Joined: Sep 25, 2005 Posts: 1972 Location: Waiuku, New Zealand
Posted: Thu Aug 02, 2007 2:22 am Post subject: Re: Saudi Production: Collecting the Data
rockdoc123 wrote:
As Pup55 points out if the current trend continues OPEC in general and hence Saudi will be in a position come late third quarter where they will have to increase production to avoid rapidly ballooning prices and demand destruction (which there has been little evidence of with oil in the seventies).
According to IEA figures, demand (as measured by consumption) is down about 1 mbpd in the 2nd quarter of this year, over the first quarter. It's the lowest since the 3rd quarter of last year. That's actually mainly in OECD countries but this article mentions how oil scarcity (and the resultant price increases) have affected many poor nations. Oil stocks have fallen for 7 weeks, according to the EIA.
I don't know how the ordinary consumer makes a call on Saudi crude, specifically, so the IEA doing it on our behalf seems reasonable. So far, the Saudis have responded with production cuts.
We shall see if they are capable of increasing that production.
Posted: Thu Aug 02, 2007 6:12 am Post subject: Re: Saudi Production: Collecting the Data
rockdoc123 wrote:
Quote:
Agreed. The IEA are already making that call. So far, the Saudi's have refused to respond. How long would they have to fail to respond, to convince you?
The IEA is not the "market" but a regulatory/monitoring body. The market is the buyers and sellers. When oil stocks are down to the low end of the range and demand is still high then is when the rubber hits the road. For the past year stocks have been well above the range and are just recently dropping into the upper end of the range. As Pup55 points out if the current trend continues OPEC in general and hence Saudi will be in a position come late third quarter where they will have to increase production to avoid rapidly ballooning prices and demand destruction (which there has been little evidence of with oil in the seventies).
I've been meaning to disect the TOD analysis for this thread but have been too busy to even read emails most days. I will get around to it though, some of the assumptions made are incorrect....math is impressive but good math and badly constrained data don't make for a bullet proof analysis IMO. Having read the TOD thread and all the various opinions I am still adamant that the evidence is not compelling one way or the other, hence my comment that the call by the market on OPEC crude increase will be the only way of telling.
Yes, that is certainly true:
Every analysis that can be made for the future S.A. production without full insider knowledge about the exact data for every relevant field is only a guessing exercise with greater or lesser probability of being close to the truth.
I believe SS analysis is very good, but I also don’t agree with it 100% (and, above all, I don’t think it is assured to be correct). However, I think it is mostly correct.
Like you, I also believe Saudi A. (and some other smaller OPEC producers) still can increase a little bit their present production. But not to the level IEA assumes as attainable.
Also, I expect that most of the small reserve production capacity will be based on sour crude.
We will know a little more in some 3 or 4 months.
(Or we will know a lot more, if OPEC fails to increase production even by a token amount… )
Posted: Thu Aug 02, 2007 6:30 pm Post subject: Re: Saudi Production: Collecting the Data
Quote:
Like you, I also believe Saudi A. (and some other smaller OPEC producers) still can increase a little bit their present production. But not to the level IEA assumes as attainable.
Also, I expect that most of the small reserve production capacity will be based on sour crude.
I'm fairly confident that they will be able to deliver the volumes they predict from each of the megaprojects that appear in the graph above that I put together. The reason for this confidence is all of the capital commitments for these projects (which are huge) have been allocated by Aramco already. Even with Khurais, which is a long way out to first production much of the expenditures have already been incurred (they are a long ways along in drilling injectors and producers and are also partway through construction of facilities). Aramco is very proud of the depth of analysis they put into these projects before sanction so you can bet the predicted volumes have a high probability given the investment requirement. As to how much is sour, I tend to use 2% Sulphur as the cutoff for what I call sour. When you look at the megaprojects Haradhh III is sitting right at 2% for the Arab D, Shaybah is superlight crude which is sweet, Khurais is about 1.7% Sulphur, Abu Hadriyah is about 1.7% S as well, Khursaniyah and Al Fahdila are both around 2.3% Sulphur. As such the bulk of the new production up to 2010 will be less than what I would call sour. After 2010 of course there is Manifa which will bring on lots of volume but it is both heavy and sour, similarily they are talking about doing some infill drilling at Safaniyah to bring on additional production which is also heavy and sour. Again the issue with sour crude back when these fields were discovered was lack of market but they are great fuel oils and under relatively strong demand these days, just costs a bit more from the processing standpoint. The heavy crudes are a different story and have suffered from lack of refinery capacity which Saudi appears to be addressing through construction of new refineries.
And Ming I would agree with your statment that market economics would dictate that if there is limits on refining capacity oil prices should drop there being no demand for the raw product but I think there are other issues outside of market economics that drive the price, politics and fear and the fact that traders are involved. Currently the traders see the high gasoline prices and lack of product as worrisome suggesting that refiners will make all efforts to increase throughputs in the very near future. In order to do that they will require large volumes of oil and although we are still in the upper end of the oil volumes available on an annual basis demand seems to be independant of the higher prices....in this case then the lack of product coming out of refineries and the high price for that product dictates that there will be a demand down the road for more oil, hence the higher oil prices. This is exacerbated when the traders take into account possible problems with delivery of that oil from places like Nigeria and Iran. At least thats the way I see the interplay between refinery outputs and oil price. Perhaps I'm not the only one , an article in Bloomberg this AM started out like this
Quote:
Aug. 2 (Bloomberg) -- Crude oil fell for a second day, extending its decline from a record, after an increase in U.S. refinery output eased concern over fuel supplies.
Posted: Fri Aug 03, 2007 8:37 am Post subject: Re: Saudi Production: Collecting the Data
Quote:
And Ming I would agree with your statment that market economics would dictate that if there is limits on refining capacity oil prices should drop there being no demand for the raw product but I think there are other issues outside of market economics that drive the price, politics and fear and the fact that traders are involved. Currently the traders see the high gasoline prices and lack of product as worrisome suggesting that refiners will make all efforts to increase throughputs in the very near future. In order to do that they will require large volumes of oil and although we are still in the upper end of the oil volumes available on an annual basis demand seems to be independant of the higher prices....in this case then the lack of product coming out of refineries and the high price for that product dictates that there will be a demand down the road for more oil, hence the higher oil prices. This is exacerbated when the traders take into account possible problems with delivery of that oil from places like Nigeria and Iran. At least thats the way I see the interplay between refinery outputs and oil price. Perhaps I'm not the only one , an article in Bloomberg this AM started out like this
Yes, that (mostly psychological) "feedback contamination" between product prices and crude prices exists. And I agree it is due to the reasons you point.
But its impact on prices is difficult to quantify, and probably very limited (funny coincidence: I am working on a paper on that).
But the most important objection to the continued use/abuse of that “explanation” for the very high crude prices is this:
For that "feedback contamination" to produce results (i.e. rising crude prices) it has to create additional buying of crude (even if in "paper barrels") in relation to what is effectively processed in the refineries.
And that additional buying pressure can only be maintained for a while:
a)
Buying an excess of "paper barrels" increases the COT positions of those financial buyers and/but those positions are cyclical: They don’t simply increase over time.
b)
Buying an excess of physical oil requires available storage, and it shows in the stocks’ data (EIA and IEA).
So, that can’t explain a steady state of “excessive” crude prices… (And that is how that “limited refining capacity idea” is used by OPEC.)
In fact, the effect generated by that explanation should be cyclical:
Some times it would work to increase crude prices above the “natural market price” (and simultaneously would produce an increase in “paper barrels” in the hands of financial investors and also an increase in physical crude in storage), other times it would produce the opposite result (lower crude prices in relation to the “natural market price”, a reduction in stocks, a reduction in “paper barrels”).
Over time those 2 effects must cancel each other…
So, basically, OPEC tends to grab a real (but small) effect on prices and tends to use it as a false explanation for a steady state of high crude prices that in truth can only be generated by a real imbalance between demand and supply…
Of course, the reason why they do this is easy to understand:
1)
Most people will simply accept their “explanation”, or at least will not know enough to disprove it. (So it works for most people.)
2)
For the others, they (OPEC) will simply seem to be a badly informed group of guys that don’t understand how markets works (but, by extreme luck, were born sitting on large oil fields).
Even that second point of view makes them look better than a direct statement saying:
“We know the supply is not enough but we can’t produce more: This is it!”
Or the even more negative:
“We know the supply is not enough but we don’t want to produce more: We prefer to bleed you dry and get filthy rich while you pay more and more!”
Joined: Apr 28, 2005 Posts: 3448 Location: West shore Lake Eire, MI, USA
Posted: Sat Aug 04, 2007 5:28 am Post subject: Re: OPEC Whistleblowers
TheDude wrote:
I'm curious how many workers in OPEC oil industries have come forth with revealing data about reserves, production, techniques being used that might be damaging reservoirs, status of infrastructure, and so forth. Are they great in number; high in status in some cases? Collectively how much of a case do they make for a near-term peak?
I don't know if there are a lot of them but several have spoken up. The Oilcrash movie for instance has extensive interviews with several, and Bahktari(sp) has been speaking out for quite some time. _________________ Oxygen: - An intensely habit-forming accumulative toxic substance. As little
as one breath is known to produce a life-long addiction to the gas, which addiction invariably ends in death.--Isaac Asimov
Posted: Wed Aug 08, 2007 1:37 pm Post subject: Re: Saudi Production: Collecting the Data
Ming wrote:
What IEA numbers are you referring to, and what do they prove?
I have posted my arguments here and in TOD. In TOD, Euan has stated he believes in a similar scenario as explaining why Saudi cut their productions.
The stats proved that in first half of 2006 crude oil supplies exceed demand by oil refineries. Saudi Arabia started cutting supplies in the second half of 2006 and started stock draws. In 2007, this draw accelerated. Even up to now, oil refineries have not run out of stocks to draw upon.
Hypotheses: 1.
What would happen to crude prices?
What would happen to refined products prices?
You seem to be basing crude prices on basic supply and demand. Just take a step back and look at what happened in 2006. We have data for 2006, so there should be little arguments over the facts. You may arrived at different conclusions and I have no qalms with that as you are entitled to your own opinions.
Facts:
1. First half of 2006: Oil supplies exceed demand.
2. Second half of 2006: Oil supplies drop and demand exceeded supplies.
3. Saudi Arabia started cutting supplies in second half of 2006.
4. Price of oil kept rising despite large stock builds in first half of 2006.
5. Price decreased in second half of 2006 and beginning of 2007 despite demand exceeding supplies and stock draws.
Opinions:
Points #1 and #2 show why Saudi Arabia cut production.
Points #4 and #5 show why your basic supply and demand is too simplistic a model to use.
I am not saying supply and demand is not at play here. I am saying the market is more complicated than you are painting it. Remember the current market is in a situation where you have limited supplies. This is a lot different than the scenario you painted of 50% reduction in oil refineries. Constrained supplies will lead to different behaviors. This is much studied if you are an econ student. Any of the theories circling in academia will show that limited supplies will bring volatile pricing. We are seeing this in action today. Limited refining does not equal cheaper crude oil if sellers of crude oil are willing to withdraw supplies to support prices. Saudi Arabia has said they will tie their oil prices to refinery margins. As a consequence, we are seeing their market share drop, which is what we should expect in a market where refineries have plenty of oil.
As this is only an opinion, you can view the situation differently. As I said, we will just have to wait for oil refineries to run out of oil.
Joined: Sep 25, 2005 Posts: 1972 Location: Waiuku, New Zealand
Posted: Wed Aug 08, 2007 7:58 pm Post subject: Re: Saudi Production: Collecting the Data
nth wrote:
Facts:
1. First half of 2006: Oil supplies exceed demand.
2. Second half of 2006: Oil supplies drop and demand exceeded supplies.
Opinions:
Points #1 and #2 show why Saudi Arabia cut production.
Did any other major supplier deliberately start cutting supplies in the second half of 2006? If not, why not? If they did, is the drop in SA production consistent with the drop seen by the other major suppliers?
Sorry, I haven't got time to do this research at present (I'm at work) but I think these are pertinent questions to ask before coming to the conclusion that you have. I seem to remember Stuart Staniford addressing some of this issue in one of his TOD posts, though I could be wrong.
Joined: Oct 15, 2004 Posts: 2089 Location: Arkansas
Posted: Tue Oct 30, 2007 8:48 am Post subject: Re: Saudi Production: Collecting the Data
When the former head of Saudi Aramco exploration says the world is at peak production, people ought to listen. He also says SA can increase production to 12mbpd but not more. So, now we have a confirmed upper limit.
Quote:
Oil production has peaked, prices to soar - Sadad al-Huseini
Sadad al-Huseini says that global production has reached its maximum sustainable plateau and that output will start to fall within 15 years, by which time the world’s oil resources will be “very severely depleted”.
In an exclusive interview with lastoilshock.com, the former head of exploration and production at Saudi Aramco, said that oil production had reached a structural ceiling determined by geology rather than geopolitics, and that the technical floor for the oil price will rise by $12 annually for the next 4 to 5 years as new fields become increasingly costly to exploit.
According to al-Huseini the technical floor - the basic cost of producing oil excluding factors such as geopolitical risk and hedge fund speculation - is currently about $70 per barrel, meaning the minimum oil price could hit $106 in 2010 and $130 by 2012. Actual crude prices, including financial market factors, could be be as much as $125 by as early as 2010.
Al-Huseini said that Saudi Arabia’s plans to raise production capacity to 12 million barrels per day by 2012 represented “an achievable number”, as the country had announced oil investments of $55 billion between 2003 and 2011. But he cautioned that since some of the new production will come from entirely new fields “how the reservoirs will respond will be determined as they start producing”.
However, al-Huseini disparaged Western expectations that the Kingdom would produce significantly more than 12 mb/d. It was unfair, he said, to expect Saudi to “pull everybody’s chestnuts out of the fire”.
Posted: Tue Oct 30, 2007 12:02 pm Post subject: Re: Saudi Production: Collecting the Data
seahorse wrote:
When the former head of Saudi Aramco exploration says the world is at peak production, people ought to listen. He also says SA can increase production to 12mbpd but not more. So, now we have a confirmed upper limit.
Quote:
Oil production has peaked, prices to soar - Sadad al-Huseini
Sadad al-Huseini says that global production has reached its maximum sustainable plateau and that output will start to fall within 15 years, by which time the world’s oil resources will be “very severely depleted”.
In an exclusive interview with lastoilshock.com, the former head of exploration and production at Saudi Aramco, said that oil production had reached a structural ceiling determined by geology rather than geopolitics, and that the technical floor for the oil price will rise by $12 annually for the next 4 to 5 years as new fields become increasingly costly to exploit.
According to al-Huseini the technical floor - the basic cost of producing oil excluding factors such as geopolitical risk and hedge fund speculation - is currently about $70 per barrel, meaning the minimum oil price could hit $106 in 2010 and $130 by 2012. Actual crude prices, including financial market factors, could be be as much as $125 by as early as 2010.
Al-Huseini said that Saudi Arabia’s plans to raise production capacity to 12 million barrels per day by 2012 represented “an achievable number”, as the country had announced oil investments of $55 billion between 2003 and 2011. But he cautioned that since some of the new production will come from entirely new fields “how the reservoirs will respond will be determined as they start producing”.
However, al-Huseini disparaged Western expectations that the Kingdom would produce significantly more than 12 mb/d. It was unfair, he said, to expect Saudi to “pull everybody’s chestnuts out of the fire”.
Joined: Sep 25, 2005 Posts: 1972 Location: Waiuku, New Zealand
Posted: Tue Oct 30, 2007 12:20 pm Post subject: Re: Saudi Production: Collecting the Data
Cyrus wrote:
seahorse wrote:
When the former head of Saudi Aramco exploration says the world is at peak production, people ought to listen. He also says SA can increase production to 12mbpd but not more. So, now we have a confirmed upper limit.
Quote:
Al-Huseini said that Saudi Arabia’s plans to raise production capacity to 12 million barrels per day by 2012 represented “an achievable number”
8.32 mbpd, in August, 8.37 mbpd, in September (according to the IEA).
However, Al-Husseini didn't say the Saudis will increase capacity to 12 mbpd, only that such a figure was achievable, in his opinion. And capacity isn't the same as production; the Saudis have been claiming that they have more capacity now (more than 1 mbpd, I think) but that the spare is in grades no-one wants. If true, that doesn't represent spare capacity, to my mind.
Oil capacity today is not production limited but rather processing limited.
Now, he says:
Quote:
oil production had reached a structural ceiling determined by geology rather than geopolitics
In 2005 he said:
Quote:
I believe oil production will level off at around the 90 - 95 mmbd by 2015. This plateau can be sustained beyond 2020 at continuously higher oil prices and with rapid improvements in overall energy efficiencies throughout the world.
Now he says:
Quote:
that global production has reached its maximum sustainable plateau and that output will start to fall within 15 years
Seems like he has become a bit more pessimistic over the last two years, or, maybe a little more candid (honest). We report, you decide.
Posted: Wed Oct 31, 2007 1:21 pm Post subject: Re: Saudi Production: Collecting the Data
Nice to see Sadad is either clarifying more or continuing to coming clean. It doesn't matter which. Its simply nice that we get closer to the truth. However, the truth seems to be closer to what the pessimist like ASPO have been saying for years.
Quote:
The world’s proved reserves have been have been falsely puffed up by the inclusion of 300 billion barrels of speculative resources, according to the former head of exploration and production at Saudi Aramco, and this explains the industry’s inability to raise output despite soaring prices.
Sadad al-Huseini’s presentation to the Oil and Money conference in London went substantially as previewed by lastoilshock.com, but the analysis he delivered may also throw light on the infamous OPEC reserve additions of the 1980s.
Mr al-Huseini began by noting the obvious inconvenient truth of the oil market of recent years: that production has barely increased despite a soaring crude price and massive investment by the industry. “It’s telling us something. We should be listening to what the numbers are telling us, not what the politicians say… It’s not about economics alone, you can increase prices, but you will not necessarily drive production up”
He also noted that 400 billion barrels of reserve replacement has been reported over the last decade, and asked why this had not been translated into new capacity. The answer, he suggested, was that a quarter of the world’s claimed proved reserves are no such thing: not production-ready oil, but speculative sources. “Reserves are confused and in fact inflated. Many of the so called reserves are in fact resources. They’re not delineated, they’re not acessible, they’re not available for production”. By his estimate 300 billion of the world’s 1200 barrels of proved reserves should be recategorized as speculative resources.
Mr al-Huseini did not specify which countries had inflated their reserves in this fashion, but the number is strikingly similar to the size of reserve additions recorded by OPEC members in the mid-1980s when countries were vying for quota share, although no new discoveries had been made.
Joined: Sep 25, 2005 Posts: 1972 Location: Waiuku, New Zealand
Posted: Thu Jan 31, 2008 4:26 am Post subject: Re: Saudi Production: Collecting the Data
Last March, The Oil Drum posted an article explaining how Saudi Arabian oil declines 8% in 2006. That wasn't a year-on year figure and I thought I'd check how they're doing according to the IEA figures, now that we have a full year estimate for 2007.
Well, the average production reported in the June OMR (PDF), for 2006 showed a decline of 1.43% over 2005. The estimate for 2007, in the January OMR (PDF) shows a decline of 5.15% over 2006.
Rather oddly, the last 3 months figures are identical, at 8.77. How likely is that, I wonder.
(Edit: corrected the links)
Last edited by TonyPrep on Tue Feb 05, 2008 12:22 pm; edited 1 time in total
Joined: Apr 28, 2005 Posts: 3448 Location: West shore Lake Eire, MI, USA
Posted: Thu Jan 31, 2008 7:25 am Post subject: Re: Saudi Production: Collecting the Data
This raises the question, how long can they sustain a 5%+ loss rate before it becomes front page news in the OEDC/USA?
Will people even begin to understand before rationing/gas lines start forming?
I know its silly but I am keeping my car topped up. _________________ Oxygen: - An intensely habit-forming accumulative toxic substance. As little
as one breath is known to produce a life-long addiction to the gas, which addiction invariably ends in death.--Isaac Asimov
NEW YORK -(Dow Jones)- Saudi Arabia, the world's largest crude oil exporter, boosted its output in December by nearly 2% from November, to 9.206 million barrels a day
Didnt the TOD analysis, conclude that we should be under 9 and declining due to geological constraints by now?
What gives? _________________ Peak Oil? crap Happens !
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