Saudi Arabia isn't Texas

[Armageddon]

I'm not certain, but I'm sure he'd be welcomed there. He seems to know what he's talking about!

He's prominent at The Oil Drum. He's a good guy, knowledgeable and he and West Texas have an interesting long-term discussion going about how eminent peak oil actually is.

Robert thinks we still have a few years ...

Robert is way too optimistic regarding SA. I always side with west texas on those debates.

[pstarr]

I'm not certain, but I'm sure he'd be welcomed there. He seems to know what he's talking about!

He's prominent at The Oil Drum. He's a good guy, knowledgeable and he and West Texas have an interesting long-term discussion going about how eminent peak oil actually is.

Robert thinks we still have a few years ...

Robert is way too optimistic regarding SA. I always side with west texas on those debates.

and so do I, and it appears the majority at the Oildrum agrees that Mr. Rapier is no longer a major player. The ball is definitely in Stuart's court. I understand Stuart has submitted his analysis to Science magazine for publication.

[RobertRapier]

Hi all,

I just followed this link back from my Site Meter, and thought some of these comments – especially those by “pstarr”, warranted a response.

Robert Rapier was among the more optimistic (David Cohen being another) regulars at the Oildrum. Those two are in decendence as the very convincing argument for SA decline by Westexas, Stuart, Euran (and tons of others) continue to gain validity.

Decendence?

By itself the model is open to constant interpretation and Rapier's point is nothing new

Well, you should tell Stuart that. He certainly felt like it was something new, as nobody had gone back and attempted to validate the model in real time as I did. Also, ask Stuart if my analysis changed his opinion on the predictability of the HL. Based on your comments here, I think you may be surprised at what Stuart might tell you. We do communicate on a daily basis.

kjmclark, if Robert's "extra understanding" of the refinery system did not include previous analysis by Stuart at the Oildrum then it is not complete.

My extra understanding comes from my actual refining background. Again, e-mail Stuart and ask him where he goes for information on refining issues. Ask him how many refining discussions we have had over the past 6 months or so.

Stuart correlated current world refinery maintenance and shortage issues…

Um, no on the refinery maintenance issues. They have behaved as they have behaved for years and years. Maintenance is done in the spring and fall, when demand is lower and the weather is better. This year’s pattern was the same, except there were more problems than normal. But the fact that crude inventories in the U.S. and throughout the OECD are solid demonstrates that we have a refinery bottleneck, and not that refineries are having issues because of shortages.

it appears the majority at the Oildrum agrees that Mr. Rapier is no longer a major player…

Aw, now that hurts. You mean I can no longer speak and rock the world oil markets? I don’t even know what you mean by “major player.” I do get about 100 e-mails a day wanting information of one sort or another – including e-mails every single day from various TOD contributors and editors. Maybe if I put “no longer a major player” in my profile, I can slow some of that traffic down.

Again, I don’t know what “major player” means. Here is what I can tell you. I have spent my entire career as a chemical engineer, starting in graduate school with cellulosic ethanol – in the energy business. My job prior to this one was in a refinery in Montana, and from that I was sought out to be the Team Lead for a group of 13 process engineers in the North Sea. Now, the people who sought me out for this job apparently thought I knew what I was talking about. Several government agencies involved in energy issues have offered me jobs. Vinod Khosla offered me a job. I get regular e-mails from “major players” whose names you would immediately recognize. Sometimes they are asking me to do a technical vetting on something. Sometimes they ask for my opinion. But they trust that I know what I am talking about.

But it seems that you have gotten 2 issues confused. As someone has already pointed out, my issue is not whether Saudi has peaked. I don’t think they have, but that’s another issue. My analysis of the HL – of which Stuart was very complimentary both in public and in private – showed that it is not a predictive tool. Yet that was how some were using it. My analysis demolished that notion (again, talk to Stuart if you doubt this since you value his opinion).

Stuart’s analysis is far removed from the HL stuff. His analysis is top notch. But, at the end of the day it is speculation, albeit it based on a meticulous analysis of the information that is public. He doesn’t know whether there are fields yet to be developed, or what the overall production plan is. While I do not advocate energy policy based on trusting the Saudi’s claims, the fact of the matter is that they have always done what they said they would do. As I told Stuart, what we may be seeing is that they have misgauged demand, and therefore the fields they have online are showing depletion – but they have more projects in the pipeline. As long as that is the case, we may continue to see the sort of pattern that we have seen from them. Decline, decline, and then a step back up.

I did make a $1,000 bet this year that oil prices would not reach $100 a barrel. I did that based on my opinion that Saudi has not yet peaked. If they had peaked, and suffered another 8-10% (involuntary) decline in 2007, then $100 oil would be a distinct possibility. But the fact that oil is trading right where it was a year ago suggests that the market is amply supplied, and that the Saudi cuts have been justified (if the desire is to maintain oil prices in the $60-$70 range). They say their cuts are voluntary, you say they are involuntary. Yet I note that if the cuts had not been made, we would certainly be seeing severe downward pressure on oil prices. So, as I have said before, if they peaked, they certainly did so at a convenient time – just when demand for their oil was falling.

Cheers, Robert Rapier

[peripato]

So, as I have said before, if they peaked, they certainly did so at a convenient time – just when demand for their oil was falling.

But SA production declines began while the oil price was still climbing and before Hurricane Katrina hit. Why would they do that? Restrict production when the market was making all time highs? One would think that they could use the money...

[RobertRapier]

So, as I have said before, if they peaked, they certainly did so at a convenient time – just when demand for their oil was falling.

But SA production declines began while the oil price was still climbing and before Hurricane Katrina hit. Why would they do that? Restrict production when the market was making all time highs? One would think that they could use the money...

It doesn't matter how high the price is if the inventories are filling up. And during most of the cuts, inventories were high and rising. And that is also the reason they cited. So the evidence that is publicly available backs up their account of why they cut. And that first little step down you show happened in October of 2005 - not prior to Katrina:

http://www.eia.doe.gov/emeu/ipsr/t11c.xls

Furthermore, I continue to point out that despite all of these cuts, the price of oil is where it was a year ago. Look at how much revenue they are making now, versus how much they would have made had they kept pumping and caused the price to fall $15/bbl. I think they know how to manage oil reserves.

[rockdoc123]

must have said something quite worrisome to have drawn you out Rockdoc. You seem only to respond to bad news. I really don't understand the point of your post though.

No, I simply like to correct inaccuracies, your inference that SA is a high cost environment is baseless...

Stuart correlated current world refinery maintenance and shortage issues specifically with production declines in 'Ain Dar, Shedgum, and 'Uthmaniyah and their replacement with low-quality heavy sour crude from Hawiyah and Haradh.

This fact is further evidence of SA peak. Hawiyah and Haradh will never produce at the same rate. Don't forget peak is all about production rates, not reservoir size.

low-quality heavy sour crude ?
There is virtually no difference in the crudes produced from the reservoir that holds the most reserves the Arab D. At Ain Dar oil is 35 API, 1.6% S; at Shedgun oil is 35 API, 1.9% S; at Haradh oil is 34 API, 2% S; at Hawiyah oil is 34 API, 2% S and at Utimayah oil is 35 API, 1.9%S. The only source of "heavy" oil is from the Arab C which at both Ain Dar and Utimiyah is 24 API. The Arab C reservoir is not present elsewhere. This is from the Petroconsultants database.
As to rates at Haradh, Haradh III has been producing at 300 Kbpd (their modeled target rate) with virtually no water production since 3rd quarter of 2006 according to APE 105187.

[peripato]

So, as I have said before, if they peaked, they certainly did so at a convenient time – just when demand for their oil was falling.

But SA production declines began while the oil price was still climbing and before Hurricane Katrina hit. Why would they do that? Restrict production when the market was making all time highs? One would think that they could use the money...

It doesn't matter how high the price is if the inventories are filling up. And during most of the cuts, inventories were high and rising. And that is also the reason they cited. So the evidence that is publicly available backs up their account of why they cut. And that first little step down you show happened in October of 2005 - not prior to Katrina:

http://www.eia.doe.gov/emeu/ipsr/t11c.xls

Be that as it may the Saudi's pledged to increase capacity by 1.5 mbs p/d from 9.5 to 11 million (75% of the 2 million barrels that OPEC was going to provide) in the wake of Katrina which never materialised. Instead extraction started to decline - how do you explain that?

Furthermore, I continue to point out that despite all of these cuts, the price of oil is where it was a year ago. Look at how much revenue they are making now, versus how much they would have made had they kept pumping and caused the price to fall $15/bbl. I think they know how to manage oil reserves.

But if they don't increase volumes to meet rising demand from exponential population and economic growth then a lack of product can lead to a collapse in price due to economic slowdown. So which is it?

[threadbear]

Mr. Rapier, I wonder if you could give us your opinion on why the cost of gasoline is currently so high.

It seems as if the oil oligopoly's goal isn't to deliver the cheapest product possible to the most people. This seems to be reflected in the difference in the price of gasoline, at current per barrel rates as opposed to the cost of gasoline the last time oil languished at these prices per barrel.

[WebHubbleTelescope]

Robert Rapier has definitely tried to wean us away from the use of Hubbert Linearization. I didn't realize he got Stuart Staniford to start rethinking his strategy. As I recall, when I criticized Stuart almost two years ago for his use of the Logistic equation, all he got was mad at me.

An intriguing point in his post is when Robert said "He doesn’t know whether there are fields yet to be developed, or what the overall production plan is." I contend that the history of discoveries together with a model of discoveries can tell statistically which direction we are going. And in watching where Staniford is headed, I think he has gone from too much a heuristic and macroscopic a view to focussing too much on the micro-view of a set of oil fields in SA.

[RobertRapier]

So, as I have said before, if they peaked, they certainly did so at a convenient time – just when demand for their oil was falling.

But SA production declines began while the oil price was still climbing and before Hurricane Katrina hit. Why would they do that? Restrict production when the market was making all time highs? One would think that they could use the money...

It doesn't matter how high the price is if the inventories are filling up. And during most of the cuts, inventories were high and rising. And that is also the reason they cited. So the evidence that is publicly available backs up their account of why they cut. And that first little step down you show happened in October of 2005 - not prior to Katrina:

http://www.eia.doe.gov/emeu/ipsr/t11c.xls

Be that as it may the Saudi's pledged to increase capacity by 1.5 mbs p/d from 9.5 to 11 million (75% of the 2 million barrels that OPEC was going to provide) in the wake of Katrina which never materialised. Instead extraction started to decline - how do you explain that?

I explain it by pointing out that your claim is inaccurate. That is NOT what they said. Pull up the story – link to it, and then let’s discuss. Look at the inventories after Katrina, and then let’s talk about what they said and what they did.

Furthermore, I continue to point out that despite all of these cuts, the price of oil is where it was a year ago. Look at how much revenue they are making now, versus how much they would have made had they kept pumping and caused the price to fall $15/bbl. I think they know how to manage oil reserves.

But if they don't increase volumes to meet rising demand from exponential population and economic growth then a lack of product can lead to a collapse in price due to economic slowdown. So which is it?[/quote]

Finished product demand is setting all kinds of records. Yet the crude tanks are full. When the crude tanks start to get drawn down, then we will see if they can increase volumes.

Cheers, Robert

[RobertRapier]

Robert Rapier has definitely tried to wean us away from the use of Hubbert Linearization. I didn't realize he got Stuart Staniford to start rethinking his strategy. As I recall, when I criticized Stuart almost two years ago for his use of the Logistic equation, all he got was mad at me.

An intriguing point in his post is when Robert said "He doesn’t know whether there are fields yet to be developed, or what the overall production plan is." I contend that the history of discoveries together with a model of discoveries can tell statistically which direction we are going. And in watching where Staniford is headed, I think he has gone from too much a heuristic and macroscopic a view to focussing too much on the micro-view of a set of oil fields in SA.

I don't think Stuart has uttered "Hubbert Linearization" since I posted that essay, and what he was saying to me offline indicated that his confidence in the HL as a predictive tool was gone.

Cheers, Robert

[RobertRapier]

Mr. Rapier, I wonder if you could give us your opinion on why the cost of gasoline is currently so high.

http://www.financialsense.com/fsu/edito ... /0531.html

Part II is done and soon to be posted. And yes, I know your position on this.

It seems as if the oil oligopoly's goal isn't to deliver the cheapest product possible to the most people. This seems to be reflected in the difference in the price of gasoline, at current per barrel rates as opposed to the cost of gasoline the last time oil languished at these prices per barrel.

First, no I don't believe that their goal is to deliver the cheapest product possible to the most people. Their objective is to maximize shareholder return. But they can't do this by simply raising margins. Prices have not gone up because they have just run prices up. If that were the case, you would see a disconnect between gasoline that is openly traded on the world market and the prices that refiners are getting. The tight market is pushing prices up, but no doubt refiners are making very good margins as a result. But prices aren't high BECAUSE refiners are making good margins, which is what a lot of people seem to believe. That reverses cause and effect. (Now, have their actions contributed to current high prices. Yes, but there are some reasons for that which many people don't think about. Part II addresses this).

Oh, and for "pstarr", I would also point out where Professor James Hamilton goes for his information on refinery questions:

http://www.econbrowser.com/archives/200 ... refin.html

Check out the essay, and then his comments near the bottom. Next time I will send him your way.

By the way, after sleeping for a full 6 hours last night, I woke up to find 37 new e-mails. They spanned the range, from job offers to technical queries to hate mail. Typical day. After answering the ones that needed answering, I worked on a book chapter that I have been asked to write for a book that is being edited by a professor whose name you would immediately recognize. Also trying to finish various essays for various sites. On Friday, I fly to London to provide some technical advice on a cellulosic ethanol project. On Monday, I fly out to one of the oil rigs in the North Sea for a technical evaluation. I am just so thankful that I am no longer a major player. Who could find the time?

Cheers, Robert

[threadbear]

Thanks so much for taking the time, Robert. I'll read it.

[WebHubbleTelescope]

Regarding the Hubbert Linearization technique possibly going out of favor.

So you think bottom's up analysis is the only alternative?

Pretty sad state of affairs that with all the mind-power out there and the importance of understanding our petroleum predicament, that a cheap heuristic first gets top-billing and then gets discarded like a cheap suit. We are thus left with a bean-counting exercise.

[peripato]

So, as I have said before, if they peaked, they certainly did so at a convenient time – just when demand for their oil was falling.

But SA production declines began while the oil price was still climbing and before Hurricane Katrina hit. Why would they do that? Restrict production when the market was making all time highs? One would think that they could use the money...

It doesn't matter how high the price is if the inventories are filling up. And during most of the cuts, inventories were high and rising. And that is also the reason they cited. So the evidence that is publicly available backs up their account of why they cut. And that first little step down you show happened in October of 2005 - not prior to Katrina:

http://www.eia.doe.gov/emeu/ipsr/t11c.xls

Be that as it may the Saudi's pledged to increase capacity by 1.5 mbs p/d from 9.5 to 11 million (75% of the 2 million barrels that OPEC was going to provide) in the wake of Katrina which never materialised. Instead extraction started to decline - how do you explain that?

I explain it by pointing out that your claim is inaccurate. That is NOT what they said. Pull up the story – link to it, and then let’s discuss. Look at the inventories after Katrina, and then let’s talk about what they said and what they did.

Ok Robert here you go;

OPEC delegates said Monday that the group planned to allow its members to provide up to two million barrels a day of additional crude oil if the market needs it. But oil traders brushed aside the move and instead sent oil prices higher on worries of another possible hurricane.
OPEC's plan, proposed by Sheik Ahmad Fahad al-Ahmad al-Sabah, the group's president and the oil minister from Kuwait, has the backing of Saudi Arabia, OPEC's largest producer, which would provide 75 percent of the additional oil.

OPEC's proposal is largely shaped around an earlier pledge by Saudi Arabia to fully open its taps to consumers who asked for more oil.

OPEC hoped to send a message to oil traders, who have been bidding up oil prices over the last two years, largely on the belief that the growth in demand was outstripping the ability of suppliers to bring more oil into the market. That has contributed to a doubling in oil prices over the last two years.

"There is no issue with crude oil supplies," said Abdullah bin Hamad al-Attiyah, the minister from Qatar. "The real shortfall is in refineries, especially in the United States. We can do everything we can, except we can't interfere with the nature of the problem."

But plenty of the wrong kind of oil?

Furthermore, I continue to point out that despite all of these cuts, the price of oil is where it was a year ago. Look at how much revenue they are making now, versus how much they would have made had they kept pumping and caused the price to fall $15/bbl. I think they know how to manage oil reserves.

But if they don't increase volumes to meet rising demand from exponential population and economic growth then a lack of product can lead to a collapse in price due to economic slowdown. So which is it?

Finished product demand is setting all kinds of records. Yet the crude tanks are full. When the crude tanks start to get drawn down, then we will see if they can increase volumes.

No one rings the bell at the top...

Cheers, Robert

Cheers!

[RobertRapier]

Regarding the Hubbert Linearization technique possibly going out of favor.

So you think bottom's up analysis is the only alternative?

Pretty sad state of affairs that with all the mind-power out there and the importance of understanding our petroleum predicament, that a cheap heuristic first gets top-billing and then gets discarded like a cheap suit. We are thus left with a bean-counting exercise.

That's the problem with these opaque reserves. This is art, not science. I like science better.

[RobertRapier]

Cheers!

Here is what they said, from the same story:

"The crude is available," Ali al-Naimi, Saudi Arabia's oil minister and OPEC's most influential voice, told reporters in Vienna. "If you want it, here it is."

So what they said was, if you need crude, we have crude. What happened? OPEC did open up production a bit, but in the U.S. the refiners turned to the SPR. They needed oil immediately, not in 6 weeks or more when they could get it from Saudi. So they borrowed from the SPR (they would have been paying a premium, also, for the Saudi crude, as prices had run up) and the Saudis did not receive specific orders for the crude they offered up. I know that refiners preferred to take their chances at paying back the SPR with crude purchased after things settled back down than to pay a sharp premium to the Saudis.

I have had this conversation with several people. None of them could ever demonstrate that Saudi had a specific call for oil that they turned away. If they didn't get a rash of new orders, then it would not have been necessary to open the taps. Further support for this comes later in that article you quoted:

To illustrate the availability of oil on the market, many here pointed out that the United States Energy Department had recently found buyers for only 11 million barrels of crude oil from the nation's strategic reserves, just a third of the amount it had put on sale.

Cheers, Robert

[peripato]

Robert,

OPEC in general and the Saudi's in particular have said repeatedly that they can ramp up production by 1.5 to 2 mbs p/d for quite some years now. It is always just coming, but never arrives;

"Oil prices have pulled back from 21-year highs as fears over threats to supplies eased thanks to good news from Opec... Opec said it had the capacity to ramp up production by up to 1.5 million barrels a day..... Only a day earlier Opec said it could not pump any more to cool prices, and that Saudi Arabia, the world's biggest exporter, had spare production capacity but could not raise output immediately."

"[Saudi Oil Minister Ali al-Naimi] said Riyadh was pumping 9.3 million barrels a day of crude and was ready to tap surplus capacity of 1.3 million bpd should it be required. Saudi would meet demand for more than 9.3 million bpd in September, Naimi said. A capacity crunch among members of the Organization of the Petroleum Exporting Countries is a leading factor supporting prices. The International Energy Agency, in its monthly oil market report, said OPEC's sustainable spare production capacity shrank to 600,000 barrels a day in July as the cartel raised output to try to contain prices. 'The thin margin of spare capacity held by OPEC producers has contributed to recent price strength,' said the IEA, adviser on energy to 26 industrialised nations. The IEA figures would mean a buffer of less than one percent on the 82-million-bpd world market, compared to about eight percent in 2002 when spare capacity in OPEC was 6-7 million bpd."

"Saudi Arabia, the world's largest oil producer, can pump another 1.3 million barrels a day and keep that up 'indefinitely,' Adel Al-Jubeir, foreign affairs adviser to the Saudi crown prince, told U.S. reporters. The Saudis are now pumping about 9.3 million barrels a day, up 1 million from earlier this year. 'We have the capacity and are ready to tap into it immediately,' Al-Jubeir said. He called current prices 'absolutely not justified' and said clients have not suggested they are looking to buy more oil. 'There is no shortage,' he said. Wachovia economist Jason Shenker calls the Saudi announcement 'a lot of smoke and mirrors,' an opinion that was reflected in the markets."

Saudi Doubts

I would put it to you that what is keeping prices up is not high inventories (increasingly of the wrong grade of oil?), but a capacity crunch.

What else would explain the over 2 year production plateau we've been experiencing and the extreme price volatility that such slim margins of spare production give? In fact OPEC has admitted as much itself in this slip of the tongue statement;

"Concern about oil supplies was further heightened when the president of Opec, Purnomo Yusgiantoro, gave warning that it was unable to supply more oil to the market."
London Times, 4 August 2004

When the next crisis hits, (and we are always now just one crisis away), and or the Saudi's cannot, as world swing producer, increase volumes to meet needs then we'll really know...

Regardless geology will sooner or later trump any shenanigans, and even the best field management.

Warmest regards.

[RobertRapier]

Robert,

OPEC in general and the Saudi's in particular have said repeatedly that they can ramp up production by 1.5 to 2 mbs p/d for quite some years now. It is always just coming, but never arrives;

I always look to inventories though. If they say they can do, but inventories are all healthy as they are right now, then they don't need to do it. Opening up the taps would oversupply the market, and cause prices to drop. If am managing their reserves, I want to get the most for my remaining reserves.

I would put it to you that what is keeping prices up is not high inventories (increasingly of the wrong grade of oil?), but a capacity crunch.

What else would explain the over 2 year production plateau we've been experiencing and the extreme price volatility that such slim margins of spare production give? In fact OPEC has admitted as much itself in this slip of the tongue statement;

"Concern about oil supplies was further heightened when the president of Opec, Purnomo Yusgiantoro, gave warning that it was unable to supply more oil to the market."
London Times, 4 August 2004

Yet they raised production after that. And they say they have new fields under development. As I said, we can't base our energy supply on trusting them, but they have done what they said they would do.

When the next crisis hits, (and we are always now just one crisis away), and or the Saudi's cannot, as world swing producer, increase volumes to meet needs then we'll really know...

I have been saying for months that we would know as soon as inventories start getting pulled down. If not for the refinery problems in the U.S., Saudi might have been forced to put up or shut up. As it is, they can still rightfully point to very healthy crude inventories as a reason not to open up the taps.

Cheers, Robert

[peripato]

Yet they raised production after that. And they say they have new fields under development.

Thanks Robert,

Just to clarify when you say "they" do you mean OPEC or just SA? And when you say "new fields" are these brand new never before tapped fields, or reworking of existing ones?


Cheers!