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Some say Gharwar may have been |
Posted on 04/12/2005 9:20:53 AM PDT by liberallarry
Speculation over the actual size of Saudi Arabia's oil reserves is reaching fever pitch as a major bank says the kingdom's - and the world's - biggest field, Gharwar, is in irreversible decline.
The Bank of Montreal's analyst Don Coxe, working from their Chicago office, is the first mainstream number-cruncher to say that Gharwar's days are fated.
Coxe uses the phrase 'Hubbert's Peak' to describe the situation. This refers to the seminal geologist M King Hubbert, who predicted the unavoidable decline of oilfields back in the 1950s.
"The combination of the news that there's no new Saudi Light coming on stream for the next seven years plus the 27% projected decline from existing fields means Hubbert's Peak has arrived in Saudi Arabia," says Coxe, referring to data compiled by the International Energy Association's (IEA) August 2004 monthly report.
Problematic effects
The Canadian bank is the latest in a line of oil opinion-makers to speak out about.
Others, notably banker Matt Simmons and the head of the Association for the study of Peak Oil (Aspo), Colin Campbell, have called into question the validity of its stated reserves, supposedly 258 billion barrels.
Some say Gharwar may have been
If Gharwar, the world's biggest field, is seen to be "in decline", as Coxe says, the effects could be problematic. Markets could panic, forcing prices up, creating shortages and profoundly affecting the world economy.
damaged by poor management
"The kingdom's decline rate will be among the world's fastest as this decade wanes," predicts Coxe. "Most importantly, Hubbert's Peak must have arrived for Gharwar, the world's biggest oilfield."
Coxe dismisses Saudi claims that the country can produce extra capacity to satisfy surging demand. He notes that Saudi promises to increase production last year failed to materialise. Aramco had pledged an extra 500,000 barrels of oil immediately and an extra 5 million bpd by 2012.
He says the markets had "assumed this first flow would be a half million barrels daily of the benchmark Saudi Light, the high-end product that any oil refinery can process. Instead ... the new oil was heavy, sulphurous oil that only a few refineries had the spare capacity to use".
Continuing, he asks: "What about those 5mbpd of new production by 2012? It turned out that only 2.5 million barrels would be net additions to Saudi output: Declines from existing fields will slash production by 2.5 million bpd."
Saudi response
Saudi Aramco's chief executive officer Abd Allah Jumaa denies anything of the sort is happening.
"We have ambitious expansion plans to boost our capacity ... [and] raise our production capacity to 15 million barrels a day... We are confident that we can maintain these production rates for about half a century" Saudi Aramco's chief executive officer Abd Allah Jumaa
"We have ambitious expansion plans to boost our capacity to 12 million bpd and also have a long-term crude development scenario that would raise our production capacity to 15 million barrels a day. We are confident that we can maintain these production rates for about half a century," he says.
However, Campbell noted that in 1990 Saudi Arabia, along with other Opec producing countries, notably Kuwait, revised their reserve estimates overnight.
This was in order to pump more oil as part of Opec's quota arrangement. The more reserves you claimed to have, the more money you made.
Same reserves
Saudi Arabia announced "a massive increase from 170 to 258gb in 1990. It had evidently decided to follow Kuwait's practice of reporting original, not remaining reserves," Campbell says.
Since that time, despite pumping around 9mbpd, Saudi Aramco says the size of its reserves have not only remained the same but increased slightly from 258gb to 259gb thanks to better extraction techniques.
However, Simmons believes Gharwar, responsible for around 5mbpd of Saudi output, may have been damaged by poor management.
Pumping large amounts of oil at the maximum rate can damage the geological structure of the field, usually referred to as "rate sensitivity". Basically the hole falls in on itself, making large amounts of oil within it un-extractable.
Lack of transparency
The rising speculation among analysts may ultimately be the fault of the Saudis. The lack of outside independent scrutiny has created space for sceptics like Coxe to question their facts and figures.
Ali al-Nuaimi's Saudi oil ministry is
In 2005 alone, the OECD, the G7, the IEA and the IMF have all openly called for increased transparency over oil reserve calculations, mainly from Middle Eastern states.
accused of not being transparent
The market cannot hope to understand its current position without knowing how much oil lies in reserve. This is at the heart of much of the current oil market's problems.
But Coxe's figures may even be on the sympathetic side. According to Saudi Aramco's own statistics, existing Saudi fields deplete by 600,000 to 800,000bpd each year. If such levels are maintained until 2012, Saudi depletion will have reached a minimum of 4.2mbpd.
Water injection
In other words - by their own admission - Saudi Arabia will have added only 800,000bpd of supply in the next seven years. That is the best case scenario.
To put these rates into context, the IEA predicts a year-on-year rise of 1.6mbpd by the fourth quarter of 2005.
One factor contributing to the scrutiny the Gharwar field faces is the huge amount of water injection used. Water is pumped into an ageing oilfield in order to maintain high pressure inside.
This allows the oil to be pumped out at the original constant rate. Eventually, however, the water reaches the well-head, and the field effectively dies.
Coxe goes on to ask why new Saudi fields, not just ageing ones, are also water injected.
"As if that weren't bad enough news, the Saudis claim they need at least $32 a barrel to justify new production, because ... new production ... requires water flooding. Water flooding on newborn Saudi wells? Isn't water flooding [the] Viagra of ageing wells?" |
"As if that weren't bad enough news, the Saudis claim they need at least $32 a barrel to justify new production, because ... new production ... requires water flooding. Water flooding on newborn Saudi wells? Isn't water flooding [the] Viagra of ageing wells?"
Abd Allah on the other hand states that it is modern techniques, not water injection, that will let Aramco meet any future demand.
"We are confident that we can extend [our] success well into the future given continued advances in exploration and production technologies and the fact that vast relatively unexplored areas exist in the kingdom with potential hydrocarbons to be discovered."
Canada oil link
While the Bank of Montreal weighing in on the prospects of Gharwar depletion is noteworthy, it should be pointed out that the bank is financially involved with the Albertan oil sand deposits.
The Albertan "sands" are deposits of sticky oil and sand, traditionally too costly to extract, which are now receiving great attention as conventional oil prices rise.
Coxe is extremely bullish on prospects of companies working in Alberta.
"The Alberta oil sands companies aren't like other oil companies," he says.
These companies are, of course, potential alternatives to Saudi oil. But Coxe ends up painting a bleak picture.
"With Opec's excess capacity ... tapped out, oil consumers have lost their security blanket against petro-chills. Free markets ... can be messy and unpredictable, little people can get hurt."
As debate over Gharwar intensifies, pressure on Saudi Arabia to independently reveal its actual size will come from many sources.
Now, for the first time, a major bank has joined that chorus. The arguments over the world's biggest oilfield are set to stay.
Has any economist ever calculated at what price per gallon of gas do all the enviro-whackos get lynched and this country embarks on a rational oil exploration and drilling policy?
Well when the Saudis run out of oil and gas, they can always export jihadis.
I'm sure there are, but they don't get interviewed by the MSM and they NYT.
That's the real danger.
Arabs have some of the highest birthrates in the world (Palestinians have the highest). They're uncompetitive in world markets and largely uneducated or badly educated. Without oil monies their societies will break up and they'll face starvation.
Anyone here from Kansas, Ok, or that area?
Was just through that area and talking to locals, they say they never have ever seen so much drilling going on in a long time as they see going on now. I do know that nearly every well is pumping and it looked as if only the old pumps that break down often were not producing-about 20 or so across the area I saw.
Rational oil exploration policies already exist...and have always existed.
Rational drilling? First, no known untapped pools exist domestically which can compensate for loss of Saudi oil. Second, drilling off the coasts is rational only to people who don't live there.
Rational oil exploration policies already exist...and have always existed.
Rational drilling? First, no known untapped pools exist domestically which can compensate for loss of Saudi oil. Second, drilling off the coasts is rational only to people who don't live there.
Coxe, the Canuck, sure sounds like a Communist.
Contrary to the scaremongering of envirowhackos, offshore drilling when done responsibly doesn't cause environmental degradation. We have lots of offshore wells in the Gulf of Mexico on the Texas coast that have never caused any problems. In fact the oil platforms make excellent artificial reefs. Quite a number of deep sea fishing boats go to oil platforms, because of the fish that congregate there. Also lots of SCUBA divers dive near these platforms.
BUMP
First, that's only partly true.
Second, good luck in trying to sell it. Attempt to implement such a policy and you'll have insurrection at home.
Third, the known reserves off the coasts are also not adequate to compensate for loss of Saudi oil.
The only realistic solution to the looming crisis is nuclear power. It makes no sense to burn oil or natural gas for electrical production.
The lead time for building a nuclear plant is maybe ten years. That could be cut if we reduce regulatory constraints, but there would still be a considerable lead time.
Why aren't we doing this? Politics. The green machine would kill any politician who raised this issue, and the Democrats would pitch in enthusiastically. Environmentalism is one of their last persuasive political arguments left, and they will play it for all its worth.
Time is running out. We need to do something right now if we want to survive. Bush is lying extremely low on this issue, even with gasoline prices angering the voters. Maybe he's hoping someone else will raise the issue first, because if he does he will immediately get hammered. It took five years to push the ANWAR project through, and nuclear power is a LOT more controversial than that.
My father has always wanted to drill a well just off the coast of Martha's Vinyard.
"Has any economist ever calculated at what price per gallon of gas do all the enviro-whackos get lynched and this country embarks on a rational oil exploration and drilling policy?"
O don't know about the lynch-mob part but we're facing a real energy crisis and I am feeling that oil exploration and drilling are being pushed hard right now.
"Time is running out. We need to do something right now if we want to survive."
This is true. We also are having frequent brown-outs in the East and West coasts on a regular basis. We need modern nuke plants to generate this needed electricity for raw consumption and we also could use it to produce the electricity needed to produce fuel cells.
Well part of the problem is that except for Texas, state waters end just 3 miles from the coast. If the states owned the minerals out to 10 miles like Texas or perhaps further, the states would make really nice royalties off the oil and gas production. Texas has financed lots of school construction from offshore oil and gas royalties without having to institute an income tax.
Of course lots of leftists on the east and west coasts want jet fuel to put in their Gulfstream Vs and BBJs but they don't want any oil wells or refineries anywhere near them.
The only people at home who would oppose that are idiot liberals.
A liberal insurrection, huh? Well, one can dream...
"Attention all knee-jerkers: Adam Porter is good and trustworthy."
Yea, but what he's reporting is that there are a lot of people disagreeing with each other. Hubbert predicted that the Middle East's oil fields would have peaked before now.
Some oil fields follow Hubbert's predictions, others do not.
The Saudi's have little incentive to allow independent reserve calculations. Anyone they would consider reliable to make independent calculations would be considered complicit by the mainstream media which seem to love to predict the doom of oil production on a weekly basis.
The people the media would consider credible are the acedemic elite who bring us tales of global warming disasters even though their computer models can't even accurately predict past or curent climate changes.
Is Adam Porter good and trustworthy? I don't know, but I find it strange that he only quotes the first and only major bank analyst to say that the oil field is in decline along with a quote from the Association for the Study of Peak Oil, which is an organization pushing the theory of peak oil.
Peak oil is a serious concern, but this article is pretty one sided.
" Rational drilling? First, no known untapped pools exist domestically which can compensate for loss of Saudi oil."
This isn't a prediction of a loss of Saudi oil. It's a prediction of slowly decreasing capacity that would decrease over decades.
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