www.theoildrum.com/node/2325
OPEC Monthly Oil Market Report, Table 17 (or similar) on OPEC Supply. For a talk I was meant to give, I updated my graphs of Saudi oil production, which I hadn't done in a few months. What I found was pretty interesting, and I'm starting to draw stronger conclusions.
At that time, while the conjunction of declining production and rising rig counts was striking, I wasn't ready to draw firm conclusions on the data through August-October (depending on agency).
raised the same questions: The first possibility is that the Saudis could still pump 10 mbd or more today if they wanted to, but they are cutting back production and exploring like mad because they put an extremely high value on having 2-3 mbd of excess capacity. If so, the recent price behavior suggests that the reason they would seek such capacity is not because they want to stabilize the price, but because it puts them in an incredibly powerful negotiating position. For example, the ability at any time to flood the market could be used at an opportune moment to undercut expensive alternatives such as oil sands that require an oil price over $50. The second and more natural interpretation is even more disturbing: the mighty Ghawar oil field is already in decline, and the Saudis don't want anyone to know. What I did in this post was to look in more detail at what happened from the beginning of 2006 on, which is when the apparent decline begins.
OPEC Monthly Oil Market Report, Table 17 (or similar) on OPEC Supply. The four different sources all estimate Saudi production slightly differently - they fluctuate in different ways month to month, and disagree over the absolute level (that last may be differences in exactly what is defined as oil). However, the regressions make clear that all four sources are in strong agreement about the nature of the decline. As far as I know, there are no known accidents or problems that would explain any restrictions on oil supply, and the Saudis themselves have maintained publicly that their production is unproblematic and they intend to increase it. It's interesting to note the pattern in the underlying data where declines start, are interrupted in the middle of the year, and then resume.
Haradh III megaproject: HARADH, February 08, 2006 -- In a record 21 months from approval of funding, oil started flowing through the new Haradh gas-oil separation plant (GOSP) from several of 32 new wells that will feed the facility. Full production will be attained by the new plant within the second quarter of 2006. It seems this did not do more than briefly interrupt the declines. What I did was average the EIA, IEA, and JODI series for 2005 and 2006 into a single estimate.
Saudi Arabian oil production, Jan 2005-Jan 2007, from EIA, IEA, and JODI averaged together. Black lines are handplaced guidelines that are 300kbpd apart (the advertised capacity of Haradh III).
My intepretation is that the bump in the middle of the year that separates the two lines is due to the impact of Haradh III coming on stream. So that tells us that, given some extra production capacity, Saudi Aramco immediately threw it into the production mix. It lifted the plummeting production curve up by 300kbpd, but did nothing to change the gradient of the plummet. That suggests that the Saudis had nothing else to throw at the problem. It also suggests that last year's underlying Type II decline rate, before megaprojects like Haradh III, was 14%. Overall, I feel this data is clear enough that I'm willing to go out on a limb and conclude the following: * Saudi Arabian oil production is now in decline.
Twilight in the Desert, but the warning did not come until after declines had actually begun. Update: Steve Andrews of ASPO-USA correctly points out to me in email that Matt Simmons began warnings about Saudi Arabia as early as December 2003, significantly before the publication of the hardback version of the book in mid 2005. I relied on an over-hasty check of Amazon which has the paperback publication date - mea culpa. I suggest that this is likely to place severe political strains on Saudi Arabia within a year or two at most.
Specifically, I constructed a series that represents the average decrease, month-over-month, in the four series. That data looks like this (the blue box is one sample deviation up or down from the mean - the heavy black line).
Month-on-prior-month decline in oil production, Feb 2006-Jan 2007, from four different sources (averaged). The heavy black line is the mean decline, and the blue box represents plus or minus one sample deviation. Where not all sources were available, drops were computed from all available in both months.
OPEC Monthly Oil Market Report, Table 17 (or similar) on OPEC Supply. As you can see, November and December are statistically indistinguishable from the collection of other months. There is no statistically significant evidence for the idea of any cut in those months other than whatever ongoing process controls the production declines. The most notable feature of the graph, the large jag downwards in the middle of the year, again appears to be due to the impact of 300kbpd of new production from Haradh III. The production data simply don't support the narrative that the Saudis were going along producing fine and then deliberately cut production in November to help support prices. This raises the question of whether OPEC, taken as a whole, deliberately cut production in November/December.
IEA Oil Market Report Table 3 There is some evidence of a very slight acceleration in November of a process of declining production that was ongoing throughout the second half of 2006 (and in to January of this year). This excess decline does not exceed 200 thousand barrels per day. On the whole, media coverage of OPEC production cuts appears to be almost completely unmoored from the data the agencies are reporting. The entire "production cut" may be a public relations exercise to disguise other processes.
Saudi Aramco press release celebrating their achievements in 2006: 2006 was a year of outstanding accomplishment. "The company reacted rapidly to changes in global crude oil supply and demand during the year," said president and CEO Abdallah S Jumah, relaying the results of that meeting in a teleconference Feb. "Ambitious programs were proposed to expand future crude oil production and gas processing capabilities, and for increasing refining capacity both in the Kingdom and overseas."
Of course, I was just building on work done by Deffeyes & Simmons, primarily using Khebab's HL graphs. When he wrote it, and when it was published, Saudi Arabia was still showing near record high production levels.
com/story/2006/1/27/14471/5832 Hubbert Linearization Analysis of the Top Three Net Oil Exporters Posted by Prof. Goose on January 27, 2006 - Guest post by Westexas I believe that Saudi Arabia is on the verge of a long term decline in production. Texas, the former swing producer, with a similar P/Q intercept, showed a 29% drop in production over a 10 year period after its 1972 peak.
html Texas and US Lower 48 oil production as a model for Saudi Arabia and the world first published May 25, 2006. Jeffrey J Brown & "Khebab", GraphOilogy Based on the Hubbert Linearization (HL) method and based on our historical models, we believe that Saudi Arabia and the world are now on the verge of irreversible declines in conventional oil production.
Also based on the HL model, Russia has been making up for what was not produced, following the collapse of the Soviet Union. IMO, they should start showing a sharp decline in production, probably this year. Because of higher domestic consumption, Russia reported about a 24% decline in net oil exports, from 2005 to 2006, even though they reported higher crude oil production. In any case, as I predicted in the January, 2006 post, Saudi Arabia and Russia joined Norway in reporting lower crude oil exports. My usual disclaimer: I started studying the Net Export issue because of some of Simmons' early work, and my conclusions were based on Khebab's HL plots.
On yesterday's DrumBeat, Leanan posted two links on Saudi Arabia. The latter figure was no real sh...
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