Category Archives: oil

Saudi Arabian oil declines 8% in 2006

“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). Recently, Jim Hamilton 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.

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.
  • The decline rate during the first year is very high (8%), akin to decline rates in other places developed with modern horizontal drilling techniques such as the North Sea.
  • Declines are rather unlikely to be arrested, and may well accelerate.
  • Matt Simmons appears to be right in Twilight in the Desert, but the warning did not come until after declines had actually begun.”


Oil Innovations Pump New Life Into Old Wells

Are Reports of Oil’s Demise Greatly Exaggerated?

In Indonesia, Chevron has applied the same technology to the giant Duri oil field, discovered in 1941, boosting production there to more than 200,000 barrels a day, up from 65,000 barrels in the mid-1980s.

And in Texas, Exxon Mobil expects to double the amount of oil it extracts from its Means field, which dates back to the 1930s. Exxon, like Chevron, will use three-dimensional imaging of the underground field and the injection of a gas — in this case, carbon dioxide — to flush out the oil.

Within the last decade, technology advances have made it possible to unlock more oil from old fields, and, at the same time, higher oil prices have made it economical for companies to go after reserves that are harder to reach. With plenty of oil still left in familiar locations, forecasts that the world’s reserves are drying out have given way to predictions that more oil can be found than ever before.

“It’s the fifth time to my count that we’ve gone through a period when it seemed the end of oil was near and people were talking about the exhaustion of resources,” said Daniel Yergin, the chairman of Cambridge Energy and author of a Pulitzer Prize-winning history of oil, who cited similar concerns in the 1880s, after both world wars and in the 1970s. “Back then we were going to fly off the oil mountain. Instead we had a boom and oil went to $10 instead of $100.”

There is still a minority view, held largely by a small band of retired petroleum geologists and some members of Congress, that oil production has peaked, but the theory has been fading. Equally contentious for the oil companies is the growing voice of environmentalists, who do not think that pumping and consuming an ever-increasing amount of fossil fuel is in any way desirable…


About that cubic mile…

Remember the WIRED story, “Why We Love Oil,” that we featured on green.mnp a little while back? Well, the folks over at The Oil Drum took a look at the same piece and found the analysis to be quite flawed…

Leaving aside some errors (the coal and nuclear numbers are off by about 10% to each other, and the capacity factor of wind turbines should be closer to 30%) the most essential oversight in that equation is elephantine: It compares oil’s inputs to the other’s outputs.

WSJ: Iran’s oil production is drying up

AHVAZ, Iran — Iran sits on one-tenth of the world’s known oil supplies but is using so much energy these days it may start rationing gasoline as soon as next month.

…a combination of Western sanctions and Iranian policies has discouraged foreign investment in oil fields, causing production to stagnate. The result: Iran’s oil exports could dry up in as little as a decade, according to some who have studied the situation.

The impact would be felt far beyond Iran. The country produced 3.8 million barrels of oil a day in 2006, almost 5% of the world’s total supply, according to the Organization of Petroleum Exporting Countries. It exported an average of about 2.5 million barrels of that each day. Should those sales decline, Iran’s largest customers, Japan and China, would scramble for other supplies, pushing up prices for everyone.

Avoiding an export squeeze is one reason Iran argues it needs to consider nuclear energy. But that ambition has contributed to a diplomatic impasse with the West. Bush administration officials describe Iran’s nuclear program as little more than a ruse to conceal what they say is a hidden effort to build nuclear weapons. Iranian officials deny that, arguing that nuclear plants could handle some of the soaring domestic energy demand, leaving more oil and gas to export and avoiding difficult domestic choices.

Indeed, several other Middle East countries — including Egypt and the world’s largest oil exporter, Saudi Arabia — also are investigating nuclear energy programs, citing similar reasons.


Study sees harmful hunt for extra oil

All the world’s extra oil supply is likely to come from expensive and environmentally damaging unconventional sources within 15 years, according to a detailed study.

This will mean increasing reliance on hard-to-develop sources of energy such as the Canadian oil sands and Venezuela’s Orinoco tar belt.

Royal Dutch Shell and Total of Europe and ExxonMobil and Chevron, the US-based energy groups, have already begun to invest heavily in Canada and Venezuela.  Others – including Chinese energy groups – are looking at the possibility of extracting heavy oil from Madagascar.

But the challenge is huge, said Matthew Simmons, an industry banker who sent shock waves through the oil world when he questioned whether Saudi Arabia, the most important oil source, would be able to continue to expand production.

“The ability to extract this heavy oil in significant volumes is still non-existent,” he said in a recent speech.  “Worse, it takes vast quantities of scarce and valuable potable water and natural gas to turn unusable oil into heavy low-quality oil.”

“In a sense, this exercise is like turning gold into lead,” Mr Simmons said.

[Financial Times]

More Problems for Oil Workers in the Niger Delta

Gunmen have kidnapped a Filipino oil worker and killed his police escort in Nigeria’s main oil region, police say.

The Filipino was travelling south from the south-eastern city of Owerri to Port Harcourt when the gunmen attacked.

The latest kidnapping brings to 25 the number of Filipino workers being held by militant groups in the oil-rich Niger Delta creeks.

[BBC News]

Does the Peak Oil “Myth” Just Fall Down?

The editors of The Oil Drum respond to Why the “Peak Oil” Theory Falls Down — Myths, Legends and the Future of Oil Resources by Peter M. Jackson, Cambridge Energy Research Associates (CERA)

We are concerned that CERA has “maintained a consistent contrary view” and not taken the peak oil hypothesis seriously until now. We can only agree that “this debate reflects one of the most important issues facing not only the energy industry, but the world at large.” We hope our response demonstrates that the peak oil hypothesis is anything but simplistic. Furthermore, no one here or elsewhere is claiming that conventional oil will “run out” anytime soon. Rather, the peak oil view is an evolving, sophisticated take on conventional oil production and the viability of substitutes to replace continuing demand for this paramount fossil fuel in the face of inevitable declines in available supply. Only the timing of such declines is at issue here. We can also only add that denial in the face of potentially very threatening events is a powerful force in the human psyche.

[The Oil Drum]

Brussels presses for greener fuel

The European Commission has announced plans to force energy companies to produce greener fuels.  It says it will propose amendments to a directive on fuel quality, which will require a 10% cut in the CO2 released during production and use of the fuel.

The changes would make companies use more biofuel, and develop greener biofuels where the production process results in lower CO2 emissions.

The commission says its plan would save 100m tonnes of CO2 a year by 2020.

[BBC News]

Related: Schwarzenegger to order new standard to reduce carbon content of motor fuels (green.mnp)

Saudi Officials Seek to Temper the Price of Oil

Saudi Arabia, which benefited immensely from record oil prices last year, has sent signals in the past two weeks that it is committed to keeping oil at around $50 a barrel — down $27 a barrel from the summer peak that shook consumers across the developed world.
The Saudis appear to be rediscovering that painfully high energy prices take a profound toll on the global economy, which in turn reduces demand for their oil. But other motives seem to be at work, too, including the Saudis’ desire to restrain Iran’s ambitions in the region.

2006 was not the first reminder for the Saudis that too-high prices can backfire. The oil shocks of the 1970s and 1980s also set off a scramble for gas-sipping cars and a brief push to wean the West from its oil dependency. In recent months, the higher prices have rekindled America’s quest for alternatives and propelled energy security to the top of the agenda in the United States and Europe.


The Long Road to Energy Independence

President Bush never used the phrase “energy independence” in his State of the Union address last week, and it is just as well. His program for cutting gasoline demand is ambitious in scope, but modest in effect, according to experts.
The reason is that the United States has fallen down a very deep well, and it’s hard to get out. Last year, the United States imported 60 percent of the oil it consumed. If, as Mr. Bush proposes, we cut gasoline consumption 20 percent by 2017 — about 2.1 million barrels a day — then the share of oil imported will fall only by 4 or 5 percentage points.