The Oil Drum: Europe

Given the central role Saudi Arabia will play in the world's energy future, the continued fuzziness regarding its oil prospects is cause for concern. According to the IEA 2008 World Energy Outlook, Saudi Arabia will remain the world’s largest producer through at least 2030 as its output climbs from 10.2 mb/d (million barrels per day) in 2007 to 14.4 mb/d in 2015 and 15.6 mb/d in 2030. The future totals include Natural Gas Liquids (NGL) production as well as additions from enhanced oil recovery efforts (EOR).

The 2008 WEO represents a step forward in that projections are purportedly based on a bottoms-up querying of a database containing reserves and past-production information for 800 of the world's largest oilfields, rather than just being extrapolated to what future demand will require. However, the results obtained from such a data mining effort are limited not only by the quality of the data therein, but also by the assumptions made when querying the database. A close look at the data and projections for Saudi Arabia in the WEO reveals a rather spotty effort, providing neither a clear picture of what is happening in this important region nor much confidence that the overall report for the world is accurate.

OPEC will be holding its meeting on oil production in Vienna, Austria on October 24.

I have not been able to locate a schedule, but the OPEC Meeting Website indicates that there will be live streaming of some events--press conferences, interviews, and opening events. This is described at this location. It is virtually certain that the meeting itself will not be on the webcast.

The website gives a form for people to submit questions to possibly be asked of senior OPEC officials at press conferences.

I am posting this information in advance, since the meeting starts while those of us in the United States are still sleeping. Some of you in other parts of the world may want to tune in to the webcast.

Below the fold you will find a few quotes I have noticed preceding the conference. It sounds to me like there are several hard-liners who want big cuts and several others who are cautious about making cuts.

We all know that the United States is an importer of petroleum products. The United States is also an exporter of petroleum products, primarily to Mexico and Canada. Both of these countries send us crude oil, and we export refined products back to them. We often hear that Canada and Mexico are our largest sources of petroleum product imports, but is this really true if we net out exports? Canada remains number 1 when we net out exports, but Mexico drops to fifth place in 2008. (Mexico drops to third place in 2008, without netting out exports, because of its declining volume.)

Predicting the future of Saudi Arabian oil production is a rather daunting endeavor, given the limited amount of information available upon which to base a prediction. Presented here is an appraisal for Saudi production through 2015 based on an informed analysis of past production data and a simple extrapolation into the future. It is found that the oil production trend from the early 1990s through the present is driven more by the addition of new producing areas than by "peak and decline" in the Hubbertian sense. This trend will likely continue for the next few years leading to a new "peak", although more rapid decline in mature areas of Ghawar will eventually overwhelm both mitigation efforts therein and added production elsewhere.

Yesterday, August 6, the EIA published new International Petroleum Monthly data. The new data revised downward previously published estimates, all the way back to 2002, with the biggest revisions in 2007 and 2008. With the revisions, the latest month, May 2008, shows new record-high oil production. Other recent months which had previously set records are now 67,000 barrels per day to 417,000 barrels per day lower than reported just a month ago. In this post, I offer a few thoughts on what the new data suggests.

It is also fitting that on that same date, the International Energy Agency published one of its gloomiest ever analyses of the oil markets, asserting that oil prices are justified by fundamentals

It said: “Like alchemists looking for a way to turn basic elements into gold, everyone wants a simplistic explanation for high prices,” bluntly adding: “Often it is a case of political expediency to find a scapegoat for higher prices rather than undertake serious analysis or perhaps confront difficult decisions.”

I was reminded of this skit as I watched a ”panel of experts” on the PBS News Hour with a couple of energy analysts talking about petroleum economics, and the cause of the current price rise. Their reasons (one blaming it in part on the Federal Reserve decision to cut interest rates) related to their areas of expertise and knowledge in the Commodities Markets. It is a common failing. Experts will try and explain events or seek to control events, based on their what they know and are comfortable with discussing (where it is light), rather than necessarily going to the root cause of the problem (where the ring was dropped). It is a fault both of those who select the experts to give an opinion, and the focus of those experts, and where this approach is used extensively it tends to hide the nature of the true problem from the public, in the obfuscations of those who are comfortable only when turning the question to allow answers that relate to subjects they know about.

Yesterday we have heard announcements by Ali-Naimi, the oil minister of Saudi Arabia, regarding future production capacity increments. We are to believe that Saudi Arabia will produce 12.5 million barrels per day at the end of 2009 and a potential 15 million barrels per day in the coming decade. How should such announcements be valued? Is this achievable? What is meant with production capacity? What type of liquids is Saudi Arabia referring to when talking about oil? In this post I attempt to answer these questions.

Saudi Arabia has announced, once again, that it was increasing production:

Saudi Arabia confirmed it would pump *9.7m barrels a day* next month, an increase of 200,000 and the highest level in nearly 30 years, as it repeated its standard offer of extra barrels if customers demanded them.

The kingdom also reiterated its promise to expand production capacity, noting that it expects to achieve 12.5m b/d next year and could add an additional 2.5m barrels – if needed – after that with a massive investment programme.

And of course, we can believe them! Just like when they announced this last year:

Saudi Arabia's oil production reaches 10.8 mln bpd

RIYADH, July 31 [2007] (Xinhua) -- Saudi Arabia's crude oil production capacity has reached *10.8 million barrels per day* (bpd), the country's state oil company Saudi Aramco announced Monday.

(...)

Saudi Arabia is the world's largest oil producer and exporter and plans to raise its production capacity to 12.5 million bpd in 2009.