Saudi Oil Power Model

pup55 · Expert Joined: May 26, 2004 Posts: 3565

Here are some models.

Assumptions:

The world is currently consuming 30 gbo per year. Current Saudi production is 3.58 gb/y which is 9.8 mbd.
Consumption is growing at 2% per year (per Michael Lynch). The rest of the world extraction is declining at 1% per year (per Julian Darley). Current proved reserves in the (non-Saudi) rest of the world are what the 2004 BP Review says they are, which is 885 gb (1047 gb minus 261).

Models:

A. Saudi reserves are 261gb. As production in the rest of the world decreases, and consumption increases, Saudi cranks up the pumps to meet the demand, and levels off at 15 mbpd, which is 5.47 gb/y and holds production constant at that level as long as they can.

B. Saudi reserves are 261 gb. As production in the rest of the world declines, and consumption continues to increase, Saudi cranks up the pumps to allow the world to consume as much oil as they want, for as long as they can, in other words, Saudi is the â€œswing supplierâ€.

C. Saudi reserves are 461 gb, same strategy as â€œAâ€, namely level production at 15 mbpd/5.47 gb/y.

D. Saudi reserves are 461 gb, same strategy as â€œBâ€, Saudi is the â€œSwing Supplierâ€.

Discussion:

In the first case, A, because of 1% decline in production and 2% growth, Saudi must make up 3% of global production every year. Saudi is only at about 11% of production now, so this will mean that they need to increase production by nearly 1/3 almost immediately. The 15 mbo/d level is reached in 2008. If they keep the level of production constant, because of demand growth, a global deficit, namely, shortage of oil, will occur at that time. In this scenario, global reserves are completely gone in about 2030, and the Saudis will be out of oil in about 2050. Note this is what the Saudi oil guy is saying will be the case, so in a way he is right, but the world consumption will not be allowed to grow. In fact, if the population keeps growing like it is right now, (1.6% per year) per-capita oil consumption will drop to .66 bbl/yr in 2030, so the going will get tough.

In the second case, B, Saudi decides to be nice guys and pump as much oil as they can so that consumption can grow as much as the rest of the world wants, for as long as they can. Their 261 gb reserves will be 50% depleted in 2018, and their oil will be completely gone by 2025. Global reserves will still be gone in about 2030 but the difference is, no Saudi to back up the world supply. If lucky, Saudi production will decline per the Hubbert theory when they reach 50% depletion, but I have assumed they miraculously avoid this and can pump at full production right up until the end, so it might actually last a little longer because they are constrained as to how fast they cam pump it out of the ground.

Case C is just like Case A except the Saudi reserves are assumed to be 461 gb. The Saudis increase production to 5.47 gb/y, and keep it there for as long as they can. In this case, the shortfalls start to hit in 2008 just like above, but the Saudis can do this well past 2070, except the rest of the world will still run out of oil in 2030, therefore, there will be hell to pay and Saudi will have 100% market share after 2030.

Case D is just like Case B. Saudi reserves are 461 gb, and they decide to let the world consume as much oil as they want. Saudi will be out of oil in about 2030, give or take, which is really bad, because that is when the rest of the world will also be running out, so the whole system will come to a screeching halt.

So, here are the conclusions:

a. The real turning point will be when non-Saudi oil hits its peak. I have assumed it is now, but if it is not now, everything slides back however many years and the conclusions are the same, just later.
b. When the Saudis are telling you what production geniuses they are by increasing the oil production by that much, they are not telling you an important fact: itâ€™s not going to be enough, and we will be hurting in about 2010 even if they can do what they say they can do.

c. You can make the argument that they will be doing us a favor by not pumping more than 15 mb/d because it will force the world into conservation that chances are they would not normally do, and their supply would last longer.

d. If you hear a bump in the night in 2010, it will be one of the four horsemen.

d. Something has got to give.

pup55 · Expert Joined: May 26, 2004 Posts: 3565

Reserves by year. ROW is "Rest of world", A, B, C and D are the scenarios above. Maybe someone friendly will graph them for us so we can see them.

johnmarkos · Posted: Wed Feb 09, 2005 11:59 am Post subject:

Here you go. And thanks!

Taskforce_Unity · Posted: Wed Feb 09, 2005 1:09 pm Post subject:

Nice model but where's the peak...

johnmarkos · Posted: Wed Feb 09, 2005 1:20 pm Post subject:

There is no peak in this model. Peak oil occurs when the second derivative of the remaining reserve turns positive, which would be indicated by the graph of the sum of ROW + Saudi [A-D] becoming concave upward. Because each reserve is either depleted at a constant rate or faster all the time (exponential growth), I see no peak here.

johnmarkos · Posted: Wed Feb 09, 2005 1:55 pm Post subject:

pup55, shouldn't ROW production be in decline instead of increasing? In the model above, it goes from 27 Gb (2005) to 43 Gb (2029).

maverickdoc · Intermediate Crude Joined: Jan 12, 2005 Posts: 826

How accurate are these numbers?

http://www.photius.com/rankings/oil_proved_reserves_0.html

pup55 · Expert Joined: May 26, 2004 Posts: 3565

Johnmarkos:

Thanks for pointing that out. This reserves curve is the "unconstrained" reserves curve (non-Hubbertian), which assumes that the rest of the world can pump oil at whatever rate it nees to in order to meet demand (minus the Saudi production) so the 2024 projected ROW extraction would be 48.3 gb less the 5.5 for saudi or about 43 gb, which is subtracted from the previous year's reserves.

I will include a "constrained" curve, assuming that the extraction rate will be 1% lower everyyear post-peak, a-la the Hubbert theory, for comparison below. It gives an extra 20 years of pumping, for what it is worth, but just kind of prolongs the pain. If you are still kind to me, maybe you will put it on your graph for comparison.

Everything else I said is about right, though, give or take a couple of years.

Maverickdoc:

As to whether the figures are reliable or not, the value of 1043 gb is "proved reserves" from the BP review, which meets rather specific reporting standards. The Oil and Gas Review value was about 1250 gb. The IEA is about the same, maybe a little higher. Michael Lynch quotes a source that thinks this number is about 1400 gb. The USGS thinks this number is about 2000 gb.

The 2% demand growth is per Michael Lynch as well, but the average, according to the BP review, has been slightly lower for the last 10 years, about 1.7%, however, more recently, due to growth in China, this has been much higher, a couple of years ago this was 4%, so 2% is a conservative value. The actual growth rate will be somewhere between population growth (about 1.65% per year) and GDP growth (about 3.5% per year) until we humans figure out a way to decouple economic growth from energy extraction, but that is a subject for another post.

The 1% global depletion rate was from a news article on this website last fall from ODAC. I will have to dig it up for you if you are interested. The 30 GB extraction for last year is a rough estimate done by me, but is probably pretty close based on recent BP data and assuming a modest growth rate.

Anyway, all of this data is reviewable, and another estimate can be made if you have a better number.

johnmarkos · Posted: Thu Feb 10, 2005 10:30 am Post subject:

New data prompt a new graph. Thanks again, pup55!

0mar · Posted: Sat Mar 12, 2005 3:46 pm Post subject:

seahorse · Expert Joined: Oct 15, 2004 Posts: 2081 Location: Arkansas

OGJ ran an article this week that said nonopec oil, including FSU, would peak between 2008 and 2010. It assumed 2009. This is very similar to the analogy here.