Register

Peak Oil is You


Donate Bitcoins ;-) or Paypal :-)


Page added on April 21, 2019

Bookmark and Share

Saudi Arabia’s biggest oil field is fading faster than anyone guessed

Production

It was a state secret and the source of a kingdom’s riches. It was so important that US military planners once debated how to seize it by force. For oil traders, it was a source of endless speculation.

Now the market finally knows: in Saudi Arabia, the world’s largest conventional oil field, can produce a lot less than almost anyone believed.

When on Monday published its first ever profit figures since its nationalization nearly 40 years ago, it also lifted the veil of secrecy around its The company’s bond prospectus revealed that is able to pump a maximum of 3.8 million barrels a day — well below the more than 5 million that had become conventional wisdom in the market.

“As Saudi’s largest field, a surprisingly low production capacity figure from is the stand-out of the report,” said Virendra Chauhan, head of upstream at consultant in Singapore.

The Energy Information Administration, a US government body that provides statistical information and often is used as a benchmark by the oil market, listed Ghawar’s production capacity at 5.8 million barrels a day in 2017. Aramco, in a presentation in Washington in 2004 when it tried to debunk the “peak oil” supply theories of the late US Matt Simmons, also said the field was pumping more than 5 million barrels a day, and had been doing so since at least the previous decade.

In his book “Twilight in the Desert,” Simmons argued that Saudi Arabia would struggle to boost production due to the imminent depletion of Ghawar, among other factors. “Field-by-field production reports disappeared behind a wall of secrecy over two decades ago,” he wrote in his book in reference to Aramco’s nationalization.

ALSO READ:

The new details about Ghawar prove one of Simmons’s points but he missed other changes in technology that allowed Saudi Arabia — and, more importantly, US shale producers — to boost output significantly, with global oil production yet to peak.

The prospectus offered no information about why Ghawar can produce today a quarter less than 15 years ago — a significant reduction for any oil field. The report also didn’t say whether capacity would continue to decline at a similar rate in the future.

Aramco wasn’t immediately able to comment.

Lost Crown

The new maximum production rate for Ghawar means that the Permian in the U.S., which pumped 4.1 million barrels a day last month according to government data, is already the largest oil production basin. The comparison isn’t exact — the Saudi field is a conventional reservoir, while the Permian is an unconventional shale formation — yet it shows the shifting balance of power in the market.

Ghawar, which measures about 174 miles long — or about the distance from New York to Baltimore — is so important for Saudi Arabia because the field has “accounted for more than half of the total cumulative crude oil production in the kingdom,” according to the bond prospectus. The country has been pumping since the discovery of the Dammam No. 7 well in 1938.

On top of Ghawar, which was found in 1948 by an American geologist, Saudi Arabia relies heavily on two other mega-fields: Khurais, which was discovered in 1957, and can pump 1.45 million barrels a day, and Safaniyah, found in 1951 and still today the world’s largest offshore oil field with capacity of 1.3 million barrels a day. In total, Aramco operates 101

The 470-page bond prospectus confirms that is able to pump a maximum of 12 million barrels a day — as has said for several years. The kingdom has access to another 500,000 barrels a day of output capacity in the so-called neutral zone shared with Kuwait. That area isn’t producing anything now due a political dispute with its neighbor.

While the prospectus confirmed the overall maximum production capacity, the split among fields is different to what the market had assumed. As a policy, Saudi Arabia keeps about 1 million to 2 million barrels a day of its capacity in reserve, using it only during wars, disruptions elsewhere or unusually strong demand. Saudi Arabia briefly pumped a record of more than 11 million barrels a day in late 2018.

“The company also uses this spare capacity as an alternative supply option in case of unplanned production outages at any field and to maintain its production levels during routine field maintenance,” Aramco said in its prospectus.

Costly Strategy

For Aramco, that’s a significant cost, as it has invested billions of dollars into facilities that aren’t regularly used. However, the company said the ability to tap its spare capacity also allows it to profit handsomely at times of market tightness, providing an extra $35.5 billion in revenue from 2013 to 2018. Last year, Saudi Energy Minister Khalid Al-Falih said maintaining this supply buffer costs about $2 billion a year.

Aramco also disclosed reserves at its top-five fields, revealing that some of them have shorter lifespans than previously thought. Ghawar, for example, has 48.2 billion barrels of oil left, which would last another 34 years at the maximum rate of production. Nonetheless, companies are often able to boost the reserves over time by deploying new techniques or technology.

In total, the kingdom has 226 billion barrels of reserves, enough for another 52 years of production at the maximum capacity of 12 million barrels a day.

The Saudis also told the world that their fields are aging better than expected, with “low depletion rates of 1 percent to 2 percent per year,” slower than the 5 percent decline some analysts suspected.

Yet, it also said that some of its reserves — about a fifth of the total — had been drilled so systematically over nearly a century that more than 40 percent of their oil has been already extracted, a considerable figure for an industry that usually struggles to recover more than half the barrels in place underground.

chandercaller



13 Comments on "Saudi Arabia’s biggest oil field is fading faster than anyone guessed"

  1. Pete Bauer on Sun, 21st Apr 2019 1:22 pm 

    Smart Saudi Aramco is buying refineries at a rapid pace.
    They just acquired the Shell’s 50% stake in Jubail, Saudi Arabia.

    They want to ensure that all the Saudi crude will be processed in Saudi owned/controlled refineries. This will bring better margins. Every barrel of Al Ghawar’s oil will be used for maximum gain.

    http://www.arabnews.com/node/1485666/business-economy

  2. Go Speed Racer on Sun, 21st Apr 2019 2:35 pm 

    plus they been filling the whole reserve
    with seawater, to push out the easiest oil
    faster & faster.

    I bet that was dumb, because if they would
    just pump it more slowly then there would
    not be any ‘water cut’.

    Another reason U know that Ghawar is
    pumping dry, is that Saudi Aramco IPO.

    So when the well is dry, tehy will
    sell it to the public stock market.

    But not before.

  3. Gaia on Sun, 21st Apr 2019 5:09 pm 

    Saudi Arabia should:
    1.Separate religion from the state.
    2.Give equality rights to all citizens.
    3.Reduce poverty and unemployment by giving sustainable jobs to ALL Saudi citizens.
    4.Abolish the monarchy and create a social democracy (where it is elected by the people and for the people). No foreign meddling.
    5.Redistribute the massive oil wealth to all people.

  4. Pete Bauer on Sun, 21st Apr 2019 6:43 pm 

    With the grand daddy Al Ghawar going down, Big Oil may also lose its status as #1 source of energy.

    King Coal is advancing rapidly and may clinch #1 spot. Last year Coal consumption for power increased 10% in China.

    https://www.bloomberg.com/news/articles/2019-04-19/china-s-far-from-done-with-coal-as-regulator-eases-new-plant-ban

    https://community.oilprice.com/topic/5671-china-to-promote-using-wind-energy-to-power-heating/

  5. Pete Bauer on Sun, 21st Apr 2019 6:45 pm 

    Mr Gaia. Whatever you wrote makes sense.

    But as long as they get easy revenue from oil, they are not going to do any of these.
    Oil wealth combined with Islamic sharia state gives their rich men the right to marry 4 women (some of them from poor countries) and have as many children as possible. Saudi Arabia has very fast population growth rate.

  6. Go Speed Racer on Sun, 21st Apr 2019 8:18 pm 

    Wow. Get 4 wives, all from poor countries,
    and have lots of children?

    This sounds like a fabulous country.
    Could we do that here?

    I mean, other than Utah, where they already do that.

  7. Robert Inget on Mon, 22nd Apr 2019 9:02 am 

    Just in..
    Iran will close the Strait of Hormuz, a waterway vital for global oil shipments, if the country is prevented from using it, a senior military official said on Monday in what appears to be a response to the U.S. plan to end waivers on Iranian oil exports.

    “If we are prevented from using it, we will close it,” the state-run Fars news agency reported, citing Alireza Tangsiri, head of the Revolutionary Guard Corps navy force. “In the event of any threats, we will not have the slightest hesitation to protect and defend Iran’s waterway.”

    Oil Jumps as U.S. Is Said to End Iran Waivers After May 2 Expiry

  8. Robert Inget on Mon, 22nd Apr 2019 9:07 am 

    Trump Amin. just said we (US) have ‘NO intention of war with Iran’.

    This means of course, the reverse. IOW’s EVERY
    Intention.

    (see post above)

  9. Robert Inget on Mon, 22nd Apr 2019 9:39 am 

    Brent was pushing $75, WTI, $65.80.
    IMO there will be an oil short squeeze driving prices far higher.

    Today, there’s confusion, short term. Trump thinks if he teases Iran enough they will close important water-ways to prevent Saudi and UAE crude exports, thereby inviting all out war.

    IMO, there will be no war. Instead, an orderly market challenging USD as the dominant world exchange. India, China, Turkey, etc simply cannot get on w/o Iran’s oil and will flout sanctions.
    IOW’s Trump is putting the USD on the line
    as the world’s exchange currency. Of course, this entire plan is being concocted in the Kremlin.

    https://www.cnbc.com/2019/04/22/oil-market-us-drilling-activity-opec-supply-cuts-in-focus.html

  10. Duncan Idaho on Mon, 22nd Apr 2019 10:49 am 

    Robert–
    I’m with your analysis, although not sure about the Kremlin part.
    Oil is going up- Brent up almost 3% today.
    The Fat Boy is a hustler, and is over his head on this one.

  11. pat on Mon, 22nd Apr 2019 11:10 am 

    The oil is already heading to $90-100 barrel, will make a new high above $150 and see oil shortages by 2020.

  12. Robert Inget on Mon, 22nd Apr 2019 11:17 am 

    Duncan,
    In past years, if oil prices were too high ‘the people’ blamed POTUS. If gas prices were low POTUS took credit. In fact, Presidents had almost no effect, one way or the other, until now.

    Our current brain trust or his equally brilliant advisors have put the entire oil (and currency) markets in near chaos.

    http://www.livecharts.co.uk/MarketCharts/crude.php

    Our biggest concern should be USD as world
    exchange currency.
    China wants to knock us off that lofty perch, offering yuan stability as replacement.

    But first, China will be happy to feed its thousands of tiny refineries US below cost of production, shale oil (and gas).
    IOW’s why bother drilling in China when they can buy US half liquid gas half oil shale on the cheap?

  13. Robert Inget on Mon, 22nd Apr 2019 12:05 pm 

    “Shortages’ Pat are when ya can’t find a product at ANY price.

    That is exactly where we are headed.

    When an economy is so dependent on lower oil prices to function economically, just as bad, maybe worse, than an economy totally dependent
    on over the top oil oil prices to function at all.

    If Venezuela had been managed like Norway, for instance, VZ could have weathered -$40 crude.
    When crude sells for +$100 even poor managers,
    lousy stock pickers, dumb CEO’s, stealing dictators, all manage.

    Agreeing w/Duncan, plus $100 crude in the cards
    for the US is really bad news for millions of workers just managing to get by today.

    First of all, $100+ crude is inflationary to the max.
    Putting in place carbon taxes on $4.50 gasoline
    would be a death sentence for any politician.
    IOW’s, forget about carbon tax funding dealing with effects, disaster fall-out, of climate change.

    Instead, we either begin to ignore damage from
    crazy weather events or increase debt.

    Finally, Ask yourself.. Why has Trump choosen this time to potentiate a crisis? (with Iran)

    IOW’s are we in for another oil war, cold or hot, for no valid reasons?

Leave a Reply

Your email address will not be published. Required fields are marked *