Saudi King Says Save Oil For Future Generations

Posted: April 21st, 2008 by: h2

Not satisfied with the peak oil sources? Then how about the current king of Saudi Arabia?

From the April 21 (pdf) ASPO newletter (Newsletter Archives).

Well worth a read, see an HTML version on if you prefer that format.

Saudi King Abdullah drops quiet bombshell; U.S. media sleep through it

Saudi Arabia’s King Abdullah said he had ordered some new oil discoveries left untapped to preserve oil wealth in the world’s top exporter for future generations…

Saudi Arabia’s King Abdullah said he had ordered some new oil discoveries left untapped to preserve oil wealth in the world’s top exporter for future generations…

The King’s remarks seem to confirm a statement made last year by Saudi oil minister Ali al-Naimi who, when asked “How high can your production go?” replied, “We’ll get to 12.5 million barrels a day and then we’ll see.”

If the Saudi announcement was a bombshell, American nearly newspapers ignored it. We decided to canvass experts we respect to see what they thought. Excerpts follow:

They interview a few prominent people for this article, some of the more interesting opinions:

Chris Skrebowski, editor of Petroleum Review:
“King Abdullah’s statement represents the final seal of approval on an emerging Saudi policy of restricting output to save oil for future generations. In recent years the Saudis have been managing expectations of future capacity steadily downwards. No one now talks of their reaching 15mn b/d. If they reach 12.5mn b/d, while maintaining 1-2mn b/d of ‘spare’ capacity, we should plan for Saudi production to be 9-11mn b/d for the foreseeable future.

Jeffrey Rubin, chief economist, CIBC World markets
“A far more plausible explanation for faltering growth in Saudi production and exports is that they are rapidly approaching maximum production. Given soaring rates of internal consumption for oil, they will soon be exporting less not more crude to world oil markets.

“Russian Natural Resource Minister Yuri Trutnev’s has said that Russian production and exports will fall this year, for the first time in a decade. We forecast that exports from OPEC, Russia and Mexico will actually decline by 2.5 million barrels per day between now and 2012. It’s far from obvious who is going to fill this supply gap, let alone meet the need of future global crude demand growth.”

Jeremy Gilbert, BP’s retired chief petroleum engineer
“The countries around the Gulf, which would once have come to the aid of a faltering U.S., now are either delighted about the U.S. plight or just don’t care. They are not going to do anything to reduce world oil prices. Instead, they are going to maximize their economic take while minimizing depletion of their sole natural resource.”

Exactly. Basically, unlike the consuming nations, the OPEC countries, especially those in the Middle East, are making a rational decision on how to manage their energy futures.

The really important thing here to realize is that Saudi Arabia has been saying for decades that it has enough oil for 50 years at higher rates of production, now, quietly, quickly, they are pulling back from this lie, and are now writing a new story, the one of ‘preserving this asset for future generations’. In other words, they do not in fact have the ability to increase production levels, CERA estimates have in fact been proven wrong, again, and Matt Simmons has been proven right.

Claiming that the world’s data on production, demand and inventories is alarmingly inaccurate, Matthew Simmons says the concept of peak-oil is closer than we think, and there are a number of trends and patterns evident in the past that will continue to dominate the present and future.

“We’re not going to find much oil,” says Simmons. “We’re not going to have very many projects go on-stream. Projects are going to get a lot more expensive, and we’re having a very difficult time worldwide recruiting enough people to offset the number of people that are to retire, and are already retiring,” says Simmons.
Simmons in

What’s most disturbing is that, realistically, Saudi Arabia is not only NOT going to increase production much further (keep in mind most increases have been in the very poor quality sour crudes and thick heavy crude), they are most likely, as Matt Simmons has been warning repeatedly, going to go into terminal decline, due to the extremely advanced extraction techniques they have been using up to now.

Simmons, reached by phone in Houston, says he feels equally vindicated—and increasingly alarmed. He based his book largely on information dug up in old technical journals. In recent weeks he has hit the archives again, with thoughts of writing a second book.

What he has found, he says, “is so unbelievably scary you can’t believe it.” He claims that there is mounting technical evidence that Aramco is struggling to deal with increasing volumes of water at its hugest fields. With water production going up, he says, oil production is going down.

“It is absolutely clear as a bell now that all of those fields are heading toward being another Cantarell,” referring to the massive Mexican offshore field, which is now in rapid decline.
Simmons believes we may already have hit that peak. After his recent studies, he now fears he has “grossly underestimated how savage the post-peak oil reality will be.”
Simmons in The Wall Street Journal

There’s a common myth being spread by I assume primary large US based oil companies like Exxon / Mobile, that the Saudis can’t efficiently produce their existing oil reserves. Don’t believe a word of that, like most of the other garbage Exxon is spewing into the atmosphere, that’s just designed to get them more money. The reality is found in recent announcements like this one:

Halliburton has bagged a three-year contract by Saudi Aramco to provide several oilfield services in the Manifa mega-project.

The Manifa project has a production target of 900 thousand barrels of oil per day, Saudi Aramco’s second largest incremental oil production project.

The contract calls for the provision of directional drilling, logging-while-drilling, cementing, logging and perforating, coiled tubing and stimulation services for 93 wells offshore Northeast Saudi Arabia, reported Oil Online International.
The Manifa project is a key part of Saudi Aramco’s plan to increase its overall production capacity.
“Halliburton has worked with Saudi Aramco for nearly 70 years and has maintained an impressive track record of safely and successfully delivering mega-projects,” added Gasser Badrashini, vice president of Halliburton’s Saudi Arabia and Bahrain operations. Halliburton has performed thousands of service operations for Saudi Aramco.

This is the type of thing Simmons repeatedly has pointed out, all that has happened in the oil producing nations is that they intelligently decided to eliminate the large oil company middlemen and just hire the best oil services companies directly. So don’t believe that hype, the Saudis use the best technologies in the world to do their extraction, this situation is not about them being failures, it’s about them running lower and lower on oil by the year.

But wait, it’s actually worse than you think!

The oil producing countries’ thinking on questions like resource management long term is not perfect, after all, heavily subsidized energy in those countries is leading to what WestTexas (Jeffrey J. Brown) has named the Export Land Model (ELM) (2006), ELM (2007), which basically notes that as production goes into decline, domestic energy use rises as development (I hate that word) internally increases, which forms a steepening export decline curve that quickly leads to zero exports. But at least the oil exporting nations are starting to look to the future, unlike the United States currently, which still cannot bring itself to admit that that days of cars are fast closing.

As predicted by Hubbert Linearization, two of the three top net oil exporters are producing below their peak production level. The third country, Saudi Arabia, is probably on the verge of a permanent and irreversible decline. Both Russia and Saudi Arabia are probably going to show significant increases in consumption going forward. It would seem from this case that these factors could interact this year produce to an unprecedented–and probably permanent–net oil export crisis. (January 2006)

And here we are now, a bit more than 2 years later, and what do we have? An unprecedented, and probably permanent, net oil export crisis.

Scraping the bottom of the barrel and pretending that’s a good thing

Oh, and by the way, this isn’t good quality oil in Manifa:

06-10-05 Saudi Arabia is to revive the giant mothballed Manifa oil field as part of its capacity expansion plans after 2009, according to a report by the Washington-based Centre for Strategic and International Studies.

With a well-detailed strategy already in place to boost the kingdom’s production capacity to 12.5 mm bpd from a current 11 mm bpd, the indication that Manifa will finally be demothballed — ending years of speculation– provides the first glimpse at state Saudi Aramco’s plans beyond the stated 2009 time frame.

Saudi Oil Minister Ali Naimi previously indicated that Manifa could be tapped if the kingdom needed to boost capacity beyond 13 mm bpd. The offshore Manifa field is capable of producing 1 mm bpd when fully developed, according to Aramco.

Following its discovery in 1957, the field was developed but later mothballed due to the heavy quality of its crude.

The launch of Manifa’s development remains on hold until the kingdom builds refineries capable of handling its heavy 28 degrees API gravity crude, the CSIS report revealed.

“The combined costs of fitting this field and the lack of refining capacity for the heavy crude it produces is responsible for the delay in putting this field on line,” said the report, entitled Saudi Arabia’s Upstream and Downstream Expansion Plans for the Next Decade: A Saudi Perspective. To this end, Saudi Aramco has plans to build two new refineries: a joint venture 400,000 bpd refinery in Yanbu and a new grassroots refinery at Jubail, also projected to have capacity of 400,000 bpd.

Manifa is expected to act as a launch pad for the kingdom’s extended plans to boost production capacity to 15 mm bpd beyond 2009.

Two other — as-yet-unidentified — projects could add a further 600,000 bpd to Saudi Arabia’s heavier crude oil production, according to the report. However, these schemes are also dependent on the success of downstream projects to cater for the heavier crude as well, as market demand post-2010.

As you can see, this field in the past was considered such low quality it wasn’t worth keeping open, now it’s the future. Also note some interesting numbers above, 13 to 15 million barrels a day are mentioned, now in 2008, you see only 12.5 million barrels a day, and that’s only in theory, the reality seems to be closer to around 9-10 maximum, and that’s while ‘preserving the resource for future generations’.

Does this sound familiar to you? I hope so, it should, Venezuela’s Orinoco oil fields are the same junk, just like the Canadian tar sands, only the last two are even worse than heavy oil, it’s actually solid sludge that has to be heated and essentially melted before it can flow to be extracted from the sand that holds it. And this is what we think is going to replace the high quality sweet light crude we developed the modern world with? I don’t think so.

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