The Peak of Light Sweet Crude?

[editor's note, by Prof. Goose]This is a guest post by Stuart. Enjoy!

Vital Trivia recently made a fascinating claim that light sweet crude has passed its peak production. If true, this is a very significant milestone in the peak oil story, and strong evidence for the idea that there is a near-term peak in total liquids production. But is it true? Let's take a closer look.

Recall that "light" means that the crude has low density (and usually low viscosity) so it flows easily. (Technically, it's light if it has API gravity higher than 35 degrees). "Sweet" means that there's little sulphur. Light sweet crude is the most desirable as it can be easily refined into gasoline. Heavy sour crude requires removal of the sulphur and catalytic cracking of the long carbon chain molecules to shorter species in order to get much gasoline out of it. Those big molecules are what makes heavy oil black and gooey. This means the refinery needs to be more complex and expensive to process heavy sour oil. Famous flavors of light sweet crude include West Texas Intermediate, Brent oil from the North Sea, and of course the output of Ghawar in Saudi Arabia.

Unfortunately, public data for the history of light sweet crude production seems to be almost non-existent. The case at the moment is based on some data on page three of the August Opec Monthly Oil Market Report.

A careful analysis of the numbers reveals some serious problems, however. Here's basically what it gives for global production:

The first thing that will hit you is that, indeed, the light production has dropped. OPEC's figures says the global production of light sweet dropped by 2.6 mbpd from 2000 to 2004. But there's a problem. Notice the total production here: 93.8 mbpd in 2000, and 99 mbpd in 2004. That's not an error on my part: the OPEC report says 2000 non-OPEC production was 66 mbpd, and 2000 OPEC production was 27.8 mbpd. 2004 numbers were 70 mbpd and 29 mbpd respectively. This can't possibly be right (all other authorities state that total production last year was in the low 80s). So there's something wrong with OPEC's numbers.

Even if that problem turns out not to be material, there's some danger in assuming from two data points that we know the shape of the curve. Maybe one or other data point was an anomaly. Declaring peak on light sweet crude would be a lot more comfortable with the whole curve before us. Still, there are other interesting indications. The Saudi's have been saying for some time that the world's current problem is lack of refining capacity for heavy oil, not lack of oil per se. And, as Econbrowser noted recently, the price spread between light sweet crude and heavier grades has grown unprecedentedly: consistent with the idea that the good stuff is in decline, while there's still increasing amounts of the not-so-great oil.

If we are some time past the peak of light sweet production, that is profoundly important. Firstly: nobody noticed till now! Truly a tribute to the lousy data in the oil market.

But, more importantly, it suggests that light sweet might be a canary in the coal mine: a predictor for what depletion of the whole liquid fuel sector might have in store for us. If the light sweet depletion stays at moderate annual percentages, that suggests there'll be time for gradual adaptation as we all start driving hybrids, building windmills and nuclear power plants, and digging up more coal. But suppose light sweet falls off a North-sea style cliff (10% plus per year); if Matt Simmons is right about Ghawar then it surely must. Then we shall know that we are in for a very nasty experience, but with a little warning before the medium and heavy oil follow the light trend.

Now all we need are some decent data...

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Yes - Stuart - This is interresting,
Also significant is this data compared to comments still made by Saudis officials and Aramco officials. Telling the world trust me - we can deliver what you want - trust us. But how can anyone trust them if their statements actually are incorrect momentarily. The customers do not want heavy sour they want light sweet which OPEC CAN NOT produce sufficiently.

Hopefully statistics will improve and we all have the responsibilety to support anyone presenting statistics with constructive feedback.

Along these lines, it is interesting to note Saudi Arabia has entered into 3 year contracts with Rowan for 5 jackup rigs for drilling offshore wells, all of which will be pulled from the US Gulf of Mexico (GOM). The fact that the Saudis are ready and willing to outbid the rest of the world for jackup rigs hints at even deeper problems with oil exploration in the kingdom. Offshore drilling is both the most expensive and the slowest way to find & develop oil. All of the US offshore companies have seen their DD&A rates skyrocket over the last few years, mostly due to the increases to the drilling day rates. When you make a discovery in the GOM, it can often take at least 6-18 months to get the well online. Imagine how long it must take in provinces with less developed infrastructure than the GOM.

You always expect a company/country to drill out its cheapest and its most easily producible reserves first. The fact that the Saudis have seen fit to take 5 jackup rigs, at higher than the going rate in the GOM, with an indication of interest for another 6-8 rigs, suggests that they have run out of cheap sources of oil to drill out, and are now moving down the ladder to the more expensive sources.


You're right, light sweet crude should be the canary in the mine. The theory holds that companies pump the easy and profitable crude first, and leave the heavy stuff until later. Better grades would peak earlier.

If light sweet is a leading indicator, then the possibility that we've quietly passed that peak is also consistent with theory: we won't know we've peaked until well after it's happened.

The light, sweet versus heavy, sour problem goes beyond production.  What about inventory?  No one differentiates inventories on the basis of quality.  Matt Simmons used the following analogy.  

It's as if when you asked what a car costs, they gave you the price of a 2005 Rolls Royce.  When you asked how many cars are in inventory, they counted rusted out 1960 Plymouths the same as a 2005 Rolls Royce.  In other words, the commonly tracked crude oil inventory numbers are virtually useless.  As you noted, the developing light, sweet crude oil shortage is showing up in the spread between light, sweet and heavy, sour.

Jeffrey Brown
Petroleum Geologist

Exactly, it's a shame that there are no reliable statistics on the crude oil stock quality coming from the EIA. The fact that gasoline stocks are falling   in the US is an indicator that the quality of the crude input to the refineries may have changed.
Re: Lack of transparency in the numbers

This is a very important result but as you point out
But there's a problem. Notice the total production here: 93.8 mbpd in 2000, and 99 mbpd in 2004. That's not an error on my part: the OPEC report says 2000 non-OPEC production was 66 mbpd, and 2000 OPEC production was 27.8 mbpd. 2004 numbers were 70 mbpd and 29 mbpd respectively. This can't possibly be right (all other authorities state that total production last year was in the low 80s)....
I tend to think of the peak in terms of the daily production number. CERA based it's report on a 2004 baseline = 84 mbd. These OPEC numbers are outrageously high.

But let's continue. The more I think about it, the more important decline rates in existing fields are. Look at this analysis from Charles Maxwell in the UK of the CERA numbers.
The key differential: what underlying decline rate does CERA assume? CERA claims that new supplies of oil from fields being developed now and opening up in the next five years, combined with reduced depletion from improved field production management will outrun the growth in world demand, providing added total oil supplies of 16.5 million b/d (8.9 million b/d net from OPEC sources, and 7.6 million b/d net from non-OPEC sources). This looks to be a much higher figure than I would expect. In examining it, I would take issue not so much with the additional output CERA is assuming, but with CERA's apparent predilection for low rates of loss from the effects of depletion.

I would use an average 6% per year loss from depletion over the period 2004-2010 for existing oil fields around the world based on the experience of many production and reservoir engineers that I have consulted. If, however, CERA made the calculation using a 4% depletion rate on the same 82 million b/d base for 2004, the consulting group could end up with a world production rate some 7.6 million b/d higher in 2010. So, although CERA doesn't explicitly identify the depletion rate used, I consider it likely that a figure of 4% or lower was employed, creating a good portion of the production "optimism" I find in CERA's future liquids output assumptions.

To sum up my "below-ground" case, I would subtract a recalculated depletion component of 7.6 million b/d, less an already recognized depletion number of 1.9 million b/d, to arrive at an "adjusted" depletion total of 5.7 million b/d. Subtracting that figure from CERA's total gain of 16.5 million b/d would leave a "remainder gain" of 10.8 million b/d for world oil production between 2004 and 2010.

How to deal with the "above-ground" issues such as Delay and Disruption, as CERA categorizes them? The study gives us a chance to exercise our own digression by indicating a second alternative track of oil field development that could bring us to an 11.5 million b/d gain by 2010 (vs.16.5 million b/d under ideal conditions), if scheduled projects encountered D&D scenarios. It is hard to put probabilities on this category, though surely we have lived through a fair amount of D&D in the past five years. Concerning the "remainder gain" of 10.8 million b/d, I might arbitrarily reduce it by one million b/d, not wishing to overweight the figures with an aura of gloom. Then, a 9.8 million b/d gain, divided by six years, would come to an average annual production increase of 1.63 million b/d. This would be a bit below estimated demand gains, in the assumed range of 1.5 to 3.0 million b/d (average at 2.1 million b/d) over the same period. It would also imply that, though each year would have its individual supply/demand balance, and prices in any one year might rise or fall, over time there would be an upward bias to price levels in order to cut back sufficient demand to allow supply to stay roughly even with potentially faster-growing demand. (In fact, I have oil prices down in 2006, approximately flat in 2007, and up in 2008, 2009 and 2010, in my future estimates.)
If this is to be believed, we will have 9.8 new supply by 2010 in CERA's best case scenario, which is a Pollyanna view in my opinion. And as Maxwell points out, this represents a shortfall with respect to demand based on 1.5 to 3 mbd/year.

Now, what are the numbers? If depeletion really is even 4%/year in existing fields, then you've got to come up with a whole lotta oil to see positive gains by 2010 above the projected production this year, which is in the 84 to 85 mbd range. I see this kind of stuff all the time.
it's not true that nobody noticed that light sweet crude had peaked.

kurt wulff, whose reports to clients are made freely available (after a delay) on sunday evenings at, said at the end of 2004 in a barron's interview that light sweet crude had evidently peaked worldwide.

wulff is not a peak oil activist, he's a wall-streeter. very bullish on energy these days. he expresses his more general views in his weekly "meter reader" and "u.s. natural gas royalty trusts" reports.

he seems to understand at least part of the peak oil idea, but he doesn't let on to being overly concerned about it.

here is the key excerpt from the barron's interview, dated december 27, 2004:

"The big event of 2004 is that the oil market called Saudi Arabia's bluff. They couldn't deliver the spare capacity they said they had. It turns out they have spare capacity, but it is in heavy oil, not light oil, which is easy to refine and doesn't have much sulphur in it. It's also known as "light sweet" crude, and it produces more gasoline and more heating oil. So 2004 was the year in which the world production of light oil peaked. There are no big fields of light oil producing now that can produce more. Saudi Arabia has heavy oil to sell, but they have to discount it much more. If Saudi Arabia could have produced more light oil, they would have."

I stand corrected! Although he can't be right on his timing (peak in 2004) if OPEC is correct that there was more light sweet in 2000 than 2004. At this point, I don't think we really have any clarity on when the peak, presumably, was. Sometime in the late 90s or early 2000s, probably.
I also noted on the old Oil Drum site some time ago that the OPEC basket of oil continues to get heavier and sourer. Even then, does this mean anything? Indonesia has become net importer since.

    The new ORB is made up of the following: Saharan Blend (Algeria), Minas (Indonesia), Iran Heavy (Islamic Republic of Iran), Basra Light (Iraq), Kuwait Export (Kuwait), Es Sider (Libya), Bonny Light (Nigeria), Qatar Marine (Qatar), Arab Light (Saudi Arabia), Murban (UAE) and BCF 17 (Venezuela).

    At present the API gravity for the new Basket is heavier, at 32.7º compared to 34.6 º for the previous basket of seven crudes. In addition, the sulphur content of the new Reference Basket is more sour at 1.77%, compared to the previous basket of 1.44%.

It's bad enough when our government is screwing with the inflation basket, now the market makers are screwing with our commodity baskets.
The energy market is a big market; it takes a lot of muscle to screw around with.  I personally think "speculation" plays a much smaller role in the high price of oil than is commonly believed.

Some "speculation" is as a result of hedging - oil BUYERS are buying because they believe prices will go higher; oil SELLERS (including oil producers), so far,  have been unwilling to unload their wares at lower prices.

Of course, some of this movement is caused by emotion and herd mentality too.

Markets are a supply and demand thing. Demand has outstripped supply and thus the futures contracts head higher. Someone believes in scarcity it seems.

Speaking of demand, US total product demand hit a new 1 year high in today's EIA report,  perhaps a new record high, still checking that one.

So substitution of heavy, sour, for sweet, light, has five effects.
  1. We need more refineries to process the oil because it is sour and needs desulferisation.
  2. We need more barrels of oil to produce the same gallons of gasoline because it is hydrogen deficient.
  3. We need more barrels of oil in the new discovered and developed fields because we can't get as much of the oil out.
  4. We need more rigs to drill more wells to get the oil out because it moves to the wells at a slower rate.
  5. We need more tankers to move more barrels of oil for the same gallons of gasoline.
6. All of the above are directly proportional to the amount of ethyl alcohol i currently require to keep my head from exploding.

this is seriously getting scarier by the day. Every once in a while i just wish i could go back to the halcyon days before matt savinar infected me with this curse.

Might as well say that overall EROEI for heavier crudes => gasoline is considerable lower than for light crudes. Which is not good for prices, anyway.
I've read somewhere that South Korea oil import are 80% heavy sour crude. Can somebody infirm or confirm that?
7. The peak of light sweet means that you and I need to buy a car that burns diesel.
Does this mean the standard talking point will change from "lack of oil refinery capacity" to "lack of heavy oil refinery capacity"?

Very interesting post. Lots of this stuff stares you in the face until somebody just gets up and points out the obvious.

Let's say a big thankyou to The Oil Drum, its contributors and commentators. This kind of analysis is what keeps me coming here first every day. This could be the start of some real movement on understanding overall depletion much when we hear about new oil finds we can begin to look out for the grade of oil that is to be produced. Meanwhile the innocent and the ignorant are filling up their cars, dreaming of easy retirements, counting and jingling their hard-won coin....but something rather nasty is just round the corner...