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Oil, More and Less

Saturday, June 27, 2009, 12:33 PM

Another post of interest from the In Session archives:

Oil is a tale of more and less.

Here's the more:

Saudi Arabia has started production from its giant Khurais oilfield, the largest ever single addition to global oil supplies, Saudi Aramco's top executive said in remarks broadcast on Wednesday. 

“I am happy to report today that Khurais has entered the stage of operation,” Khalid al-Falih told Al Arabiya television in an interview. “Oil will reach Aramco terminals in a few days for exports... it did not reach the stage of export (yet).”

“The oil from the plant is now being pumped into tanks that are at the project,” he said, adding that the field's capacity can now be seen as part of Saudi Arabia's total output capacity.

The kingdom does not need to use the extra capacity at current demand levels, the head of the state oil company said.

The 1.2 million barrels per day (bpd) Khurais field contains highly prized Arab Light crude, which is easily converted into transport fuel.

Khurais would also produce 315 million cubic feet per day (cfd) of sour gas and 70,000 bpd of natural gas liquids (NGL) to be processed at Shedgum and Yanbu gas plants.

The field can supply over 1.5 percent of daily global oil demand and pump more than two of OPEC's smallest members.

“It's the single largest development that they have ever had,” said Raja Kiwan, an analyst with PFC Energy.

The project brings to a close the latest expansion in oil output capacity in the top oil exporter and the most influential member of the Organization of the Petroleum Exporting Countries.

Saudi capacity has reached 12.5 million bpd. The kingdom has no immediate plans to raise its output potential further, but has outlined how it could reach 15 million bpd capacity when global oil demand requires.

(Source)

I am a little bit doubtful of even the 12.5 mbd claim, let alone the 15 mbd claim.  I have not yet seen any field-by-field analyses that support either of those two numbers.  Perhaps they have been missing something.  Perhaps this article is repeating a boastful Saudi Claim direct from the Oil Ministry.

2008 was a year of declining oil use, and, presumably, pumping.  I would assume this means that more was left in the ground.

Oddly, we get this finding:

BP says world's proved oil reserves fell in 2008

The world's proved oil reserves fell in 2008, the first drop in a decade, oil company BP PLC said Wednesday.

Proved reserves of 1.258 trillion barrels in 2008 was 3 billion barrels less than in 2007, the company said.

Meanwhile, energy consumption by members of the advanced economies – defined by membership in the Organization for Economic Cooperation and Development – fell behind consumption by all other nations including China for the first time, BP said in its Statistical Review of World Energy.

“In 2008 the world was no longer supply-constrained, as production growth exceeded that of consumption for all fossil fuels, particularly later in the year,” Tony Hayward, BP's group chief executive, said in an introduction to the report.

“Our data confirms that the world has enough proved reserves of oil, natural gas and coal to meet the world's needs for decades to come,” Mr. Hayward added.

There are two other things of note in that article.  The first is that OECD consumption fell behind consumption of all other nations...for the first time.  That's a pretty big shift.  Maybe somebody should ring a bell?

The second is that the claim that the world has enough oil, gas, and coal to meet its needs "for decades to come" is not supported by any analysis that I've yet seen.  Perhaps Mr. Hayward has access to a better model than everybody else, but for now, there are very large concerns about meeting the world's need for growth, given the current production capabilities and known projects.

Such 'happy talk' seems especially out of place these days, almost like a cheery pep talk from the captain of a sinking ship about how "everything is going to be just fine."

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12 Comments

ernie's picture
ernie
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Re: Oil, More and Less

Part 2 of the June 27th. "Financial Sense Newshour" is and interview with Jeff Rubin about his book on Peak Oil which is quite relevant to this topic.

http://www.netcastdaily.com/broadcast/fsn2009-0627-2.mp3

- Ernie.

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Re: Oil, More and Less - New Orlov post

This from Dmitry http://cluborlov.blogspot.com/

Thursday, June 25, 2009

The Slope of Dysfunction

Perhaps you have heard of the Peak Oil theory? Most people have by now, even the people whose job used to involve denying the possibility that global crude oil production would peak any time soon. Now that everybody seems a bit more comfortable with the idea, perhaps it is time to reexamine it. Is the scenario Peak Oil theoreticians paint indeed realistic, or is it firmly grounded in wishful thinking?
Here is a typical, slightly outdated Peak Oil chart. I chose it because it looks pretty and conveys the typical Peak Oil message, which is that global crude oil (and natural gas condensate) production will rise to a lofty peak sometime soon, and then drift down gently, over several decades, until, by the year 2050 or some other distant date, less than half as much oil will be produced globally. Since this would still be a very impressive number, and since we have decades to adjust to living with half as much oil, this would not necessarily pose a major problem. Some combination of new energy from wind, solar, biomass and nuclear sources, coupled with efficiency improvements such as light rail and electric cars, better-insulated buildings and so on, would allow us to plug up the gap.

Peak Oil theorists base their calculations on data from the many oil-producing provinces that have already peaked, such as the United States, which peaked in 1970. The majority of oil-producing provinces and countries are past peak now, providing the theorists with a wealth of precise data. But they seem to have overlooked one little detail, which, I believe, is rather important. What do countries do when they reach their peak and can no longer supply themselves with sufficient quantities of oil from their depleting domestic sources? They turn to imports, of course. They can do so if their local peak comes before the global peak; they cannot do so if it comes after. This makes local peaks poor analogies for the global peak.

And what happens if a country cannot import oil to make up for the production deficit? It just so happens that we have a convenient example of just such a scenario unfolding: post-Soviet oil production after the collapse of the USSR. There, production declined 43% between 1987 and 1996. The decline was arrested and reversed by the introduction of foreign investment and technology (Source: Marek Kolodziej and Doug Reynolds, ASPO Workshop, Lisbon, Portugal, May 19. 2005).


Note how just around the time of the collapse oil production goes into free-fall, which is only arrested in mid-1990s. Had the Former Soviet Union remained economically isolated, the free-fall would have continued. Kolodziej and Reynolds drew some interesting conclusions based on these data. Firstly, the crash in oil production preceded collapse in USSR's Gross Domestic Product. The lag time between the two, and the severity of the collapse are clear enough to ascribe causality: to say that the oil crash caused the economic collapse. On the other hand, coal and natural gas production, which also crashed, did so after the GDP collapsed, again, with a significant enough lag time to say with confidence that it was economic collapse that caused coal and gas production to crash.

What actually happens to an economy and a society under such circumstances? With oil in short supply, industrial production plummets, the economy stalls, there is a financial crisis because of debts going bad, followed by a commercial crisis because of falling demand and lack of credit, followed by political collapse caused by dwindling government revenues, followed by social collapse as unemployment rises and crime becomes rampant. After a while of this, the idea of you and your friends going out to the oil field and pumping some more oil starts to seem rather odd, and so oil production heads to zero.

The global oil peak is different from all the little localized peaks in that the planet as a whole cannot import its way out of an oil shortage, resulting in a global economic collapse. The economic collapse will, in turn, cause global oil production to crash even faster, extinguishing the industrial economy.

It seems possible that certain countries which are currently oil exporters might be able to keep the oil flowing, provided they have nationalized their oil production and are sufficiently authoritarian and militarized to quell any unrest. But modern oil production is a technically complicated business (the easy-to-get-at oil is all gone) while the field service equipment and parts delivery system is fully globalized and exceedingly complex. Shocks to any part of the global economy are very likely to disrupt the whole before too long. Nevertheless, it seems likely that some countries will be able to keep their military supplied with fuel, until enough of their equipment wears out.

What, then, of our canonical Peak Oil scenario, which is that global crude oil (and natural gas condensate) production will rise to a lofty peak sometime soon, and then gently waft down, over several decades, until, by the year 2050 or some other distant date, less than half as much oil will be produced globally? Ever eager to present a hopeful vision, I will say here and now that I believe this scenario to be entirely plausible... but it requires alien intervention. As Russian oil production was saved by foreigners, so Earthling oil production must be be saved by aliens from outer space. Here's an updated Peak Oil slide:
Although we have absolutely zero data on which to base this assumption, we must assume that oil production throughout the rest of the universe has not peaked yet. Further, we must assume that interstellar vessels will deliver this oil to Earth in a timely manner, making up for any planetary production shortfall before Earth's economy collapses. Further, since Earth has few resources to trade for this oil, let us assume that the aliens will be happy to give us their oil in exchange for a truly excellent recipe for brioche à tête which (for reasons we should find intuitively obvious) no-one in the rest of the universe has been able to perfect.


Damnthematrix's picture
Damnthematrix
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Re: Oil, More and Less

Ah Don.....  you beat me to it, I was going to post that onere too!

I totally agree with Orlov's views.  Why?  Well, just take California going belly up any time soon.....  just HOW will Californian pay for their gasoline?  IOU's?  How will the oil workers get paid?

System complexity leads to system collapse.  Kiss your automobile goodbye.....

Mike

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Re: Oil, More and Less

The reason that the USSR collapsed is that it was a command economy with no pricing mechanisms.

A world facing depleted oil production would be able to rely on a pricing mechanism, such that the more profitable industries, and the wealthier consumers, would obtain the required derivative products.

Marginal business activity (perhaps certain cheap goods from China) might be the first to go, and poorer, non-State supported consumers in poorer countries will have less transport fuel, electricity etc.  But as long as the pricing mechanism is allowed to function, the gradual decline is realistic, albeit in a world that will start to become poorer.

ernie's picture
ernie
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Re: Oil, More and Less

The pricing tends to be manipulated by the futures market rather than supply and demand. So don't count on the pricing mechanism to let us down gradually, as soon as the futures players get a whif that there is a supply issue, the oil price will skyrocket again, and have a painfull effect on the economy.

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Re: Oil, More and Less

Currently, supply is meeting demand.  Additionally, new discoveries of NG have surprised to the upside.  However, it is very dangerous and most likely inaccurate to project these short term trends out far into the future.  

Even though the supply & demand news may be better than some expected last year, the long term trend remains - new supplies are harder and harder to find, while demand marches ever higher.  Proven reserves are not increasing. 

New discoveries peaked decades ago.  Despite huge advances in technology, new discoveries are barely keeping pace with consumption.  Demand is being met largely by exploiting decades old finds, not new finds.  Eventually, perhaps soon, new discoveries of reserves will be < the 30 billion barrels of yearly demand.  At that point, global reserves of ~ 1.258 will start to decline.  As prices increase, demand will be dampened, but that will slow, not change the trend.  As for price, keep in mind we are exploiting the easiest to access and refine first. 

I believe there is a growing willingness to conserve.  I think this willingness would be greater if people understood what is at stake.  Our debt money system works to counter any willingness to conserve and to admit to a different or smaller future than the one currently projected by asset values.  Too many have staked to much on unrealistically high asset values.  A strained oil market almost guarantees that the future revenue streams for said assets will fall short of expectations.  Fictitious asset values, a poorly constructed debt money system and venal bankers should not be the driving forces in our lives let alone our energy future. 

One more thought regarding our debt money system.  Any system that needs to bailout fraud to survive is itself fraudulent. 

Ponzi debt must end!

Regards,

AS

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Damnthematrix
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Re: Oil, More and Less

"Eventually, perhaps soon, new discoveries of reserves will be < the 30 billion barrels of yearly demand. "

Errrrr.....  it's already been this way for years....  we currently are consuming oil at about FIVE TIMES the discovery rate.

Mike

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Re: Oil, More and Less

Mike,

Note that I said "new discoveries of reserves".  That is not the same as "new discoveries".  I think it is important to realize that the reserves of "existing" discoveries have been increasing.  Per EIA data, supplies and reserves have and continue to increase.   It's the rate of increase of supplies & reserves that has been declining.  Key distinction.   A decrease in the rate of increase often signals a change in trend. 

Also, I'm referring to long term trends, not yearly statistics.  That said, without "new discoveries"  this trend of increasing supplies and reserves clearly can't continue forever as all fields have physical limits.  I think forever is sooner than many think based on rates of change.  I could be wrong of course.  But I'm fairly certain the cheap, easy, light sweet crude finds are a thing of the past. 

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paranoid
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Re: Oil, More and Less

Damnthematrix wrote:

System complexity leads to system collapse.  Kiss your automobile goodbye.....

Mike

Great point Mike. Is this the Godelian Paradox? Nevertheless, Illya Prigogines theory of dissipative structures holds that complex structures invariably collapse only to eventually reconstitute.....perhaps in the end after the dust settles it will not be as bad as we often think/fear. New paradigms emerge and for those born into it - its as normal as the norm can be!

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paranoid
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Re: Oil, More and Less

great point - if people realized they were driving around buring the equivalent of diamonds to power their cars - oil would be seen far more valuable that it is. This will happen soon, lets hope before we run too low on oil. I read somewhere that 1 gallon of gas can do the equivalent of 7 weeks labor of one man.

Angry Saver wrote:

Currently, supply is meeting demand.  Additionally, new discoveries of NG have surprised to the upside.  However, it is very dangerous and most likely inaccurate to project these short term trends out far into the future.  

Even though the supply & demand news may be better than some expected last year, the long term trend remains - new supplies are harder and harder to find, while demand marches ever higher.  Proven reserves are not increasing. 

New discoveries peaked decades ago.  Despite huge advances in technology, new discoveries are barely keeping pace with consumption.  Demand is being met largely by exploiting decades old finds, not new finds.  Eventually, perhaps soon, new discoveries of reserves will be < the 30 billion barrels of yearly demand.  At that point, global reserves of ~ 1.258 will start to decline.  As prices increase, demand will be dampened, but that will slow, not change the trend.  As for price, keep in mind we are exploiting the easiest to access and refine first. 

I believe there is a growing willingness to conserve.  I think this willingness would be greater if people understood what is at stake.  Our debt money system works to counter any willingness to conserve and to admit to a different or smaller future than the one currently projected by asset values.  Too many have staked to much on unrealistically high asset values.  A strained oil market almost guarantees that the future revenue streams for said assets will fall short of expectations.  Fictitious asset values, a poorly constructed debt money system and venal bankers should not be the driving forces in our lives let alone our energy future. 

One more thought regarding our debt money system.  Any system that needs to bailout fraud to survive is itself fraudulent. 

Ponzi debt must end!

Regards,

AS

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pir8don
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Posts: 456
Re: think and act locally?

Mike you are only a few hours behind

It's Sunday here so time to reflect.

This tension of scale has become an area deserving of greatest focus for me. I have always felt uncomfortable with the dictum 'think globally act locally' and am slowly coming to understand why:

Our perhaps necessary (given the arena) focus on the large scale distorts what is the most important of all; the local reality.

Dmitry is showing us again that however much oil the world might have what really matters is it's availability to us locally and the two are not by any means the same thing. Similarly with the public statistics contrasted with the private reality. Its academic until I don't have food or shelter.
 
We can comprehend a complex local world but we are evidently too limited on any larger scale. We can borrow local attention to gain some comprehension in any number of areas. It is never enough though. This leaves us forced to acquiesce to the specific focus of others in the hope that they might comprehend and act similarly to us. Self interest and power are so culturally accepted that they mitigate that hope. Making victims of most of us.

I/we are being left with no choice but to increasingly reign in attention to the one place we can act effectively.

Don

_______________________________________

So few then with so many ways, so many now with so few ways

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Damnthematrix
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Re: Oil, More and Less

Who believes the EIA....?  Not even BP!

Global Oil Reserves Fell in 2008 on Russia, Norway, Says BP

Rachel Graham and Alexander Kwiatkowski, Bloomberg, 10 Jun 2009

View original article

Global proved oil reserves fell in 2008, led by declines in Russia, Norway and China, according to BP Plc.

Oil reserves totaled 1,258 billion barrels at the end of 2008, compared with a revised 1,261 billion barrels a year earlier, BP said in its annual Statistical Review of World Energy posted on its Web Site today.

“Declines in Russia, Norway, China and other countries offset increases in Vietnam, India and Egypt,” BP said.

Major oil companies are struggling to replace reserves as their access to new deposits becomes harder and older fields in places like the U.K. and Mexico become depleted. Russia passed a law last year that limits foreign ownership in some of the country’s biggest energy and metals deposits.

Saudi Arabia’s reserves, the world’s largest, stood at 264.1 billion barrels, little changed from 264.2 billion a year earlier, BP said.

None of the biggest international oil companies have replaced output through new discoveries or extending fields in the past six years, Sanford C. Bernstein & Co. said in an April 2 report.

Companies such as Royal Dutch Shell Plc, Europe’s largest oil company by market capitalization, are looking at acquisitions to boost reserves, Bernstein said.

BP said the estimates in today’s report are a combination of official sources, OPEC data and other third-party estimates. Oil reserves include gas condensates and natural gas liquids, as well as crude oil.

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