[evilgenius]

Is that all that Halliburton will be doing?

I've tried to bring this up before, but the Saudi monarchy needs the cash flow provided by the oil business to stay in power. Making tourist trinkets out of camel dung just won't cut it.

I think there is a real battle brewing over who will get what cut of Iraq. The Saudi monarchy could certainly use a share in Iraq of some kind to help them maintain power. They have several options. They could offer their vast infrastructure to process Iraq's oil (skimming as much as possible to sell as their own). They could attempt to set up a proxy Sunni state in Iraq that paid them fealty and thus financially kept the monarchy's position intact. They could set up a perpetual state of war with their Shiite neighbors (Iran) in order to provide more reasons to justify their existence and stay around past the end of their oil glut. They could crack down on their own populace in hopes of stifling whatever revolutionary sentiment might be stirring there. They could drastically cut exports in hopes of using their own oil to build an economy with hopes of lasting past the crisis. The could blackmail the West in order to gain concessions never before thought imaginable (ie the US abandoning Israel politically and militarily). They might even consider giving up power and allowing their perilous position to ease by taking on a more ceremonial role rather than an active political role in the ruling of Saudi Arabia.

What do you guys think? What other options are there? Will they take an entirely different tack?

[dinopello]

Ghawar - ridden hard, and put up wet.

[rockdoc123]

What do you guys think? What other options are there? Will they take an entirely different tack?

My view is absolutely. The extended family of a couple hundred princes (I have no idea how many there are) are all very, very wealthy. If you have spent any time wandering off streets along Park Lane in London (eg Curzon street) you will have no doubt seen many of the limos and high end sports cars owned by these same family members. They have a concrete escape plan built on million pound flats in London, mansions on the cote d'azur and yachts in the Med. I doubt that any of them will have a soft spot for their desert homes when the cash flow drys up.
The average underemployed Saudi on the other hand won't know what has happened until the high end malls run out of electricity for the air con units.

[Tanada]

Does anyone have any reliable news on Ghawar production this year? Many of us believed in 2005 that when Ghawar goes Peak is in the rear view mirror. I still believe it but nobody seems to be talking about it any more.

[Rod_Cloutier]

This link is from 2007 but it has some startling ramifications:

http://www.paulchefurka.ca/Iraq%20and%2 ... rabia.html

The primary assumption is that the world’s oil production has been on a plateau for the last two years, and in fact we may be teetering on the brink of the production decline predicted by the Peak Oil theory. Such a decline could be dangerous to the world economy, both directly through the loss of economic capacity and indirectly (and perhaps more importantly) through the loss of investor confidence in the global economic structure.

The second assumption is that the oil production of Saudi Arabia is key to maintaining the global oil supply. Saudi Arabia supplies over 10% of the world’s crude oil, with over half of that coming from one enormous field named Ghawar. There is a large and well-informed body of opinion that believes that if Saudi oil production goes into decline the world will follow because there is not the spare capacity anywhere else to make up for such a decline. Saudi Arabia is notoriously tight-lipped about the state of their oil fields, and in fact oil production information is considered to be a state secret. The only trustworthy information the world really has about Saudi Arabia’s oil are their aggregated production figures.

The conclusion that can be drawn from these two assumptions is that if Saudi Arabia’s production began to decline and the world found out about it, there would be a significant risk of a world-wide economic panic that would destabilize markets and throw nations like the USA into a recession or depression that would be worse than the actual damage done by the loss of the oil. We can assume that the prevention or postponement of such a crisis would be an extremely high priority for the administrations of both the USA and Saudi Arabia.

Might explain why they're considering a war with Iran. The powers that be could further postpone and 'hide' depletion by saying the oil comes from Saudi Arabia, but in fact the oil is coming from Iraq, Iran or some other supplier. Kick the can down the road a little farther for what its worth.

[Keith_McClary]

My view is absolutely. The extended family of a couple hundred princes (I have no idea how many there are) are all very, very wealthy.

According to Wikipedia

The family is estimated to be composed of 15,000 members, but the majority of the power and wealth is possessed by a group of only about 2,000.
...
Whether through the co-mingling of personal and state funds from lucrative government positions, huge land allocations, direct allotments of crude oil to sell in the open market, segmental controls in the economy, special preferences for the award of major contracts, outright cash handouts, and astronomical monthly allowances—all billed to the national exchequer—all told, the financial impact may have exceeded 40% of the Kingdom's annual budget during the reign of King Fahd. Over decades of oil revenue-generated expansion, estimates of royal net worth is at well over $1.4 trillion. This method of wealth distribution has allowed many of the senior princes and princesses to accumulate largely unauditable wealth and, in turn, pay out, in cash or kind, to lesser royals and commoners, and thereby gaining political influence through their own largesse.

[ralfy]

I'm reminded of this 2008 article:

"Peak oil is a done deal"

http://www.energybulletin.net/stories/2 ... -done-deal

[SamInNebraska]

I'm reminded of this 2008 article:

"Peak oil is a done deal"

http://www.energybulletin.net/stories/2 ... -done-deal

I'm reminded of your posts in the peak oil debunked thread, and as I was reading through it I found this Ghawar related item.

http://peakoildebunked.blogspot.com/200 ... empty.html

Apparently Ghawar is already empty, and no one has noticed. I assume this was a somewhat satirical slap at those who are always expecting it to run out, and have been disappointed. If oil estimates for the world are as far off as they are for that oil field, this entire oil thing might not be all that relevant compared to other disasters like climate change, droughts, low growth economies, etc etc.

[Tanada]

Why would SA need to replace light, sweet, free-flowing crude with NGL's (with all the associated operating expenses and energy losses) if it were capable of ramping up oil production?

I imagine is a combination of lack of spare capacity and not being willing to produce flat out at the current world price.

[rockdoc123]

Why would SA need to replace light, sweet, free-flowing crude with NGL's (with all the associated operating expenses and energy losses) if it were capable of ramping up oil production?

I do not believe the are attempting to "replace" crude with NGL's. The increase in NGL's is due to the increasing gas production in the Kingdom, something that has recently appeared in the press. SA wants to stop using fuel oil for power which means supplanting it with other sources such as gas, hence an increase in NGL's.
Note that crude production has stayed fairly stable and also note that all of the mega projects were completed as planned with the exception of one of the heavy oil offshore pools which was postponed. That means there is a lot of oil sitting in the spare capacity stage which means it simply needs to be "turned on" as all of the wells have been drilled and completed and the appropriate facilities including water and gas separation and pipelines have been commissioned. If you follow the comments from the Saudis they have been keeping production as high as they can without creating a surplus in the market which would drop Brent to a point where the Saudis could no longer balance their budgets (they need around $80)

[ralfy]

I'm reminded of this 2008 article:

"Peak oil is a done deal"

http://www.energybulletin.net/stories/2 ... -done-deal

I'm reminded of your posts in the peak oil debunked thread, and as I was reading through it I found this Ghawar related item.

http://peakoildebunked.blogspot.com/200 ... empty.html

Apparently Ghawar is already empty, and no one has noticed. I assume this was a somewhat satirical slap at those who are always expecting it to run out, and have been disappointed. If oil estimates for the world are as far off as they are for that oil field, this entire oil thing might not be all that relevant compared to other disasters like climate change, droughts, low growth economies, etc etc.

Obviously not, as the piece refers to an claim that Ghawar is "already empty" whereas the article that I shared refers to a forecast for 2013 and after, possibly from Saudi Arabia. But the source is not disclosed, which means we will have to rely on other forecasts, like those from Morgan Stanley:

http://www.businessinsider.com/oil-spar ... 013-2011-2

And one can also look at SA news reports concerning Manifa.

[SamInNebraska]

Yeah, I'm not sure where you went with it Ralfy but I wasn't talking about all that stuff, but the comment on Ghawar on that blog. Ghawar was once a given size. It is now bigger. And not empty. If I understood the post correctly, it is supposed to be empty. But isn't. Yet. How did it get not empty? And why didn't people notice until it happened? Does it not being empty as predicted matter? It is a big field, right?

[rockdoc123]

He wrote this stuff years ago. SA has never since substantially increased production. Only lately, as oil has hovered around $100, have they managed to squeeze a bit more out of Manifa et.al. the dirty pools.

I don't know how many times you have to be instructed on this but spare capacity is not the same thing as production. The Saudis have been adamant that they will only produce enough to supply current demand they have no intention of producing more simply because they learned from hard experience back in the seventies that it results in loss of market share. It is very clear what their plan is and that is to have enough spare capacity such that they do not get trapped in the position they were in several years ago when demand outpaced supply and they had no spare capacity to draw on. This was the whole reason they started up the megaprojects the point being that not only could they keep production at a rate to supply demand but they could also build up spare capacity in case there is another demand surge. And as I pointed out many, many times of the megaprojects there are only two that are comprised of heavier sour crude, Manifa and Safaniyah. Manifa was postponed and Safaniyah represents less than 10% of the capacity addition. The vast majority of the oil added in the megaprojects is light and relatively sweet such that their normal customers for Ghawar should have no problem refining it. Indeed a large chunk of the oil added comes from Shaybah which is superlight. The megaprojects employed numerous international reputable service companies who in total were paid tens of billions of dollars. According to all accounts the projects were finished on time and commissioned at the planned offtake rates. What isn't known is how much each of the fields is currently producing and how much remains in spare capacity.
The Saudis are not going to sell oil at a price that does not allow for enough capital generation that they can fund their social budget, that would be political suicide. From what I've read that price is somewhere between $75 and $80/bbl. They also do not want the price to go much about $110/bbl Brent as that results in serious demand destruction.

[ralfy]

Yeah, I'm not sure where you went with it Ralfy but I wasn't talking about all that stuff, but the comment on Ghawar on that blog. Ghawar was once a given size. It is now bigger. And not empty. If I understood the post correctly, it is supposed to be empty. But isn't. Yet. How did it get not empty? And why didn't people notice until it happened? Does it not being empty as predicted matter? It is a big field, right?

The problem isn't the size, as even Saudi Arabia argued in one article years ago that we've used only around 25 pct of oil worldwide. Rather, it's EROEI, the rate of extraction, and the ability to meet demand.

According to the IEA, the best-case scenario shows a 9-pct increase in energy production from all oil and gas sources worldwide for the next two decades, and that's assuming that conventional production doesn't drop. Meanwhile, demand has to go up by up to 2 pct a year to maintain economic growth.

The situation is even worse if we look at production per capita, which is more logical as we need to look at production in light of the population it serves. According to BP, that peaked back in 1979.

[ralfy]

It's likely $100 for SA, $80-$100 for others, etc.

"Saudi Arabia targets $100 crude price"

http://www.ft.com/intl/cms/s/0/af13f09c ... ab49a.html

Some more details here:

"Marginal oil production costs are heading towards $100/barrel"

http://ftalphaville.ft.com/2012/05/02/9 ... 100barrel/

[AirlinePilot]

Since 2003 Saudi Arabia has brought 4,000,000 barrels per day of new oil. 2,700,000 barrels has been brought on line just since 2008. Yet they have only managed to keep production at relatively the same level they reached in 2008! Possibly a tad higher depending on whose numbers you use. They are fighting hard to tread water and I daresay they are probably reaching the point where more money, rigs, and all the tech in the world wont overcome 700,00 barrels per day per year decline.