The Planet Shivers as Oil Supplies Tighten

Posted: April 22nd, 2008 by: h2

Well, the news keeps pouring on. Yesterday’s reports of the Saudi King wanting to keep future finds for posterity got a rise out of the market.

And it’s not hard to see why:

Mexico’s state-run oil company said Monday that oil production fell 7.8 percent to 2.91 million barrels a day in the first quarter as current reserves dwindle.
Pemex also said Monday that oil exports had dropped 12.5 percent in the first quarter, mostly due to falling production and port closures caused by bad weather in February.

Mexico is one of the top 3 suppliers to the USA, if you’re not keeping track. I’m assuming this is a yearly averaged drop, not an actual 12.5% drop.

Meanwhile, crude futures today rose to $119.90

US crude oil hit an all-time peak of $119.90, boosted by supply worries from key producers Russia and Nigeria and a jump in demand last month from China, the second-largest energy consumer after the US.
Gulf Daily News

Are you getting worried yet? You should be. Take a look at what the Wall Street Journal put on their front page today:

But the [massive new oil Khurais field revitalization] 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.

Got it? Is that clear enough? This is the core premise of all peak oil discussions: 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.”
Saudi officials said a few years ago that they could push production to 15 million barrels a day if necessary and sustain that for decades. But for some time they’ve been indicating they would level out at about 12.5 million barrels of capacity.
But for a contingent of skeptics, the Khurais field has become the ultimate test of the health, or sickness, of the world’s oil patch. Skepticism runs deep in oil quarters over whether Saudi Arabia can overcome a slew of challenges, both geological and economic, to turn the Khurais field into what Saudi officials hope will become the fourth most productive oil field in the world, after Ghawar and fields in Kuwait and Mexico.

“This is the big one,” says Matthew Simmons, a Houston energy investment banker whose 2005 book “Twilight in the Desert” challenged Aramco’s petroleum prowess. “If Khurais falls short of its advance billing, then Saudi Arabia is going to struggle to fulfill its promises.”
Many experts are surprised that Aramco is using submersible pumps in a field that is still young, measured by its years of actual production. Aramco began installing similar pumps to boost production at its huge offshore Safaniyah field in 2005, but only after the field had been pumping oil for decades.

“The big Middle East fields used to go on for 30 or 40 years without blinking,” says Chris Skrebowski, a former Aramco oil analyst who now works for the London-based Energy Institute. Khurais’s geology is different. “If Ghawar is like a big wet sponge, then Khurais is like one of those hardened sponges that are very hard to wring out,” he says.
Aramco has suffered lately from soaring costs and increasing project delays. Through most of the 1990s, it cost Aramco around $4,000 to add one barrel of daily production capacity. A huge project called Shaybah, finished in 1997, required Aramco to run roads and pipelines deep into the country’s forbidding Empty Quarter and cost around $2 billion. For that, Aramco got 500,000 barrels a day in oil-production capacity.

Some experts estimate that it now costs the company closer to $16,000 to add one additional barrel of daily production capacity. Several big projects are running behind schedule because of a shortage of steel and manpower. A project called Khursaniyah was meant to bring on 500,000 barrels of daily capacity by the end of last year, but Saudi officials now say it may not hit that target until the end of the year.

Some doubt that Khurais will reach the promised 1.2 million barrels a day of oil production or be able to sustain that level if it does. Mr. Husseini, the former Aramco head of oil exploration, who retired five years ago, says he doesn’t doubt the company can extract that much at least briefly. “The question,” he says, “is how long you can sustain it and at what price.”

I’m quoting more than I usually do on this one because this was a front page article in the Wall Street Journal today. Front page. Think about it.

You see, that’s what’s it’s taking now to try to basically keep up with production. Keep in mind a core point: most large fields are in decline, and for a country to even keep up with its current production levels, it needs to add capacity constantly. Got that? And the capacity that’s being added is using increasingly low quality oil.

So what do the Saudi’s say today? Well, they just can’t quite manage to keep up with their King, who is much closer to telling the truth:

A lack of spare global output capacity means very little can be done to tame record high oil prices, the head of Libya’s National Oil Corporation Shokri Ghanem said on Tuesday.

“Very little can be done by anyone, there is not enough spare capacity to help,” he told reporters. “At a price of $115 everyone is producing what it can, equally there is no more demand either.”
Reuters Africa

Oh, whoops, I used the wrong quote, those darned Libyans, why won’t they fall into line? Wait, I’ll find it, just a minute, here it is…

Saudi Arabia has dismissed claims that it is overstating its real oil production capacity and said resulting fears and speculation are to blame for the sharp increase in crude prices.

Saudi Oil Minister Ali Al Naimi slammed “a handful of unqualified experts” for their attempts to create fear in the market by downgrading the real oil wealth and available capacity.
Emirates Business 24/7

What’s wrong with this picture? I’ll tell you what’s wrong. They aren’t releasing a single real statistic or fact to support their claims, and guys like Matt Simmons long since grew into the types of experts they are dismissing as ‘unqualified’. And let’s keep in mind who the other major unqualified people are… hmmm, there seems to be a problem, they are in fact basically all Oil Company Geologists, guys like Laherre, Colin Campbell, and of course, Marion King Hubbert.

These guys were all experts, and the ones alive, are still experts. But experts with one key difference: they were free to publish their findings only after getting out of the oil business. Why? Because the oil production business is built on a foundation of lies and misrepresentations of your reserves and productive capacities.

There are a few exceptions, Shell Oil seems to be seeing the bigger picture now:

As oil prices hit $117 a barrel this month, a forecast from Shell Oil outlines two very different possibilities for the future of the world’s energy supply. Looking out to the year 2050, Shell strategist Jeremy Bentham says demand will go up, while oil supplies will be harder to find. But how nations and companies react is harder to predict.

“We anticipate that you’ll begin to see a plateauing of easily accessible conventional oil and gas around about the 2015, 2020 type of period,” Bentham tells Steve Inskeep.

Bentham outlines two outcomes — one a “scramble” and the other a “blueprint” scenario — for addressing energy needs.

In the scramble scenario, he says, “a focus on supply security drives a lot of decision-making.” For example, China is worried about its future supply of oil, so it decides that it needs to be friendly with Iran. Or the U.S., worried about its supply of oil, holds intensive talks with Saudi Arabia.

“That can kick off a dynamic where the tensions are perceived to be a fight between nations and hence a scramble for supply. The demand side is postponed, in terms of being managed, in that scramble outlook,” Bentham says.

What’s wrong with this picture? Well, aside from the fact that Shell Oil is now closest to telling the truth of all the major oil companies out there, it’s still WRONG. We are now on an undulating plateau of production, and have been on it since 2005. So this prediction is already 10 years out of date!

And we are already fighting over future control over oil supplies, in Iraq literally, and China and India are working their collective butts off to lock down future supplies now. So this scenario is not a description of a future event, it’s a description of the present.

So what happened today? Well, some expected spin, that’s what happened:

Saudi Arabia’s petroleum minister Ali al-Naimi called for calm in the face of runaway oil prices on Tuesday, saying there was no imminent oil shortage.

‘This is not the time to panic and grasp for exotic, unproven solutions,’ he told the International Energy Forum being held here.

‘I have observed an unprecedented level of uncertainty, doubt and even fear in discussions about the future of energy and its impact on global economic prospects,’ al-Naimi told the closed-door session in comments obtained by AFP.

But ‘I can assure you unequivocally that the world is not running out of oil,’ he insisted.

Translation: Oil is now getting so incredibly expensive to drill and find that it’s becoming technically impossible. Hmmm, this sounds familiar, no? It should. The prediction? As oil peaks, it gets progressively harder to find and extract new supplies. So let’s just call this the peak, ok?

He’s using, in case you don’t recognize it, the classic anti peak method of twisting words, no peak oil commentator says the world is running out, they say that production levels are peaked, or are close to peaking, and are now going to enter into a steady downward spiral.

Too bad.

Heres’s the real problem. The experts who have been writing on this stuff now for decades are not in fact unqualified, and the OPEC countries did in fact massively increase their estimated reserves magically, often doubling them, right when Opec was going to use reserves to determine how much easy member nation was allowed to produce.

Whoops. So these countries have all been lying about their reserves for about 20 years or more. So let’s see some real numbers. As Simmons says, let’s see some well head by well head production numbers, including water cut percentages and so on.

And I’ll tell you right now, you’re not going to see that. Not today, not tomorrow, and not the day after. Why? Because then all their lies would get immediately exposed.

So they’ll just keep issuing more lies, first, no problem to go to 20 million barrels a day, then no problem for 15 million, now… oh we have 12.5 million capacity, but we just don’t feel like using it.. then… ok, we have 11 million barrels. Then, well, the new wells aren’t performing up to expectations, but they soon will, just wait… meanwhile Saudi gas and crude demand continue to skyrocket, production continues to decline, and new wells can barely keep up.

This is what it looks like when a system peaks, like it or not. Denial, misrepresentation, then finally the world realizes there isn’t going to be any more than what we can scrounge up in strange and hard to reach places.

Jeffrey Brown, aka westtexas, has written quite a bit about what the Texas oil peak looked like. Which looks a lot like the North Sea Oil peak.

Check it out, this stuff is getting easier and easier to find in the mainstream, it used to be only a handful of people who actually considered that maybe resources aren’t infinite that would listen to what the early warnings told us.

Then look around yourself, and start to ask yourself, what would life look like with 10% less oil, then 20%? And what will it look like when gas is $8 a gallon, then $12? What will it look like when at some point your local gas station was unable to get supplies that week? How about when your electrical and gas bills are 4 times higher?

This isn’t far in the future I’m talking about here.

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