[seahorse]

This writer agrees that 2004 will have been the peak of world oil production. If you haven't read the article, its worth a read. It was written in July of 2004. At the time it was written, I didn't know what to think about it. Two years later, the evidence may be on his side.

2004 world oil peak

Maybe its more correc to say that 2004 will mark the peak in OPEC production.

[bobcousins]

I think the reason SA is not producing more is quite simple - all the other OPEC countries are struggling to meet their quota. If SA was to increase output, they would be taking more of the pie, and additionally, lower the price for the other members. I don't think they want to get into the game of quota grabbing that happened before, it is counter-productive for them.

So, given that the global economy seems to be weathering high oil prices, there is absolutely no need to rock the boat. True, they are investing to compensate for decline in their existing fields, but there is not a good enough reason for them to upset the status quo wihtin OPEC.

[rockdoc123]

Rockdoc,

What do you think of the OPEC report showing SA production at about 9.4 mbpd in Feb 06?

Also, what do you think of the Opec rig count showing SA has 52 operating rigs as of Feb 06? This is significantly lower than the number you were given of 160.

Assuming they only have 52 operating rigs, what does that mean in terms of what we can reasonably expect SA to increase their production number to?

There are a number of things that go into the Saudi production numbers. We do not know how operational fields and facilities were during the months various numbers are reported. Given that maintenance, workovers etc. are required at different times month on month, declines need to be quite repeatable before it is safe to draw conclusions IMO.
From the monthly production I plotted up and posted on the Saudi Production thread here is the daily production since Aug 2004 (basically when they ramped up to the 9+ MMB/d from the mid-8s)

Aug-04 9.40E+06
Sep-04 9.55E+06
Oct-04 9.50E+06
Nov-04 9.50E+06
Dec-04 9.45E+06
Jan-05 9.10E+06
Feb-05 9.30E+06
Mar-05 9.40E+06
Apr-05 9.50E+06
May-05 9.52E+06
Jun-05 9.50E+06
Jul-05 9.52E+06
Aug-05 9.55E+06
Sep-05 9.55E+06
Oct-05 9.52E+06
Nov-05 9.50E+06
Data source is IHS Energy

As you can see they have been up above 9.5 dropped to 9.1 and then went back above 9.5. So dropping to 9.4 now may not be that problematic, unless, of course, it is repeatable. In fact, as someone pointed out here up to the end of March none of the new projects had come on stream yet. During the period 2001 through 2005 the Saudis did not add "new" production but rather were playing with rates (ie. shutin wells to lower production as needed to manage price). If the fields were in serious decline and they were producing at capacity through this period one would have expected to see a drop in rates but they seem to have been maintained. This makes me wonder if the Saudis have not been managing the depletion through their spare capacity.

The other thing I do not think any of us are sure of is whether or not the Saudis have been "holding back" simply because they worry about a glut of oil in the market. They make good statements in the press about keeping the world supplied but they have also said that current price does not reflect fundamentals...which is true given that we do not currently have a shortage of oil. During the presentation I attended the Aramco official stated that they had a policy to always keep between 1 and 2 MMB/d spare capacity...he did not elaborate on why.

As to the rig count that may or may not be a problem. Currently the only project onstream and ramping up is Haradh which will not take much in the way of additional rigs but did require considerable facility increase. Of the other projects that most drilling intense I think would be Khurais which isn't planned for coming on stream until 2009.

I was jotting down notes fairly furiously during the presentation so it is possible I misheard a comment or misread a slide. I copied down 120 rigs in 2006 so I guess that could mean by end of 2006. I haven't been able to find anything else to agree with this number however. I'll try to do a bit of digging around with my sources.

[DantesPeak]

Unfortunately I have been unable to find the complete transcript of the Bloomberg interview anywhere, but the Prince implied by his comments that production would not be increasing even with a new ME conflict. His exact quote is "We're producing at maximum capacity now".

You may recall the Saudis have made a number of public and private pledges to hold down prices as best as possible, so if they really have additional production capacity it would seem like they should be using as the price passes $70. We have been seeing quite a long production plateau over the last year and a half, that seems unresponsive to price changes.

If you read the over all tone of the Prince's comments in regards to Iran in the linked article above, you can see he is hopeful but not optimistic that trouble will be avoided:

Speaking of the prospect of a military confrontation with Iran, Faisal noted that ``all the expectations that were placed on military intervention in Iraq have proved to be very optimistic.''

U.S. interests in the Persian Gulf states and worldwide ``can be struck at in retaliation for a strike against Iran,'' Faisal said.

[fossilnut2]

Rocdoc: congrats on some sober second thinking.

What the Saudis are saying is they are producing the max they are capable of producing with the infrastructure they have. It's like filling a bucket from a swimming pool. The bucket can only hold so much and doesn't reflect on the volume of water in the swimming pool. It doesn't mean a bigger bucket can't be purchased to remove more volume at a time.

[seahorse]

During the presentation I attended the Aramco official stated that they had a policy to always keep between 1 and 2 MMB/d spare capacity...he did not elaborate on why.

Then, we have statements like the statement today that they are producing at their maximum capacity. Their capacity as of Feb 06 was 9.5 mbpd. If it is true they are producing at their maximum capacity, then this "spare capacity" does not exist. If we assume the Ambassador is telling the truth, then we have to believe this spare capacity does not exist - not today anyway. As Rockdoc suggest, if it did exist, was used to offset the 8% decline rates in producing wells.

If the fields were in serious decline and they were producing at capacity through this period one would have expected to see a drop in rates but they seem to have been maintained. This makes me wonder if the Saudis have not been managing the depletion through their spare capacity.

This belief if supported by the fact that the world has needed the "spare capacity" over the last two years, but has not "seen it", not in the sense that it has increased overall Saudi Production, but instead was used to offset declining production of 8%. This still leaves me, at least, questioning if the Saudis can ever reach 12 mbpd.

[seahorse]

Even if SA can eventually reach 12 mbpd, its very troubling that according to Opec's own numbers, overall Opec production is less now than in 2004. In 2004, Opec was admitting that the only spare capacity was in SA. So, isn't it reasonable to assume that Opec has reached maximum production and peaked? Wouldn't the recent statements that Burgan is now at least in a plateau coupled with Opec's numbers support the belief that Opec has peaked?

[coyote]

Wouldn't the recent statements that Burgan is now at least in a plateau coupled with Opec's numbers support the belief that Opec has peaked?

Wouldn't it be bizarre if it wound up working out like that? We've all been assuming that non-OPEC production would peak first.

On a purely personal note: another bizarre thing for me reading this post is that, even though I've been aware of Peak Oil for about a year now, it's possible that it happened before I even found out about it...

[EnergySpin]

Methinks that a litl bit of math is required here:
(Mathematica TM notation adopted for this post)

Utility of a Resource[StartTime_,EndTime_]:= Integrate[Price[t]*ProductionRate[t],{t,StartTime,EndTime}]

And since a) ProductionRate[t_]: = - D[V,t] (V: what lies under the ground which is constant )
b) Price[t_]: = f[PerceptionWeAreRunningOut[t]*(Demand[t]-Supply[t])]

one is faced with the following three stategies :
1) Pump fast and hard .... price does not go up but the resource is exhausted pretty quickly. Price is low for the majority of the period StartTime, EndTime but goes up at the end (this is the Oil from Whales real world scenario from the 19th century)
2) Pump sloowwly ... gives times for alternatives to develop and eventually the user (demand side) switches over to something else (and there are alternatives for the majority of oil uses). This scenario roughly corresponds to a good "stewart"/Hotteling type of commodity pricing.
3) Pump at an intermediate rate ... prices attain a high rate well before the peak, as the junkies start craving for the resource.

From the SA's standpoint, utility maximization happens only under the third scenario. But in order for this to happen, one needs a litl bit of market manipulation to generate lots of PerceptionWeAreRunningOut[t] a few years prior to the peak.
It seems that the Saudis are deliberately fuzzifying their statements to generate confusion (and increase the PerceptionWeAreRunningOut[t] factor). This will ensure that their product does sell at a higher price than it would sell otherwise ... and once decline sets in they will have plenty of cash*time to maintain their status as energy barons.

Poor Hubbert did not have a PerceptionWeAreRunningOut factor in his equations; this kind of invalidates the general logistic curve methodology to depletion modelling (not to mention the horrendous aspects of fittign anything on such curves).

Edited for semantic clarity

[Doly]

Poor Hubbert did not have a PerceptionWeAreRunningOut factor in his equations; this kind of invalidates the general logistic curve methodology to depletion modelling (not to mention the horrendous aspects of fittign anything on such curves).

As far as I know, the only people to do modelling including perceived amounts, rather than real ones, are the guys that wrote "The limits to growth". But their models usually considered that the perceived amounts were outdated, because news take some time to sink in.

It's hard to tell under the circumstances what game the Saudis are playing. They could be trying to convince people we are running out because it maximizes their profit. Then, maybe they have been so far trying to convince people that we aren't running out because they wanted a slow, rather than a steep, rise in prices.

I tend to agree with Simmons on this one. The Saudis have actually peaked, and they weren't telling until now. I think they figure that by now it's an open secret, so they may as well say it.

[Rishabh87]

According to ASPO April 06 Newsletter Saudi Arabia is going to peak in 2014 or am I misinterpreting it?

http://www.peakoil.ie/downloads/newslet ... 200604.pdf
The information I am referring to is on pg.11

Also on pg. 11, Campbell gives a peak of conventional oil at 2006, but on pg. 2 he has 2005 as the conventional oil peak.???

[SoothSayer]

>> According to ASPO April 06 Newsletter Saudi Arabia is going to peak in 2014 or am I misinterpreting it?

Does it matter what ASPO said?

Take a look at what Saudi itself seems to be saying today.

[EnergySpin]

Poor Hubbert did not have a PerceptionWeAreRunningOut factor in his equations; this kind of invalidates the general logistic curve methodology to depletion modelling (not to mention the horrendous aspects of fittign anything on such curves).

As far as I know, the only people to do modelling including perceived amounts, rather than real ones, are the guys that wrote "The limits to growth". But their models usually considered that the perceived amounts were outdated, because news take some time to sink in.

It's hard to tell under the circumstances what game the Saudis are playing. They could be trying to convince people we are running out because it maximizes their profit. Then, maybe they have been so far trying to convince people that we aren't running out because they wanted a slow, rather than a steep, rise in prices.

I tend to agree with Simmons on this one. The Saudis have actually peaked, and they weren't telling until now. I think they figure that by now it's an open secret, so they may as well say it.

Simons is a guy who controls oil at the ascending part of the curve ... his personal interest is to boost the PerceptionWeAreRunningOut factor way above its "normal" value. I checked the story from other sources as well ... the Prince's comment can be interpreted either way ....
And for the record, it is not in the interest of the Saudis to admit to the peak after it had happened. The psychological impact would be of such magnitude that would send everyone dashing for alternatives and the Saudis would be left with almost no customer in less than 10 years.

Nope ... Saudi still has 5 - 10 more years left. They will use this period to build their cash reserves and slowly morph into non-FF energy barons.

[SoothSayer]

>> Saudi still has 5 - 10 more years left

They have MANY more years left ... BUT has their production peaked?

They are telling us the best way they can, via several routes, that maybe they can't produce much more per day ... so their production HAS peaked.

It doesn't matter WHY it has peaked ... politics or geology.

We are now entering the era where, say if China buys an extra 100 barrels of oil a year then SOMEONE ELSE WILL HAVE TO GO SHORT.

Every gallon of fuel you burn each year from now is a gallon someone else can't have. Who have you deprived?

Who is going to get cold in winter? You or the poor in the Nepal mountains?

Can you outbid, say, the car drivers in Japan for fuel? If you succeed, what will happen to the Japanese economy?

If you fail to get that fuel, can you afford to go to work? Can you afford a hybrid car?

For the first year or two prices will simply get a bit nasty ... but not far down the road life will get truly awkward.

[EnergySpin]

>> Saudi still has 5 - 10 more years left

They have MANY more years left ... BUT has their production peaked?

I was referring to the peak , not the actual day they will produce NILL

They are telling us the best way they can, via several routes, that maybe they can't produce much more per day ... so their production HAS peaked.

Actually they are telling us they will not ... very different from whether they can't or they refuse to.

It doesn't matter WHY it has peaked ... politics or geology.

On the contrary it does matter .... the geological peak => nothing you can do about it, but the political/economical is something that one controls.
And it all boils down to the litl equation I wrote earlier ... time to go back to your college level math, to see why it matters ....

Who is going to get cold in winter? You or the poor in the Nepal mountains?

I heat my apartment with a space heater .... my utility runs wind+coal plants.

Can you outbid, say, the car drivers in Japan for fuel? If you succeed, what will happen to the Japanese economy?

If you fail to get that fuel, can you afford to go to work? Can you afford a hybrid car?

I cannot afford a car for health reasons .... my weight goes up when I have access to a car. So I went cold turkey a few years back

For the first year or two prices will simply get a bit nasty ... but not far down the road life will get truly awkward.

How is this self-evident statement relevant to the "statement" made by Al-Faisal?

[SoothSayer]

If SA / OPEC cannot [maybe will not] boost their production for some years then they have (for the moment) peaked.

Please don't take this as an impolite response, but this must impact the global situation. Equations / tables etc won't release any more oil into the market.

If Saudi mean what they say, then where will the increase in oil supplies needed next year by China and India come from?

Who will lose out?

What will crude oil prices do?

What demand destruction will we see?

[EnergySpin]

If SA / OPEC cannot [maybe will not] boost their production for some years then they have (for the moment) peaked.


Please don't take this as an impolite response, but this must impact the global situation. Equations / tables etc won't release any more oil into the market.

On the contrary ... I am the one who breached the "politeness" border.
The equation was put forward only to show the complexity of the situation i.e. the interplay between geology and politics/economics.
You see, irrespective of what you (and I ) may think, the industry only cares about the $$$ (utility) returned on their product. It is in their best interest to "manipulate" the perception of the peak so as to increase the money they make.
For Saudi this translates to a protracted plateau in the 70-120$ range.
This is what they will shoot for the next 5-10 years i.e. they will use their spare to offset depletion rather than pump hard and fast ....
On the other hand if they overdo it ... then the impetus for the powerswitch will leave them with a useless resource in 10-15 years.
(I believe this is the third scenario I alluded to earlier)
Now before everyone starts shouting about the Hirsch report (which I have read), let me remind you that this report concerns a) business as usual scenarios and b) no conservation measures. Therefore one should not adopt the viewpoint that we need 20 years to powerswitch; rather we need 20 to powerswitch while doing all the "other stuff" we like to do (maintaining the national traffic jam, eating ourselves to a coronary angiogram etc etc).

If Saudi mean what they say, then where will the increase in oil supplies needed next year by China and India come from?

Who will lose out?

What will crude oil prices do?

What demand destruction will we see?

If I were a member of the Saudi Royal family I would try to maintain oil prices around 100-120$ for a long time (at least 5-10 years). Anything else would be disastrous for me and the family ... The financial ramification will be lost (at least initially) in the noise of the time series .... provided of course the housing bubble is not detonated.
Since you raised the issue of I+C: the prudent thing for the West to do is to try and curtail the use of oil relatively rapidly. We do have the technology to work this thing out ... let the others sample the crack. When the crack runs out, they will be the ones left with the useless SUVs ....

[DantesPeak]

Bloomberg finally got around to saying what I said at the top:

A U.S. military strike on Iran would not eliminate the nuclear threat and would spark retaliation against American interests worldwide, said Saudi Arabia's Prince Turki al-Faisal, the kingdom's new ambassador to the U.S. Saudi Arabia, the world's largest oil exporter, is pumping almost all the oil it can. It couldn't replace Iran's production by itself.

``The Iranians have put themselves in a difficult position,'' said Deborah White, a commodities economist with Societe Generale in London. ``The last time the U.S. suspected weapons of mass destruction, they invaded Iraq.''

Bloomberg

Is that clear enough?

[gary_malcolm]

Politics, Geology, Whatever...

If the numbers shown earlier are correct that the drilling rig numbers in SA have increased from the 30 range to the 50 range with no corresponding increase in production (in fact a decline) we have the "GREAT HAMMER OF REALITY" crashing through the fond wishes of the cornucopian crowd. This IS what happened in Texas. Welcome to the harsh world of Hubbert Linearization.

My favorite discrepancy is the rig miscount of +150% by rockdoc... quite a factor of error big fella... I guess the death of a thousand cuts you have been trying to smear Simmons with turns out to have bitten you square on the ass.

Now I'll let you all go back to the "SA will Save Us" square dance (only Turkey the Sheik seems to have left early).

G

[coyote]

The psychological impact would be of such magnitude that would send everyone dashing for alternatives and the Saudis would be left with almost no customer in less than 10 years.

Spin, what you said makes sense to me except for this. Do you really think it will be so easy for us to make the switch to alternatives? I know you are aware of the comparative energy yields of other liquid fuels...