On production rates and refinery capacity

There are a couple of points that are worth bringing forward from the comments over the past couple of days or so, and with your indulgence I would like to do this.

The first related to some discussion on the relative production of Saudi Arabia, among others, and the fact that, with Haradh, they had just added 300,000 bd to their capability. The point that has been made here before, is that the Saudi wells are currently seeing about 8% depletion from existing structures, on average. We have referenced the relevant Aramco quotes on this before, but it has just popped up again.

"Saudi Aramco's mature crude oil fields are expected to decline at a gross average rate of 8%/year without additional maintenance and drilling," a Saudi Aramco spokesman said Tuesday.
But Saudi Aramco has taken a number of measures to offset a decline in output from the country's aging oil fields, the spokesman added. "A variety of remedial activities are always being taken in oil fields influencing their effective decline rates," the spokesman said. "The drilling of additional development wells in the producing fields is Saudi Aramco's standard practice to offset normal declines of older wells."
 The Aramco intent is to carry out a sufficiently aggressive drilling program so that
"This maintain potential drilling in mature fields combined with a multitude of remedial actions and the development of new fields, with long plateau lives, lowers the composite decline rate of producing fields to around 2%," the spokesman said.
Now those of you who have removed your socks, will quickly calculate that this is still around 180,000 bd, or about half of the slated production from Haradh, but wait! This depletion rate INCLUDES the development of new fields. Oh!

And, another gentle cough and a quick visit to Baker Hughes tells us that they have 37 rigs drilling for oil and 17 drilling for gas. If the oil rigs are 90% successful and can drill 6 wells each a year, and each producing well averages 3,100 bd, then the new production they will generate this year is 37 x 6 x 3,100 x 0.9 = 619,380 bd, regardless of how big their reserves are.

The other point I wanted to note comes from a comment that Robert Rapier started and that led to the Billings Gazette and a story that local oil prices are falling and wells are being shut in.
Sharp cuts of $10 to $30 a barrel off the posted regional prices in the Williston Basin are being reported, and some producers have started to shut down wells rather than sell, even if there is room on a pipeline to ship it out.

The static refining capacity in the United States, increased production in the Canadian Tar Sands and limited capacity on pipelines are among the reasons given for the steep pricing discounts. The Williston Basin straddles the northeastern Montana, northwestern North Dakota border. The highly productive Bakken field near Sidney is part of the basin.
"This is sending seismic shock waves through the Northern Rockies," said Tom Hauptman, a Billings oil and gas producer. "Some are being told, 'We don't want your product.' The posted prices are being discounted by $20.45 a barrel."

Part of the problem  appears to be the current down-turn in refining capacity (we are in maintenance season as well as still being a couple or three refineries short after Katrina) that may be more locally tied to increases in production from the oil sands of Alberta that are close by.   The discussion in that earlier post was sufficiently intriguing that I thought it worth bringing the topic forward.  
Nice catch on that Saudi story with the "and the development of new fields".  If it wasn't just a slip of the tongue, it's almost like they are admitting being at peak.  I note that 8% of 9.5mbpd is 760,000 b/d.  So by your arithmetic, they'd be off by 140,000 b/d, which is about 1.5% of production.  The answer is pretty sensitive to the exact productivity of new wells, however.
I think by now Aramco and the oil ministry have both <suppressio veri> and <suggestio falsi> pretty much down pat.

The next time you post look down at the html instructions beneath the "Post" button. To create italics, put a "<eye>" before the phrase you want italicized and an "</eye>" afterwards. I'm substituting "eye" for the letter "i" above.

My understanding of the current situation is that SA wish to jump to about 120 rigs (of all types) in the near future and that they currently have about 80 working rigs.
These new rigs will include Jack ups and possibly workover hoists. One thing seems certain, You dont need to increase your fleet so massively unless you have or are about to have a problem with production flows.

So may be 16th December 2005 was the date after all?

I double-checked the Baker Hughes sheet, and it says 42 on oil for March 06 (plus 18 on gas for a total of 60).  In Feb 06, it was 36 on oil and 16 on gas.  What's your source for 80?

Here's the curve according to Baker-Hughes:

Oil rig count has been cruising along in the 15-20 range for a number of years, and then takes a sharp upturn in the beginning of 2005.  Besides being about the beginning of the global production plateau, if we compare that to Saudi production specifically (the green line is the JODI version of Saudi production), we can see that the sharp upturn in rigs begans right after a litle drop in production at the beginning of 05.  The upturn in rigs has so far not resulted in any production increase to speak of.

Does it smells like a duck?  Walk like a duck?  Quack like a duck?


Source: 1) A mate in SACo. 2) Recent presentation given at Bahrain. Of course, both could be wrong. But the remarkable headline at the Bahrain conference, was the level of intended expansion to 120 rigs. This did not mention type, or over what period.

My thoughts? If they need to extract heavier oils, then lots of rigs drilling vertically with steam - flushing may be the plan. Bottle brush drilling could be another way to try and ramp up lighter crude reservoirs. Some of these additional rigs may be intended for a major exploration campaign.

BTW: SA is not the only country in the region looking to ramp up the rig count all appear to intend to do so.

Rig builders, Service Companies etc look to be busy for the next few years.

Over the lifetime of this site the SA rig targets have gone from 70 to 100 to now 120.  However, when I do a quick Google search the first site up has this. from last September.
Yet, little noticed by the outside world, the Saudis are making some bold moves. In recent months, Saudi Aramco, the national oil company, has been rapidly inking deals with drilling rig operators and oil field contractors. Some 70 drilling rigs are now operating in the kingdom, up from 55 in 2004 and about 20 in the mid-1990s.

 By next year, Aramco aims to have 110 rigs drilling, although that may be unreachable because of fierce competition for equipment.

The EIA states that by the end of this year they will have 90 operating, doubling the number that were operating in 2004.
Good article published one year ago:

Bank says Saudi's top field in decline
By Adam Porter in Perpignan, France


Coxe dismisses Saudi claims that the country can produce extra capacity to satisfy surging demand. He notes that Saudi promises to increase production last year failed to materialise.

It actually depends on 3 numbers, the number of wells per rig (which in turn depends on whether they are straight verticals, horizontals or bottlebrush); the production per well (ditto) and the success rate, which is dropping. Over the past year I have tried to zero in on these, with justifications where I felt I could make them.  The per well number is now below 4,000 bd, but whether it is below 3,500

One of the key factors in the USGS statistical evaluation was that they could not find cases where the Saudi's had drilled dry holes - that is no longer the way it is.

Hello TODers,

8% decline without any more infield extraction?  Sounds like a Hubbert Cliff to me.  Adding more infield extraction only TEMPORARILY SLOWS this 8% decline, then when these new infield wells water out in a relatively short timeframe, then aggregate yearly decline jumps to what:

10%,12%,15%,20% ???? --Oh crap!  And exports will decline even faster [Westexas & Khehab's theory]!

ARAMCO Quote:  "This maintain potential drilling in mature fields combined with a multitude of remedial actions and the development of new fields, with long plateau lives, lowers the composite decline rate of producing fields to around 2%," the spokesman said."

Even Alan Greenspan must be impressed with the carefully conceived 'mumbo-jumbo' in this statement.  Since when has any oilfield had a 'long plateau life'?-->Sorry, but the extraction profile follows a bell curve.  The overall Saudi decline rate might be 2% for one year, 4% the next, 6% for postpeak year three, year 4 = 8% [now back to pre-remedial aggregate], then getting progressively worse each year thereafter.  In short, M. Simmons's BIG STRAW THEORY being confirmed.

Shaw's Law: Fastest beer consumption/second occurs at the moment they fear the bartender will take it away from them at closing time.  An unfinished beer is a terrible thing to waste!

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


Exactly. The Yibal field in Oman is an exact correlative to the Ghawar and other fields in SA undergoing extensive advanced extraction techniques. The Yibal collapsed spectacularly.

The collapse of Ghawar is imminent. Three years at best and we will see double-digit production decreases.

Can't drill fast enough to make up for the decline in existing wells.  That's a Hubbert peak, whether they call it that or not.
Bingo.  When I talk to newbies about PO, this is the point I always stress with them.  Oil is non-renewable, so at some point you can ignore all the curve drawing and production estimates and all that and simply recognize that no amount of additional drilling or extraction will increase the rate of supply.

Once you get a newbie to start breathing again they ask a lot of "but what about..." questions, and they pretty quickly get the mental model worked out.

Texas peaked at 54% of Qt.  Average net decline rate, after new wells, workovers, secondary/tertirary recovery:  4.1% per year.

Saudi Arabia is at 55% of Qt.

These were the two principal swing producers, and each one served as a swing producer for about 35 years.  Texas, 1935 to 1970, and Saudi Arabia, 1970 to 2005.  

I think that a useful plot would be 21 years of Texas production data, 10 years on either side of 1972, with 11 years of production data for Saudi Arabia also shown, lining Texas in 1972 up with Saudi Arabia in 2005, with different vertical scales.  Since we only have crude + condensate for Texas, I would use crude + condensate for Saudi Arabia.

Imagine, if you will, what a Texas oilman--then proud of Texas' record high oil production--would have said in 1972 if you told him that oil prices beyond the dreams of avarice were just around the corner--a 1,000% increase in oil prices over an eight year period, that Texas would respond with the biggest drilling boom in history, that we would increase the number of producing oil wells by 14%--and oil production would drop by about 30% from 1972 to 1982.  

The initial drop in Texas production was pretty subtle:

  1.  3.452 mbpd
  2.  3.444
  3.  3.357
  4.  3.248
  5.  3.153
The initial drop in Texas production was pretty subtle (with dates this time):

1972:   3.452 mbpd

1973:    3.444

  1.   3.357

  2.   3.248

1976:    3.153
Westexas, did you ever receive any response to your letters to Dallas Morning News and Startlegram?
I traded some e-mails with one journalist, but nothing official.
Buckle your seat belt.  It's going to be a bumpy ride.
Excerpts from a story in The Paducah Sun:

Demagogic politicians like to blame "Big Oil" for the entirely predictable spring surge in gas prices. In truth, the politicians themselves bear a good deal of the responsibility for the price spike.

The underlying cause of the annual jump in prices is a shortage of refining capacity in the U.S. On an average day, Americans consume more oil than the maximum output of the refineries. Because the refineries are constantly stretched to their limits, even a small disruption -- for instance, a fire at one refinery -- can affect gasoline supplies and cause prices to rise across the country.

Supply bottlenecks sometimes are caused by aging refineries temporarily shutting down for maintenance. The U.S. refining system simply does not have enough capacity to deal with even routine events that affect production.

The last refinery built in the U.S. opened in the late 1970s. Faced with the enormous cost of building a single refinery -- more than $3 billion -- and the likelihood of lengthy delays in obtaining environmental permits, energy producers have been reluctant to expand the refining system.

That last sentence is only partially true. Permitting a new grass roots refinery is a nightmare. Expanding an existing refinery is not as difficult, and refiners are expanding.

A news story published last year detailed the difficulties a company in Arizona encountered in trying to build a refinery. Arizona Clean Fuels LLC began seeking state and federal environmental permits in 1998, but as of last fall, the company was still waiting for final approval.

"Someone needs to feel accountable for the schedule in issuing permits," Glenn McGinnis, the chief executive of Arizona Clean Fuels, told a reporter for the Knight-Ridder newspapers.

The system of environmental regulations that blocks new refineries and imposes other restrictions on the nation's gas supply was designed in Washington, D.C., with the approval of Congress.

Every spring, the refineries are forced to shut down to convert to the production of summertime fuels mandated by the federal Environmental Protection Agency. Under the EPA mandates, gasoline sold during the high-volume summer months in urban areas with relatively high levels of air pollution must contain pollution-reducing additives.

Not just that, but most of the butane has to be pulled from the summertime blends. Otherwise, your fuel might boil in the summer.

This year, the pressure on the refineries is even more acute, largely as a result of the energy bill approved by Congress.

The energy bill promotes ethanol as a cleaner-burning replacement for fuels with the additive MTBE, which was effective in reducing air pollution but at the cost of polluting groundwater. Gasoline containing MTBE has leaked from tanks, raising concerns about the additive's effect on groundwater supplies.

Unfortunately, the nation's ethanol producers are not yet ready to meet the increased demand caused by the abandonment of MTBE as an additive. A number of new ethanol plants are in the regulatory pipeline, but it may take years to bring them on line.

More states will probably ask for oxygenate waivers, as California did.

With an election looming this fall, politicians will soon begin lining up to blame the oil companies for the latest rise in gas prices. Undoubtedly, many of those politicians will be the same ones who voted to put severe restrictions on energy producers.

Motorists should keep that in mind when they pull up to the pumps and prepare to pay the hidden energy tax federal and state officials approved without admitting it to the public.

Yes, I am sure politicians will accept the blame for this, instead of pointing the finger at oil companies and accusing them of gouging consumers.


I'm not sure how this qualifies as a hidden energy tax?  I mean, unless they're charging an arm and a leg for permits, the government isn't getting any money from this is it?
The ethanol piece is a hidden energy tax. The phase out of MTBE means more subsidized ethanol, which we all pay at the rate of $0.51/gallon. I agree that the rest isn't a hidden energy tax, but I am not sure what I would call it. A combination of a difficult permitting process and NIMBY attitudes of most communities have contributed to no new refineries being built. This is partially responsible for the shortfall in capacity.


The rest is a hidden cost--and also an attempt by governments to internalize externalities (such as pollution) by use of regulation rather than the price mechanism.

As one who has lived downwind of a refinery, I can understand the sentiments of others who do so.

I hope to live long enough to see the end of the age of oil and to see substitutes largely replace it as an energy source.

I hope to live long enough to see the end of the age of oil and to see substitutes largely replace it as an energy source.

Personally, I would like to see this as well. We have to become sustainable in all aspects of our way of life at some point, or nature will take care of things her own cruel way. But I don't know what it is going to take. I think we could move to something like a biodiesel based economy, but our politicians won't have the guts to pull the trigger because our fuel prices will be higher, and probably a lot higher.

Then John and Jane Public will start complaining that their way of life is being taken away from them, that they can't afford to drive their 4x4 any more, yadda, yadda, yadda, and the politicians become fearful that they won't be reelected. So, it is probably going to take a real crisis, leading to super-expensive gasoline, before a true transition away from fossil fuels becomes politically palatable. My hope is that gasoline becomes very expensive long before we start to run out of it. I see that as our chance to make it through peak oil without a societal collapse.


Living in a large city close to a lot of refineries, I'd like to hear the other side of the complaint about regulations and what they are doing to refining capacity.  

Why were the regulations put in in the first place and what would the consequences be to the air, to groundwater, etc., if they are taken away?  Would there be any adverse effects on global warming, on public health, etc?

What are the compromise solutions possible?  

Are there other, more bureaucratic problems having to do with seeing the process through from the bureaucratic side, more so than the actual regulations being adhered to from the refineries' side?

Folks seem to be awfully calvalier in complaining about the restrictions of the EPA (referring to the above article and other similar ones, rather than the poster), with absolutely no discussion of the other side of the coin...

And certainly discussions here make clear that the underlying problems we are facing go a lot deeper, are a lot more fundamental, than EPA regulations on our refineries, although those do contribute in important ways to supply constriction.

Could folks more knowledgeable than I help me with the whole of the discussion above, which gets into both the effects on prices with/without current EPA regulations and also the effects on surrounding areas, etc. with/without current EPA regulations, and any other issues that may come up from such a discussion...


It does not matter, ultimately, what the regulations are regarding the environment since refiners know that there will not be enough oil, at least light sweet, to process in order to justify a new refinery.

If an oil refiner could kill a few thousand people annually in order to slap together a piece of crap refinery, it would, but there are actual people out there who kinda like a clean environment, thank god, and they won't let them.

The answer does not lie in extending a flawed system, it lies in conservation, renewables, and sustainability.

It does not matter, ultimately, what the regulations are regarding the environment since refiners know that there will not be enough oil, at least light sweet, to process in order to justify a new refinery.

I have a friend who has suggested the same thing to me. But I can tell you this. I have set in on many, many meetings where expansion plans were discussed. Not once has anyone ever suggested that there may be insufficient crude supplies to justify the expansion.


It's not the regulations that are the problem. It's the government employees. I have a good idea how they operate. One finger in their nose and a phone in the other hand talking about last night's table dance. A good example is the nut-case from Home-land Security. Now there is a guy with a heavy duty IQ, protecting you from disaster. Think they have learned, wait till the next big hurricane. Sorry but every time I deal with them my B. P. spikes.
Why were the regulations put in in the first place and what would the consequences be to the air, to groundwater, etc., if they are taken away?  Would there be any adverse effects on global warming, on public health, etc?

Environmental regulations are certainly necessary, because you can't expect that everyone would do the responsible thing. I don't know the details of why it is so hard to permit a new refinery, but I have been told by a lot of people that it is extremely difficult (in fact, to this point nobody has successfully done it). I think a bigger problem is that nobody wants a new refinery built in their community.


One other thing that I should make clear is that it wasn't the regulations themselves that the people trying to build the Arizona refinery were complaining about. It was the length of time it has taken to get the permit. They have been working on this since 1998, and still don't have a permit.


Am I alone in thinking that limited refining capacity is not entirely a bad thing?  It restricts the throughput of oil, the resultant higher prices are then incentives to develop renewables / conserve.   The downside, perhaps, is the perception may be that this is a temporary and solvable situation.
I was wondering about that too - along with the downside you point out... which I guess is part of what's happening now...
In one sense you're right.  It limits our crude oil consumption to what we have now.  In another sense it's bad long-term.  If nobody will invest in a refinery now (which looks like it would make buckets of money with existing margins) then investing in more expensive alternatives looks unlikely.
I think anything that stretches the tail, after the peak, is good.
For that, we probably want oxygen-blown IGCC powerplants with CO2/H2S co-capture and co-sequestration in old oil fields.  Imagine Pennsylvania becoming an oil producer again, not to mention your own back yard.
One thing I don't get about the environmental regs => no new refineries theory is the fact that we regularly locate such objectionable land uses just south of the border. Why isn't their a boom in Tijuana refinery construction? Or Puerto Rico? I think that the reason no refineries are built is because the industry knows that raw materials are peaked. It would be like building a timber mill in Wisconsin in 1930 (or Montana in 2000).
It just doesn't make sense that oil would be discounted $20.45 off the posted price for the given grade--something is fishy.  Storage capacity, or even shipping BY TRUCK across country doesn't justify that large a discount.  These producers can sell an oil future and deliver at expiration and their costs (storage & transport) won't exceed $20.45/barrel.  The rationale for this that I can think of is that the specific grade of crude doesn't match up well with specific, localized refinery capacity issues?
Canadian heavy crudes are discounted by that much and more. The downstream refineries can't handle the capacity, so Canada is sitting on spare capacity.


Hello RR,

What do you make of this following quote reposted from the initial heading post:

"Sharp cuts of $10 to $30 a barrel off the posted regional prices in the Williston Basin are being reported, and some producers have started to shut down wells rather than sell, even if there is room on a pipeline to ship it out."

Reads to me: if an oildrill company can financially afford it, they would rather sell the oil later for postPeak BigBucks, than sell it now for less.  Self-limiting the market to maximize profits?

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

I think they see oil going elsewhere for $60+/bbl, and they have just decided that they won't sell for $20 less than that. The problem for them is that there is a glut of oil in that particular area, and no cheap way to get the oil out of the area. But I think you are right that they are playing a waiting game because they expect prices to go up.


Hello RR,

Thxs for responding.  Jay Hanson had a recent discussion thread on this phenomena: a non-verbal, but perfectly legal 'implicit conspiracy" vs an obviously illegal 'explicit conspiracy' of careful intrigue to rig a market [Enron].

Just like a wolfpack or lion pride wordlessly synchronize their mutual hunting efforts to bring down a profitable meal at the least aggregate cost. The human language experts say most of our communication is non-verbal body language and voice intonation.  The essential 'message' comes through loud and clear without a spoken word!

Oil producers are obviously Peakoil aware, and once Peakoil is confirmed by the statistical 'rearview mirror', I would expect individual corporate and NOC detritus output decisions to reflect this ruthless profit maximization strategy vs. infrastructure overhead costs.  Especially since underground detritus resources do not have a limited shelf-life like milk.

PostPeak Detritus, in the ground, is like an interest paying account: the less you withdraw capital, the faster it increases in value.  Imagine a wolf with a constantly growing deer hindquarter-- he would fiercely resist sharing it with other wolves.

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

Mr. Shaw,
An economist calls this cooperativity "informal collusive oligopoly," and it isn't illegal, although it surely works to fix prices. Managing scarcity works for Beanie Babies, and it works the same way for oil.
So planning for the periodic panic peaklets is a way to:
a) squeeze the golden goose without killing it;
b) manufacture consent for foreign-policy adventurism; and
c) all the while maintain business-as-usual denial.
Hello Nelsone,

Thxs for the response, the support of this concept, and finally an econo-correct definition: "informal collusive oligopoly".  In the new WED OPEN DISCUSSION,  one of Jean Laherrere's conclusions is:

"Technology is now used to produce faster to get maximum profit contrary to maximum recovery!"

Maybe the downslope will be the subtle choking of production to get maximum profit, but the auto execs are already complaining-- see my CATFIGHT posting in the WED. OPEN discussion.  Thxs.

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

By the by...Iran just announced the successful enrichment of uranium.
I just got this from the UPI:

OPEC Production Fell in March

Output last month from the world oil cartel's 11 members, including Iraq, fell last month.

The Organization of Petroleum Exporting Countries produced an average 29.76 million barrels per day of crude in March, down 160,000 barrels per day from February's 29.92 million, oil industry analyst Platts said Tuesday.

Nigeria, where militants in the Niger Delta have intensified attacks on oil installations since the beginning of this year, accounted for the biggest single fall in volume -- 220,000 barrels per day.

Even with oil prices well above $60/barrel, OPEC doesn't appear to be trying to make up for the fall in Nigerian volumes, which supports the view that OPEC-10 production is constrained around the level of the 28 million b/d official ceiling, wrote John Kingston, global director of oil at Platts.


And EIA thinks OPEC went up in March by 195,000.

What to believe?


Those first figures from the EIA on OPEC are always strange. For example, they are the only source not to notice anything untoward happening in Nigeria.
Overall, they closely resemble a broken record.
How long can a field's decline rate be kept down and what will be the result of doing so? Surely it will mean a rapid decline at some point in the future?


Check out EIA short term outlook for April, is it feasible?
They show US gaining production through 2007, which I doubt.

They show Mexico flat from 2005 to 2006, with a tiny drop in 2007 - I think this is very unrealistic. Mexico has already shown some declines over the last couple years, even before Cantarell's production decline really got going.

They show China with no drop in production through 2007, which I doubt given that their largest (and only 1 mbpd) field has entered decline.

Actually, if you look at EIA's "Annual Energy Outlook 2006" you will see that they forcast increasing US production through 2016 due to deepwater fields in the Gulf.  See p. 91 of this report:


Right, that's because oil wells in the GOM keep producing forever (must be abiotic), so we just get to keep adding and adding more and more production - pretty soon we'll surpass Saudi Arabia. That is as long as we can stop the hurricanes.
It shows the US 50 States up by 500 Kb/d by 2007!?!

2005  |  2006  |  2007
8.2   |  8.5   |  8.9

They also expect FSU to grow!?!

2005  |  2006  | 2007
11.7  |  12.0  |  12.5

Of course! Forecasting decline is simply heresy!

"This is a contango market..."

Can anybody confirm if the Michael Lynch quoted at the top of this Bloomberg report is the cornucopian mentioned here often?

Yes, that is him.
Re: My Chat with America's Ambassador to Kuwait

I am attending the Conference on World Affairs which is held every year on the 2nd week of April.

Denial here is pretty complete about peak oil. But the US Ambassador to Kuwait, Richard LeBaron, is here. After the one session, called the "Curse of Oil" on energy-related issues and on which he was a panelist, I had a very brief exchange with the Ambassador. I was attempting to ferret out some information. Here's how it turned out (all paraphrases).


Dave: Ambassador, are the US and Kuwait concerned about the fact that the Burgan complex, which supplies 80% of Kuwait's production, has apparently peaked?

LeBaron: Yes, we're aware of the situation but there's been a large discovery in the north part of the country. The Kuwaitis have checked it out throughly before announcing the data.

Dave: How big?

LeBaron: I don't know. [at which point, he ran away from me as fast as he could get away].


I can find no reference to a large new oil discovery in Kuwait. The Ambassador was spinning everything which, in turn, made my head spin a bit. Is anyone here aware of a new large (?) Kuwaiti field in the north of that country? I do know that he made the majority of this remarks talking about how Kuwait is diversifying their economy. Wonder what the reason for that is?

That has to be the funniest thing I've read all day. Thanks, man. Were you making any weird gestures when you said,"How Big?"
No weird gestures or wild tone of voice. And recently, I've shaved and got a haircut so I look respectable. Just a straightforward question
Hello Dave,

No facts, just speculation!  Perhaps the Kuwaitis are sending a series of horizontally drilled bottlebrush superstraws north into Iraqi territory to siphon off some Iraqi oil.  As I recall, this was one of the reasons Saddam Hussein gave for initially invading Kuwait back in the early '90s.

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

He's probably talking about this, from last month:

Kuwait announced on Monday that significant natural gas and light crude oil fields have been discovered in northern Kuwait.

The reserves at the discovered free gas fields in Sabriya and Umm Niqa areas were estimated at one trillion cubic meters, Kuwaiti Energy Minister Sheikh Ahmad Al-Fahad Al-Ahmad Al-Sabah said.

Sheikh Ahmad said the initial studies proved that 60 to 70 percent of the discovered volume could be utilized, the Kuwait News Agency reported.

Sheikh Ahmad also said that some 10 to 13 billion barrels of light crude reserves have been discovered in the same areas.

With the discovery of free gas, Kuwait can sharply reduce its dependence on imports from the other Gulf states for generating electricity, the minister added.

If your linked-in story is true, that should be front page news because as we all know, the discoveries data indicate that only 2 or 3 fields have been discovered in that range in the last 15 years or so.

What's the confirmation on this? It hasn't come up on TOD before to my knowledge.

There was a story on this a few weeks ago. But the story that I read said it wasn't big news because nobody believed the claim.


A link, Robert?
I get about 20 of oil and gas stories a day, and often they don't have a link. I just remember when I read it, it said something to the effect that Kuwait had made one of the biggest oil discoveries ever, but the problem is nobody believes them. I don't remember much about the rest of the story, nor which paper it was in.


I found it. The story was published March 12th. Here is the link:

World fails to gush

Here is the part I was talking about:

THE Kingdom of Kuwait last Monday announced the largest oil and gas discovery in more than 30 years - a field that contains more than double the amount of oil the UK holds in the North Sea.

It is a massive hydrocarbon discovery that will take its place among the world's few genuinely mammoth oil fields. The Kuwaitis announced this at a time when the world is more worried than ever about the security of its future oil supplies. And it hardly got a mention in the newpapers. Why?

Probably because nobody believed them. The Kuwait News Agency said it had found as much as 13bn barrels of light oil and 35 trillion cubic feet of gas (about 7bn barrel's worth) in Kuwait's Northern Region. To put that in perspective, most companies would be happy with a 100m barrel discovery in the North Sea. The Kashagan discovery in Kazakhstan in 2000 is between 9bn and 13bn barrels and, before that, the only discovery of the same scale had been the giant North Field that straddles the Persian Gulf between Qatar and Iran, a giant 900 trillion cubic feet, or 45bn barrels' worth.

Scepticism is understandable - the find came less than two months after a report by Petroleum Intelligence Weekly revealed that Kuwait had been claiming more than double the oil reserves internationally than the Kuwait Oil company used internally, with 48bn barrels of total reserves cited in a 2001 internal document, next to official proven reserves of 101bn barrels. Add to this the fact that it's not clear if the Kuwaits are talking about how much oil and gas is in the ground, or how much they think they can get out of it - normally roughly half the amount.


It was discussed a bit at other peak oil sites.  Here's a link with more details:

Kuwait makes first, major onshore gas discovery

Well, I was more interested in the claimed oil, not the natural gas. I believe your first link said between 10 and 13 GB of light sweet crude recoverable reserves.

Are there any more details people here can provide?

If you read the second link I posted, it sounds like the oil part of the find was announced in 2005, and it led to the gas discovery.

The press coverage was all about the natural gas, which may be why it didn't get more attention.  

Two things I'm interested in.

  1. People's thoughts on the notion that the refining sector of the oil industry reportedly has some of the slimmest margins. These plants cost $2 - $4 Billion each, do they not? Nobody wants to do it because there is no money in it.

  2. What are the significant differences between the rig count  data we see nicely laid out above coming from Baker Hughes and that coming from some other source such as Schlumberger? How accurate are these numbers? Are the numbers coming out of Saudi Arabia in particular at all suspect? How easily can verification take place from commercial satellite imagery,or is that not even an issue?
Well, look at this way. Your an oil compnay, youve got big wads of cash laying around, BUT, in order to build a new refinery your realistically looking at one that will handle heavy sour crude at this point, reason being, the thing wont go into production for 5-7 years assuming construction starts ASAFP. Then on top of that youve got massive amounts of red tape to deal with, and after the thing goes into operation youve got a minimum of 15-20 years before you see a return on your investment, the margins are slim. Now, given that you can put that $$ somewhere else and make a better return and as a publicly traded corp why on earth would you sink money into something like this? For the public good? Not a chance. Rule number one of publicly traded corps is make $$ period. Rule number two is stay in business so you can keep making $$, and they have many years left drilling holes and pumping the stuff out which still pay better than refining it.

How accurate are the drilling numbers? Who knows, based on a conglomerate of all available data, probably halfway decent I'd think, decent enough to say the big oil co's know they are at the end of lifecycle for easy oil and the permanent decline has started. I dont trust Saudi Arabia at all, Im guessing they are about to have some serious OH SHEOT moments and soon the world will know, they start dropping at like 8%+ and it wont be hidden for long.

Hello Oil Ceo,

I will speculate on No.1, but I feel No. 2 is best answered by those CIA/NSA employees working for the Bush/Cheney Halliburton & Buddies Energy Task Force!  =)

I feel refineries are the only oil-industry infrastructure segment that feel the full economic effects of declining ERoEI.  Their profit level is directly sensitized to not only their available processing capacity utilization, but also to the continual optimization of the incoming crude quality mixture to yield the hopefully most profitable mix of desired output products.

Illustration: we are at the point where oil drillers are just trying to find any oil, they mostly could care less about the found oil quality and location.  Pipelines charge by pumping volume, so they could basically care less if it is light and sweet, or heavier and sour.  Yet, crude quality is the overriding concern of a refinery.

Imagine being an auto manufacturer with everchanging incoming quality control on your mixture of inputs. One fender is 3ft long, the next 4ft long, the next 2ft long--AAARRRRGGGGHHH! Yet your output mix has to be consistently uniform.

Location is vitally important to a refinery.  Ideally, they want to be optimally positioned in the middle of a vast spiderweb of pipelines so they can maximize their input choices and output directions to get the best available pricing leverage.

Location is also determined by NIMBYism, EPA regs, differences between various states bureaucracies and tax schemes, protection from possible adverse weather and terror attacks, electrical power reliability, equipment shipping costs, proximity to other refineries...on and on.

What a safety, planning, and logistical nightmare--I am amazed they can make any money!

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


Speaking of depletion, has this been covered in the last few days here at TOD?

Financial Times, US edition, April 8/9(weekend), 2006,
pg 12, COMMODITIES SECTION, fourth paragraph from the bottom:

Norway, a key non-Opec supplier, said output fell by 19 per cent year on year in March. Global spare capacity remains limited and mostly confined to heavy, sour Saudi Arabian crude.

If so, can someone please point me to that discussion.

That particular number hasn't been discussed as far as I know, but we have been discussing the >10% depletion of the North Sea deposits for quite a while.  Particularly as it relates to the alternatives that the UK does, or does not have for their replacement.
I think they have stopped drilling new fields so the depletion from the North Sea is driving it down without anything to compensate it.
Test Post

Wholesale vs. Retail Gasoline

500x356 Medium

Test Post

Gasoline Excess Profits

500x350 Medium

Thank you.

Very interesting.

Suspicions confirmed.

What did you suspect?
I suspected that people at all levels in the oil business act rationally to maximize profits. In other words, retail stations are not "gouging," and neither is anybody else, but as any rational economic agent would, everybody with market power is using that power to take advantage of restricted supply situations to raise price to the profit-maximizing level.

Economics 202.

Yeah. I'm surprised by how well a graph shows that. I'm still working on the design. I hope we'll talk more about it when I post it again.