Saudis Face Hurdle In New Oil Drilling

The Wall Street Journal ^ | April 22, 2008 | Neil King, Jr.

[hamboy]

Next year, if all goes well, Saudi Arabia will turn the spigots on the largest oil field to come online anywhere in the world since the late 1970s.

The Khurais complex, sprawling across a swath of red dunes and rocky plains half the size of Connecticut, is expected to add 1.2 million barrels a day to an oil market caught between growing demand and a paucity of significant new discoveries. The twin forces have led to historically high prices for crude oil, which settled at a record $117.48 on Monday.

[hamboy]

But the project also illustrates a darker point: Even in Saudi Arabia, home to more than a quarter of the world's known recoverable reserves, the age of cheap and easily pumped oil is over.

To tap Khurais, Saudi Arabian Oil Co., known as Aramco, has embarked on the most complex earth- and water-moving project in its history. It is spending up to $15 billion on a vast network of pipes, oil-treatment facilities, deep horizontal wells and water-injection systems that it calls "one of the largest industrial projects being executed in the world today."

Moreover, with the project, Aramco is dipping into one of its last big basins of oil. After Khurais, Saudi Arabia will have only one known mega-field left to fully develop, the even more challenging Manifa field, offshore in the Persian Gulf. Much of the kingdom's reserves beyond these lie either in aging fields or smaller pockets.

"Khurais and Manifa are the last two giants in Saudi Arabia," says Sadad al-Husseini, a former Aramco vice president for oil exploration. "Sure, we will discover dozens of other smaller fields, but after these, we are chasing after smaller and smaller fish."

Wall St. Journal

http://online.wsj.com/article/SB120881050953632313.html

[bjs1779]

My earliest recollection of running out of oil I think was in 1958. That was when we were instructed to think that it would be gone in 1980.

[rlmorel]

"...paucity of significant new discoveries..."

Hey...gee...I wonder if this was written BEFORE the Brazilian oil field discovery???

[RightWhale]

Peak Cheap Oil. It’s here. This is what Peak Oil is like.

[MAexile]

...is expected to add 1.2 million barrels a day to an oil market caught between growing demand and a paucity of significant new discoveries.

I guess North Dakota and Brazil don't count as significant new discoveries?

[RightWhale]

The 33 billion barrel Brazilian discovery needs tech to be developed. Send money, it won’t be cheap.

[RightWhale]

North Dakota and Brazil don't count as significant new discoveries?

If it were that simple we would have flying cars and bases on Mars already.

[bjs1779]

Peak Cheap Oil. It’s here. This is what Peak Oil is like.

I think it is setup to sell the leastest for the mostest.

[RightWhale]

It might be. The various oil owners do not act in cahoots for long even when they try, not even all the OPEC members. Some of them might be trying to pace themselves, some are already producing much less than they would wish.

[Dog Gone]

Some of them might be trying to pace themselves, some are already producing much less than they would wish.

I am so tired of this conspiracy theory mindset at this forum.

People, especially those in charge of huge businesses, are not total idiots.

They are producing as fast as they possibly can at these record prices. Why wouldn't they? So their competition can?

It is really time to get a grip around here.

[R W Reactionairy]

Khurais, and Manifa were discovered decades ago. Khurais was initially thought to be another Ghawar, the most productive oilfield ever which is about 60 miles to the east. Viewed on a map, Khurais is similar in size and essentially has the same orientation as Ghawar.

In terms of reservoir quality the Khurais and Ghawar are very different. There was an attempt to develop Khurais [IIRC} in the seventies at the time the results were very disappointing.

The Saudis are trying it again and in doing so employing a lot of infra structure that was not needed at Ghawar for many decades after if was developed.

How successful will they be? It remains to be seen. Manifa has another problem. A lot of vanadium in the oil. My understanding is that the reason it was not developed is that the oil will need to have the vanadium removed before it is can be refined. Not impossible by any stretch, but an indication that the Saudis may not have any better options of any significant size.

[bjs1779]

They are producing as fast as they possibly can at these record prices. Why wouldn't they?

Is that why Saudi Arabia declined to increase production this week dispute our begging?

[Dog Gone]

There is no shortage in the supply of oil.

There is the weakness of the US Dollar. Flooding the market with oil with no place to put it does depress the price, but it’s not common sense.

I guess your local supermarket could request 2 million bananas but you couldn’t navigate a shopping cart while they were there.

It’s the same with oil. Refineries can only produce gasoline so fast, and the supply of oil doesn’t change that. Asking Saudi Arabia to increase oil production, which isn’t exactly easy for them, doesn’t do anything for domestic gasoline production. Or at least not much.

[LeGrande]

The problem is lag time and expense. No one can predict the price of oil in 10 to twenty years, which is about the amount of time that it takes for new sources to hit the market.

The only thing that matters is who can produce the oil the cheapest and the last 10% of demand. The only thing that we know for certain is that we don’t know.

[R W Reactionairy]

Dog Gone, I usually agree with you, but the objectives of a Government that has full mineral rights in perpetuity, a rapidly growing population and not much other than oil and a very nasty desert to work with should have a longer time horizon.

The Saudis [and to a lesser extent the Kuwaitis and maybe others] may be playing a waiting game.

I hope so, as that would tell me there is still something more to come. Since most of the mainstream supply / demand models show the Persian Gulf region production as the plug number to balance supply and demand this is a critical question.

[Alberta's Child]

Oil is a fully fungible commodity (i.e., it's traded on a global spot market -- not bought and sold directly from supplier to customer), but because it is bought and sold globally in U.S. dollars its production is heavily influenced by the strength or weakness of our currency. The "production cutbacks" you hear about with regard to OPEC countries is typically an issue related to their desire not to accept the U.S. dollar as a medium of exchange for their oil unless a huge premium is built into the price.

It's no coincidence that all of the so-called "energy crises" of the last 40 years have occurred during periods when the U.S. dollar was in the sh!tter for one reason or another (1973, 1979, 2005-08, etc.).

[R W Reactionairy]

Actually, the important producer in a tight market is not the low cost producer, but the highest cost producer. If the high cost producer can make money [or at least break even] it will continue to produce. If not [usually after a period of hoping things will get better whether based on rational though or delusions] a well will be plugged. In the meantime, the low cost producer will continue to make make money.

[Dog Gone]

The Saudis [and to a lesser extent the Kuwaitis and maybe others] may be playing a waiting game.

Who is playing the waiting game? We've restricted drilling offshore the US coast to only 15% of our entire coastline.

We've prevented drilling in countless onshore areas. ANWR is only the most publicized.

There are countless others. The Big Thicket preserve in Texas is seizing the surface under which oil companies have owned the minerals for a hundred years and then denying them access to drill.

Before we criticize others, we had better get our own house in order.

[R W Reactionairy]

I am not really criticizing others. If I was King Abdullah, and I gave a hoot about the welfare of the Kingdom and its people out past 2050, would I really want to produce as much as I could as soon as I could?

As to US policy, I can't and won't defend it. If we have a near term problem [and I think we do] then there is no excuse for not developing what we have as soon as is feasible.

Big Thicket I did not know about. The Santa Barbara Chanel absolutely. ANWR drill now before the Trans Alaska Pipeline drops under a minimum [not certain how low production can drop before this is an issue.]

It was interesting to see news last week on the plans to develop the nasty heavy crude under the Northern arm of the Great Salt Lake which Amoco drilled up in the seventies before concluding that the time had not yet come, but not before it had identified a several hundred million barrel resource awaiting a market.

I believe we have exchanged comments before on offshore Florida, which other than the Western panhandle is questionable and the East Coast which is pretty much the great unknown. Any other thoughts on where to look in the U.S.?

[bjs1779]

It's no coincidence that all of the so-called "energy crises" of the last 40 years have occurred during periods when the U.S. dollar was in the sh!tter for one reason or another (1973, 1979, 2005-08, etc.)

What kind of money we were on before 1973? Foreign wise, that is. Intertesting that you happened to pick that year.

[bjs1779]

What was the price of oil per barrel in 1971? What was the price of oil barrel oil in 1974? Just to help you out.

[razorback-bert]

When you hear about drilling in New York State, you know greed is good.

[sphinx]

Peak Cheap Oil. It’s here. This is what Peak Oil is like.

I used to think the oil perpetualists would begin to come around when oil hit $60 a barrel. Then $80. Then $100. I now realize that oil could be $200 and some folks would still be insisting that all we need to do is punch another couple of holes in the ground.

I'm all for increased drilling. But we also need to be laying the foundations now to transition to a post-oil economy over the next 20-30 years.

[Dog Gone]

I believe we have exchanged comments before on offshore Florida, which other than the Western panhandle is questionable and the East Coast which is pretty much the great unknown. Any other thoughts on where to look in the U.S.?

As far as Florida, it's far more than the western panhandle. Cuba and China are teaming up to drill off the Florida Keys as we speak. The entire Florida coast is prospective, but we somehow don't have the political will to go get it. This is despite the fact that the Texas and Louisiana coast have been drilled for 50 years and there are no waters filled with oil washing ashore there.

Baltimore Canyon off the east coast still looks like a good spot to find oil. Offshore California is already a known place to look and find, but that's been shut off. And Alaska, of course. It's the biggest state in size BY FAR in the union, and it lives off of oil. If it had to live off the salmon industry it would be a third world place.

But Alaska is largely owned by the Federal government. And Nancy, and even John McCain, don't want to let oil companies take up a few acres out of a few bazillion acres, to bring us new supplies of oil.

It's just nuts.

[Strategerist]

I now realize that oil could be $200 and some folks would still be insisting that all we need to do is punch another couple of holes in the ground.

The abiotic oil nonsense has given a lot of them second wind.

[PA Engineer]

orel Khurais, and Manifa were discovered decades ago.

I worked on that field back in 84 and 85. Khurais and the Southern fields of Mazalij, Abu Jifan and Qirdi were mothballed towards the end of 85. Aramaco made a decision to produce oil from the cheaper Northern and Ghawar. I have no idea what happened to a couple projects in the empty quarter that were postponed at the same time. The Aramco production margins are still very cheap compared to elsewhere, however my understanding is that without foreign capital investment further development will be slow.

[Dog Gone]

The abiotic oil nonsense has given a lot of them second wind.

Probably more than a second wind since that nonsense comes up at least twice a year here with several hundred responses in support of it on each thread.

I'd guess it's at least on its 15th wind here, and I'm sure we'll hit 20 by 2010.

If oil were abiotic, we wouldn't drill so many dry holes. We have lots of expert commentators on things they actually know nothing about.

[hamboy]

Eventually oils in Saudi Arabia will be depleted sooner or later if they suck millions and millions of barrels daily, not unless they're interconnected rivers of oil flowing beneath the earth that Arabs are actually be sipping natural gas flowing from ANWR...

[rlmorel]

The availability of oil is directly related to the cost of finding it and extracting it.

If oil supplies are low, prices go up, and fields that weren’t financially viable to drill will become viable to drill and extract oil from. Then you start getting into the whole thing of pumping in oil or steam, drilling at weird angles, drilling in places you normally wouldn’t and so on.

Heck, if prices go high enough, we just might start doing the shale oil thing.

Or so Thomas Sowell says...:)

[MSF BU]

Well put as regards the Saudi’s options. The Saudi’s have little else than oil unless somebody designs a very cheap method of desalination. They are wise to pace their output. They may well already have damaged thier fields pumping to support the Gulf War. I’m not making excuses for them, just explaining their actions makes sense, at least for them.

[MSF BU]

Tom is nearly always right, and Shell Oil has developed a method to get shale oil for about $30/bbl.

[LeGrande]

Actually, the important producer in a tight market is not the low cost producer, but the highest cost producer. If the high cost producer can make money [or at least break even] it will continue to produce. If not [usually after a period of hoping things will get better whether based on rational though or delusions] a well will be plugged. In the meantime, the low cost producer will continue to make make money.

We agree : ) Except that we are saying it differently. The goal of the low cost producer is to keep the price point rising, without triggering other producers to jump in and create more supply than demand. No one is going to spend billions and years preparing to produce oil as long as the Saudi's have the capability of opening the spigots and driving them out of business. Exxon would rather wait until the cheap oil is out of the system, before they ramp up production.

This is all just a big game of chicken. The other thing is that the market seems to be acting like this is a short squeeze. I think it is a fifty/fifty proposition between $200 oil and $50 oil.

[LeGrande]

Actually, the important producer in a tight market is not the low cost producer, but the highest cost producer. If the high cost producer can make money [or at least break even] it will continue to produce. If not [usually after a period of hoping things will get better whether based on rational though or delusions] a well will be plugged. In the meantime, the low cost producer will continue to make make money.

We agree : ) Except that we are saying it differently. The goal of the low cost producer is to keep the price point rising, without triggering other producers to jump in and create more supply than demand. No one is going to spend billions and years preparing to produce oil as long as the Saudi's have the capability of opening the spigots and driving them out of business. Exxon would rather wait until the cheap oil is out of the system, before they ramp up production.

This is all just a big game of chicken. The other thing is that the market seems to be acting like this is a short squeeze. I think it is a fifty/fifty proposition between $200 oil and $50 oil.

[CarrotAndStick]

If Shell Oil can get shale oil for 30 dollars a barrel, then why aren’t they?!!

They could fatten their margin by tripling it, and still be competitive enough to steal the market from the Saudis.

[RightWhale]

laying the foundations

About 1976 or soon after the Dept of Energy was established to begin making the transition. Then the D of E was tasked to manage the nuclear materials and the transition was put on the back burner. 30 years ago was the time to do this and it was begun, and now the transition is about where it was then. Also the Apollo moon program was ended and the Superconducting Supercollider was cancelled. We have the legacy we have and we have to deal with it whether it is too late or not because we're here and nobody else is.

[RightWhale]

All apparently true, and the corollary is that oil will cost more.

[MSF BU]

Well, they need to make a decision to expand the technology: Billions. Also, they need to decide that nothing will cause the oil to go down below the cost of production. Offshore may still be the most intelligent alternative. The technology does exist though.

[CarrotAndStick]

I’m quite sure the oil co’s have made bigger, riskier investments in the past. And also taken bigger losses.

[MSF BU]

Eh, that may or may not be so. What I’m sure about is it is their money to invest and they’ll invest it where it will yield the most by thier measure.

[bjs1779]

The "production cutbacks" you hear about with regard to OPEC countries is typically an issue related to their desire not to accept the U.S. dollar as a medium of exchange for their oil unless a huge premium is built into the price.

I see I should have addressed this yesterday. The "production cutbacks" I was referring to is the the refinery cutbacks in this country. Demand is down, inventory is down, and they are cutting back production to raise prices. That is something the farmers have always dreamed about doing.

Maybe you would like big oil to run our food supply, too?