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Tilting at Windmills

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March 2, 2007
By: Kevin Drum

PEAK OIL WATCH....Over at the Oil Drum, Stuart Staniford is looking at the recent declines in Saudi Arabian oil production (see chart on right), coupled with their massive investment in new drilling rigs, and coming to an uncomfortable conclusion:

  • 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.

I'm not quite convinced yet, since global oil demand flattened in 2005 in response to the price runup of the past few years and has declined a bit since then thanks to a warmer than usual winter. The Saudis may simply be responding to this lower demand and using it as an opportunity to build up their spare capacity.

Or maybe not. In any case, it's well worth keeping an eye on, since as the Saudis go, so goes the world. Read Stuart's full post for more details. And since I'm highlighting old magazine articles this week, you can find out more about Matt Simmons and his pessimistic outlook on Saudi oil production in "Crude Awakening," a story for our June 2005 issue by some dude named Kevin Drum.

Kevin Drum 1:23 PM Permalink | Trackbacks | Comments (43)

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Comments

But I thought *you* were the Oil Drum!

Posted by: K on March 2, 2007 at 1:41 PM | PERMALINK

If this is true--and Stuart admits that he's a bit out on a limb in coming to those conclusions--this is very bad news.

I understand that the Saudis don't want alternatives because they don't want to leave any oil in the ground, and the royal family wants to stay in power...but er, when are we going to start worrying about our interests and get off of this crack called OIL?

Posted by: Schloopy on March 2, 2007 at 1:50 PM | PERMALINK

Since the Saudis have not discovered any new fields to replace consumed reserves in years, why should Saudi declining production shock anyone? I know that I had read recently that some Saudi production was coming up with a 60% water cut, which would imply those reserves are gasping for breath. The Saudi effort to keep pumping at maximum capacity to limit price runups would also abuse their producing zones rather badly, especially since no relief in sight exists. Didn't Simmons point out that the other producers in the area which were basically offshoots of the Ghawar field had already seen severe declines in production over the last fifteen years? The real question is where'e the leadership coming from our political chieftains on seeking out new directions. Where are the pundits on tihs one too?

Posted by: PrahaPartizan on March 2, 2007 at 1:52 PM | PERMALINK

*...as the Saudis go, so goes the world.*

Is this really as true as it used to be?

Posted by: wishIwuz2 on March 2, 2007 at 2:04 PM | PERMALINK

time to reread this, and follow the other links to related subjects:

http://www.technologyreview.com/Energy/17169

And if you are worried, you can speed up the transition to renewables by investing/donating in/to Al Gores "Generational Investment Company" like he does. Although at present, they seem to market themselves only to the very rich.

If you google "clean edge act", and follow the links at the Senate web page to the PACE act, you can find an August 2006 progress report on the 2005 energy bill. Along with the Republican hype there is good quantitative information on recent progress in general.

Posted by: spider on March 2, 2007 at 2:06 PM | PERMALINK

Nuclear Is The Only Answer !!!
Nuclear Is The Only Answer !!!
Nuclear Is The Only Answer !!!
Nuclear Is The Only Answer !!!
Nuclear Is The Only Answer !!!
Nuclear Is The Only Answer !!!
Nuclear Is The Only Answer !!!
Nuclear Is The Only Answer !!!

(What was the question?)

Posted by: Nukes R Us on March 2, 2007 at 2:10 PM | PERMALINK

The probability that Saudi Arabia has hit their peak sometime in the last few years would seem very high to me and is probably accepted by many in the oil industry. The Iraqi and Iranian fields have been starved of foreign investment and development over many years now primarily due to economic sanctions. Perhaps that is why we are so focused on those two countries? We know there is plenty of easy to extract oil there that will make up the loss of Saudi production. The only problem, unfortunately is political instability. We should have made that "deal" with the Iranian reformists in 2003...

Posted by: Doc at the Radar Station on March 2, 2007 at 2:46 PM | PERMALINK

It is likely the Saudis and the world in general are still suffering the underinvestment (and that may not be the correct term) caused by the extremely low oil prices of the late 80s to the early 00s. If production and reserves are lower 5 years from now, then that would be very good evidence of a peak in Saudi Arabia.

Posted by: Yancey Ward on March 2, 2007 at 2:46 PM | PERMALINK

Naturally.

If there was enough fossil oil to toast the earth, then the biosphere would never have survived the carboniferous age when all that oil carbon was atmospheric carbon.

Posted by: Matt on March 2, 2007 at 2:48 PM | PERMALINK

We should have made that "deal" with the Iranian revolutionaries in 1979.

Posted by: Brojo on March 2, 2007 at 2:48 PM | PERMALINK

I have been rethinking the Prometheus myth, and think he was punished so severly by the Olympians because they knew that giving mankind fire would destroy mother earth. Prometheus was not a hero, he was a destroyer. Did the mythmakers have an uncounscious awareness about carbon and the greenhouse effect? I think so.

Rebind Prometheus.

Posted by: Brojo on March 2, 2007 at 2:54 PM | PERMALINK

global oil demand flattened in 2005 in response to the price runup of the past few years and has declined a bit since then thanks to a warmer than usual winter.

See, a warming earth is self correcting!

Posted by: wingnut on March 2, 2007 at 2:57 PM | PERMALINK

I go back and forth between the idea that the Bush folks are major league clowns or "master strategists" (in quotes because their level of mastery is certainly debatable), pushing a strategy they know would be unpopular if voiced publicly.

This oil story (particularly the one you linked to, written by that nobody) pushes me towards the master strategist idea. Bushco believes that a peak is coming, and have been trying to position the US to (what they believe is) a point of strategic advantage, and hence what they were trying to do in Iraq makes more sense (the operative word there is more, I am not declaring the policy sensible in the least).

I wonder if Bush's recent steps in support of ethanol are fueled less by political expediency than by some inner knowledge shared by family friends who happen to be Saudi royals...

Posted by: rlr on March 2, 2007 at 3:05 PM | PERMALINK

Oil wars are the expected result of peak oil.

GWB isn't a master strategist -- he is an unthinking zombie playing out the role that history has written for him.

Posted by: Disputo on March 2, 2007 at 3:10 PM | PERMALINK

speaking of nuclear, if you scroll down on The Oil Drum, there's a GREAT discussion of the pros and cons of nuclear by a physics prof:

http://www.theoildrum.com/node/2323

Posted by: Schloopy on March 2, 2007 at 3:21 PM | PERMALINK

"Bushco believes that a peak is coming, and have been trying to position the US to (what they believe is) a point of strategic advantage, and hence what they were trying to do in Iraq makes more sense"

I've always believed they wanted this war so they could have an increased presence where the oil is. Perhaps I'm trying too hard to find a rational reason for their actions. Maybe they are just crazy. Regardless, their stategy isn't working out very well. While we have been caught up in a high profile war over declining oil resources, China has been quietly making deals around the world to guarantee their share of the oil. Twenty years from now, China's strategy will probably appear to be the better one. It's certainly a less expensive stategy. Taking the oil by force is proving to be rather difficult.

Posted by: fostert on March 2, 2007 at 3:25 PM | PERMALINK

I'm not terribly familiar with Saudi Arabian history/politics/economics, but it seems that petro-economies don't have much of a long term future. Are the Saudis making any effort to diversify their economy in an effort to wean themselves off the petro-dollar in years to come? They must understand that their regime cannot survive in the long-term on oil alone. Yet, I never hear about any oil-independent facet of their economy. Service sector? Finance? UAE style high-end tourism? Do they have any other significant commodities? Are they risking an African style commodity based economy that risks their GDP on the market conditions of a single export without the benefit of an OPEC-style Cartel to control prices and production once they must inevitably shift from oil to... something else? Can they really be so short-sighted? Or will the royal family just split with their wallets bulging once the economy collapses in another generation or so?

Posted by: Everblue Stater on March 2, 2007 at 3:34 PM | PERMALINK


SOME DUDE NAMED KEVIN DRUM: a story for our June 2005 issue

Aren't stories for future issues and stories from past issues?


Posted by: jayarbee on March 2, 2007 at 3:35 PM | PERMALINK

Saudi Arbia has a huge market for pilgrams, and is working on developing its coastlines for resorts.

They have lots of sun, and will probably switch to solar when the time comes... They're not in any particular danger, except if they spend themselves into debt.

Posted by: Crissa on March 2, 2007 at 3:51 PM | PERMALINK

Everblue Stater,

Even if Saudi Arabia is at peak production today, they could pump oil for centuries still. As oil production worldwide declined, as a still useful commodity, its value would rise. How much you can produce is less important than the total value your production.

However, I would say that they have not diversified. Most of the middle eastern countries lack the legal foundation and the respect for private property rights that would allow much economic development beyond what exists today. If the per capita value of the oil produced starts to fall, they will simply become poorer.

Posted by: Yancey Ward on March 2, 2007 at 4:04 PM | PERMALINK

holy crap.

There goes my NSF budget. I'm going to have to do my field work on a bicycle.

Posted by: B on March 2, 2007 at 4:32 PM | PERMALINK

Frequency Kenneth:
"Time to open up ANWAR and areas off Florida"

That's absolutely correct. Everyone knows they have at least 10 times the reserves as Saudi Arabia.

Posted by: Eduardo on March 2, 2007 at 4:50 PM | PERMALINK

Everblue;
The Petroleum Patriarchs don't care about the future. They know that they have a limited lifespan, and they are enjoying their incredible wealth NOW. Fuck everyone else. Fuck future generations. Profit now. Destroy the environment for tomorrow's children.

They call themselves "conservative" - but they are farthest from it.

Posted by: Extradite Rumsfeld on March 2, 2007 at 4:53 PM | PERMALINK

Yancy:
"It is likely the Saudis and the world in general are still suffering the underinvestment (and that may not be the correct term) caused by the extremely low oil prices of the late 80s to the early 00s."

The prices were still far above the cost of Saudi production, so it had lots of cash for investment.

Posted by: Eduardo on March 2, 2007 at 4:53 PM | PERMALINK

The Saudis have also been caught; both lying about their reserves, and production capacity. The worst was a recent thing, about two years ago, when they were bragging about a field that never got even 20% of what they were saying they were going to get; and that they had damaged this field attempting to use new technologies to get the production in the ballpark of their prediction.

(this is yet another reason why there is no such thing as a "free market" in petroleum - a free market assumes perfect information is in the hands of the buyers. Not lies and pump-n-dump scams)

Posted by: Extradite Rumsfeld on March 2, 2007 at 5:02 PM | PERMALINK

Thanks for the link, Schloopy.

I didn't notice much in the way of a "con" argument, but it was informative though...

Posted by: anon on March 2, 2007 at 5:45 PM | PERMALINK

Looks like we need to invade Saudi Arabia - Operation Enduring Oilrig. The place is lousy with terrorists, as well. What they hell is Dubya waiting for???

Posted by: The Conservative Deflator on March 2, 2007 at 5:49 PM | PERMALINK

While we have been caught up in a high profile war over declining oil resources, China has been quietly making deals around the world to guarantee their share of the oil.

The U.S. was doing that, but diverse groups in the U.S. boycotted the countries that were doing business in Sudan and Burma, to name two. but I agree with your main point. Developing our own energy supplies over the upcoming 10 years will probably make it unnecessary for the U.S. to take an interest in the Persian Gulf.

Posted by: spider on March 2, 2007 at 5:57 PM | PERMALINK

T. Boone Pickens said in a newspaper article today (sorry, no URL) that HE thinks we're at or near the peak.

And, he's made a LOT of money on being right on things like that.

Oh, everybody... just below that post from the Oil Drum, the one Kevin linked, are multiple excellent posts about nuclear power.

Posted by: SocraticGadfly on March 2, 2007 at 6:15 PM | PERMALINK

For some our respondents:

If ANWAR has so much oil, then why is it there was/is no corresponding plan to increase the Alaska Pipeline capacity? In fact, it is going to shut down within the next 12 to 18 months because it is too old & corroded to last much longer. As far as I know, plans for replacing it are only in the planning stage, with no money allocated to begin construction.

Also another argument that we are at peak production is that there has been no increase in refining capacity in the last decade in spite of ever increasing demand. What good is more crude without added refining capacity?

Saudi Arabia has oil enough for the next several centuries, huh? Tell me how you can believe that when production per well is in decline there AND we have been pumping oil out of the ground for less than 150 years?

Of course, all this doesn't mean much because all the facts & figures come only from Big Oil. Who among us believe they will tell us the honest, unvarnished truth?

Posted by: bob in fl on March 2, 2007 at 6:16 PM | PERMALINK

To listen to the oil companies, the world has been short on oil since Spindletop.

Posted by: sammy on March 2, 2007 at 6:21 PM | PERMALINK

"The U.S. was doing that, but diverse groups in the U.S. boycotted the countries that were doing business in Sudan and Burma, to name two."

Sudan and Burma are pretty small fields. China is going after the big prize in Iran:

http://www.washingtonpost.com/wp-dyn/content/article/2006/02/17/AR2006021701117_pf.html

And they have also invested in Venezuela, Indonesia, Australia, and Kazakhstan in addition to scooping up Sudan and Burma. They are looking to buy in Russia, but haven't reached a deal yet. The new fields in Cambodia will also probably go to China, although Hun Sen will give a sizeable slice to Vietnam. Developing our own energy supplies in the US will not come close to competing with China's newly aquired resources in the next 10 years. We don't really have much oil left and converting our economy to coal will take too long. We will still need Saudi Arabia's oil. And with China gobbling up Iran's oil and everything outside the Middle East, we will need Iraq's oil as well. Too bad we may not get it. We would be wise to secure the oil in Russia and Australia while we still have a chance.

Posted by: fostert on March 2, 2007 at 6:23 PM | PERMALINK

fostert, if the US and China (along with the other industrialized and industrializing nations) actually do "divide up" all the world's oil one way or another, and then extract and burn it all, the result will be a global-warming induced planetary ecological collapse, which human civilization is unlikely to survive.

And that will only be accelerated to the extent that we are also burning ever-increasing amounts of coal.

We need to drastically reduce, to as near zero as possible, the burning of all fossil fuels within -- at most -- a decade or two, if we want to avoid destroying the capacity of the Earth to support life as we know it.

If we as a species are so stupid and shortsighted and greedy as to pump out all that oil and burn it, and dig up all that coal and burn it, then we as a species -- and the rest of the Earth's rich, wonderful, diverse biosphere -- will be unlikely to survive much beyond the end of this century.

Them's the facts.

Posted by: SecularAnimist on March 2, 2007 at 6:36 PM | PERMALINK

"T. Boone Pickens said in a newspaper article today (sorry, no URL) that HE thinks we're at or near the peak."

He's been saying that for a few years now. And, yes, he's been right about these things for quite some time now. Here he is from 2 years ago:

http://www.peakoil.net/BoonPickens.html

Posted by: fostert on March 2, 2007 at 6:39 PM | PERMALINK

SecularAnimist, you are right about that. But we probably will use up all the oil. I see no evidence that we will suddenly come to our senses before oil production grinds to a halt. Then we will likely switch to coal and nuclear. There are too many people who will never believe in Global Warming until New Orleans is under 20ft of water year round. By then, we will be burning coal to build our new coastal cities in Missouri. It won't be pretty.

Posted by: fostert on March 2, 2007 at 6:54 PM | PERMALINK

Actually, I agree with fostert.

Humanity is no more intelligent than single-celled creatures when it comes to trying to ensure our future survival. 90% of the world could agree to stop burning fossil fuels, but as long as the 10% continue to do so, our environment will continue to be trashed.

Of course, all this doesn't mean much because all the facts & figures come only from Big Oil. Who among us believe they will tell us the honest, unvarnished truth?
Posted by: bob in fl on March 2, 2007 at 6:16 PM | PERMALINK

bob - I've often thought that maybe this whole Peak Oil thing was a scam by the oil industry to panic traders into running the price up. (yes - oil companies then have to pay more - but then they have an excuse to run up their prices at the pump even more - and they pocket the difference).

Truth is - there's no way to tell. None of us can take a dipstick, shove it in the ground and tell how much oil is really down there. Maybe we should abduct and torture some oil executives and we'll learn the truth.

Posted by: Extradite Rumsfeld on March 2, 2007 at 7:33 PM | PERMALINK

fostert on March 2, 2007 at 6:23 PM

I mostly am aware of all that stuff about China. The US will buy Cuban oil from the Chinese, I expect.

Posted by: spider on March 2, 2007 at 8:32 PM | PERMALINK

If present trends continue, and no one knows whether they will, or speed up, or slow down, the U.S. will add enormous amounts of solar power, wind power, biomass power, and synfuels power in the upcoming 10 years. One of the uses of solar power will be to generate H2 directly from water using an Iron-Silicon catalyst.

Unfortunately, if this drives down the price of oil in the international market, it will seem to have been a big mistake. But I regard that as a good outcome.

The US will still be importing oil from Canada and Mexico. And the U.S. will still be burning coal, but a much higher fraction of the CO2 will be sequestered.

That's if present trends continue. One of the items at the Technology Review generates 1kw of electrical power and 9kw of hot water from solar, using $2,000 worth of parts that can be bought at hardware stores and automotive junk yards. It can be doubled in capacity without doubling its cost.

I don't mean to imply that the transformation of the US economy will be easy or cheap. It will in fact take effort and money. But it isn't impossible, and the effort and investment are underway. It will probably cost less overall than the interstate highway system or the Mercury/Gemini/Apollo programs cost.

I cite Technology Review (published by MIT). Others have cited National Renewable Energy Laboratory, Science, Popular Science, Popular Mechanics, Scientific American.

For another invidious comparison, it is cheaper for the US to extract enough oil from the Rocky Mountains than to keep military forces deployed in the Middle East.

I urge everybody to follow the example of Al Gore: buy your CO2 offsets in order to help fund the construction of alternative energy sources. You don't have to wait for passage of the Clean Edge Act, PACE act, or any other act of Congress. As soon as full spectrum led lights become available in your area, start buying them. If you live in the sun belt, heat your water with solar power.

Posted by: spider on March 2, 2007 at 8:59 PM | PERMALINK

I see no evidence that we will suddenly come to our senses before oil production grinds to a halt.

Look here: http://www.technologyreview.com/Energy/17169

And look at the wind farms in Texas.

It may not be "beyond a reasonable doubt", but it is good evidence.

Posted by: spider on March 2, 2007 at 9:07 PM | PERMALINK

this is where KD went. It looks like an informative source.

http://www.energybulletin.net/

Posted by: spider on March 2, 2007 at 9:15 PM | PERMALINK

The important issue about Saudi Arabia that seems to be missed so far is that they are one of the few producers still able to expand production (Libya and Angola being two other possibilities). Also, Non-OPEC sources, like the North Sea, where we do have reasonably reliable data, are in decline, so that the short term problem (aside from the environmental issues discussed) is that as others oil dries up, Saudi becomes it, even more so than they are today, and gain pricing and market control.

The other issue for Saudi is that they are diversifying very slowly, and they are going through a "youth bulge", with fewer and fewer outlets as the US limits study visas. Every other nation that's gone through a youth bulge has had some kind of disruption, peaceful (US in the 60's) or not. The question is whether the Saudi regime can channel this in a "safe" direction. How many of the 9/11 hijackers were Saudi, again?

Finally, nuclear may be the answer, but the questions are when do we reprocess (to reduce waste) and where do we put the waste?

Posted by: lost in thought on March 2, 2007 at 9:16 PM | PERMALINK

"...Also another argument that we are at peak production is that there has been no increase in refining capacity in the last decade in spite of ever increasing demand. What good is more crude without added refining capacity?"
Posted by: bob in fl on March 2, 2007 at 6:16 PM

It seems that it may be cheaper to build the refineries overseas and import the gasoline:

http://www.hydrocarbons-technology.com/projects/panipat/

Posted by: Doc at the Radar Station on March 3, 2007 at 12:35 AM | PERMALINK

We're going to hell in a handbasket on practically all fronts. NOw's about time to put your money into soemthing of value and start looking for that apartment in New Zealand, Uruaguay or Tierra del Fuego.

Posted by: gt on March 3, 2007 at 1:26 PM | PERMALINK




 

 

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