. If, as Robert Rapier claims, the issue is inventories, the evolving "crash" back to the 5-year average range in total US commercial inventories might force Saudi Arabia to increase production if it is able to do so.

However, even if that scenario does not arise, it may be possible to detemine whether Saudi Arabia is manipulating their production or if the declines are involuntary. Looking over well and production data on the Opec web site, it becomes apparent that the Saudis have historically manipulated their production not so much by changing the number of wells they drilled, but by how many wells they retire each year. The figure below shows that in years where they want to keep production flat, they tend to retire about 130 wells per year. However, when they need to increase production, they either don't retire wells as fast, or even bring wells out of retirement, most notably in 2004 when they brought 37 wells out of retirement.

Remarkably, the slope of a line jammed through this data suggests the average well they retire is still capable of 4000 bbl/day or so!

Once the 2006 data on producing well counts and new wells is in, it may well be possible to discern whether the decline was voluntary or not. If the Saudis retired on the order of 200 wells, this would suggest the decline was voluntary, as this number would be consistent with past behavior of restraining production. However, if the number of wells retired is below 100 (or god help us, negative!), that would indicate that they are throwing everything they have into the fire to maintain production. Either way, I eagerly await the 2006 OPEC report...

I am not a numbers expert, so I would like to ask to those that are inclined to check this presentation (A dynamic approach of oil production) (pdf) from the ASPO 2004 Workshop in Berlin. Is from Olivier Rech, from the Institute Francais du Petrole.

I'm not quite sure what you're trying to accomplish with this cut and paste job of an analysis that probably everybody on this board read 100 times. Look at your own chart. 1990-2006 was the longest sustained production in their history.

Why would saudi production fall? Because they produced 55 billion barrels since 1990. The rig count increase should perk your ears. ALMOST NONE OF THE NEW RIGS ARE WORK OVERS! The original wells in Ghawar were drilled on the top of the anticline. Ghawar produced in the open hole. The field is well known for it's super permeability zone at the top.

When I worked Ghawar in the 80's we could produce 12mm bpd.... for about three days. After that, you cleaned up the mess.

Another note. harad was fully drilled and produced, then shut in by 1985. That INCLUDES a multibilliuon dollar water injection system built by McDermott. If they redrilled it it was because it was FUBAR. In fact, kit was FUBAR when it was new.

Someone up above questioned the HL numbers for Russia. They never made any sense to me either. So I decided to look into it a little more closely.

Here's the chart from Khebab's website. (Thank you)

http://static.flickr.com/27/89720525_ff6da62e84_o.png

I just can't see how the HL for Russia works. The explanation I've seen given is that the current increase above the red line is making up for poor maintenance and technology during the fall of the USSR.

Anyways, Qinf is 157.52 and Qt is currently 138.8.

That leaves 18.72 GB remaining in the ground. (Supposedly)

Production is 9.2 million barrels per day. 3.3 GB per year.

18.72 / 3.3 is 5.6 years of oil left at current production rates. Obviously they aren't gonna pump at this rate right up to the last drop...

So I did a little math, and in order for that HL Qinf to be right, Russia needs to start declining at 18% a year! Now maybe I'm wrong, but oil producing regions just don't decline that fast. At least I've never heard of any. Not to mention Russia is expecting a 100,000 bpd gain next year!

Now maybe the production numbers for Russia are skewed with NGL or some other unconventional crude sources. I don't know. Maybe someone can explain it to me.

I'm not a mathmatician, and I'm certainly not in the oil patch, but it sure as hell looks like they are tapping into new found reserves to me, or recovering at a much higher rate then before...

Either way, if the HL for Russia can't be trusted, then I wouldn't be too confident hanging my hat on the HL numbers for Saudi Arabia.

Debunk away.

Thanks!!

Garth

How about a graph of which countries import what percent of oil imports to the US.? Since SA is only part of the world wide equation will its decline have the impact that a decline in Canadian oil would have?

Check out this link from 1999 on when peak would be. Very scary on how close he was.

http://members.aol.com/vrex/oil/price_forecast.htm

This guy was optomistic on price however...

Colin Campbell's position is that decline in Saudi Arabia commences in 2025. He has increased his URR Estimate by 50-Gb. This moves his Peak Date to 2011 in agreement with the Skrebowski change in December.

This will paste big grins on the editorial team at the New York Times!