One of the key questions in assessing the effect of the Libyan conflict on world oil prices was the extent to which an increase in Saudi production would offset some of the lost output from Libya. Now we know the answer, and it’s not reassuring.
Back on Feb 25, Reuters reported what sounded like some favorable indications:
Top exporter Saudi Arabia has raised oil output above 9 million barrels per day (bpd) to make up for a near halt in Libyan exports, an industry source said, helping prices fall further from the highest since 2008….
The Saudi move follows reassurances from Riyadh earlier in the week that it was prepared to act to prevent shortages as a result of the rebellion in Libya.
Only it later turned out that this production increase was not in response to events in Libya, but in fact had been implemented some months earlier. And this week Saudi Oil Minister Ali Al-Naimi tried to get us to believe that the Saudis have now gone back to lower production levels because there’s way too much oil being supplied already.
I kid you not. Here’s the quote from Bloomberg:
“Our production in February was 9,125,100 barrels a day,” al-Naimi said, as he arrived in Kuwait for a conference. “In March, it was 8,292,100 barrels. It will probably go a little higher in April. The reason I mention these numbers is to show you the market is oversupplied.”
Well, if the supply of low-sulfur oil from Libya has decreased, and the supply of high-sulfur oil from Saudi Arabia has increased, equilibrium would require an increase in the price spread between sweet and sour crudes. Between January 7 and April 15, the price of low-sulfur Brent increased by $28.64/barrel. The price of higher-sulfur Saudi light increased by $27.92; in other words, the Saudis allowed the spread to widen by all of 72 cents. And the heavier Saudi grades went up $26.62. The only legitimate meaning one can attach to Al-Naimi’s statement is that if the Saudis had wanted to sell 9 mb/d, they would have had to settle for less than a $25/barrel increase in the price of their lower grades.
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It’s also interesting to evaluate these comments in light of the recent dramatic increase in Saudi drilling efforts, as described by
Jim Brown on April 10:
We also heard just over a week ago from Halliburton that Saudi was upping its rig count from 92 to 118 with the majority of those new rigs going to the Manifa field. However, that news prompted even more concerns because the Manifa oil is heavy, sour crude. Why would you escalate production in heavy crude if the real problem facing the world right now is light sweet crude?
And, as if that weren’t curious enough, a few weeks ago Bloomberg reported that Saudi Arabia plans to invest $100 billion in renewable energy sources. Jim Brown again:
In theory the country with the largest readily available oil reserves in the world is suddenly considering spending $100 billion on alternative energy so they will have more oil to export. Does that strike anyone else as strange? Wouldn’t it be a lot cheaper to just punch a few more wells and produce more oil from the billions of barrels they have in reserve?
Here’s Stuart Staniford’s answer:
All of this evidence points in the direction of Saudi Arabia being unable to raise production much if at all in the near term.
You may call it unable, or you may call it unwilling. But whatever you want to call it, don’t pretend that the Saudis’ claimed excess capacity is oil that the world is actually going to use in 2011.
And whatever you want to call it, don’t pretend that the current price of oil has nothing to do with supply and demand.
…don’t pretend that the current price of oil has nothing to do with supply and demand.
I, for one, will not accuse you of going too far out on the limb in making this statement.
First and foremost, the key point to keep in mind is that 2011 will likely be the sixth year in a row that Saudi net oil exports will be below their 2005 annual rate of 9.1 mbpd (total petroleum liquids), despite the fact that it appears that annual US spot crude oil prices will have exceeded the $57 level that we saw in 2005 for six straight years, with five of the six years showing year over year increases in annual oil prices. (Soon, the Saudis will have been showing declining net oil exports, relative to 2005, longer than the Second World War, 1939 to 1945).
Regarding Saudi Arabia, it’s really a story of two countries: (1) Saudi Arabia through 2005 and (2) the post-2005 Saudi Arabia.
Let’s look at 2002 to 2010 Saudi net oil exports versus US annual spot crude oil prices (EIA):
From 2002 to 2005, the Saudis responded to rising oil prices with sharp increases in net oil exports:
2002: 7.1 mbpd & $26
2003: 8.3 mbpd & $31
2004: 8.6 mbpd & $42
2005: 9.1 mbpd & $57
But then we have post-2005 Saudi Arabia, when the Saudis responded to generally rising oil prices with declining net oil exports:
2006: 8.4 mbpd & $66
2007: 8.0 mbpd & $72
2008: 8.4 mbpd & $100
2009: 7.3 mbpd & $62
2010: 7.6* mbpd & $79
*Estimated
Post-2005 Saudi Arabia has of course shown the same pattern as Texas after 1972, i.e., declining production, relative to a prior peak, in response to rising oil prices. Five years ago, in the following article, we suggested that Saudi Arabia, in 2005, was at about the same stage of depletion at which the prior swing producer, Texas, peaked in 1972. In the following article, we lined up Texas crude oil production in 1972 with Saudi crude oil production in 2005 (crude + condensate):
http://www.energybulletin.net/node/16459
Texas and US Lower 48 oil production as a model for Saudi Arabia and the world (May, 2006)
The following chart is the 2006 Texas/Saudi chart with actual Saudi data for 2006 to 2010 added:
http://i1095.photobucket.com/albums/i475/westexas/Slide10.jpg
In my opinion, what passes for excess capacity worldwide, including Saudi Arabia, largely consists of what Matt Simmons called “Oil stained brine.”
By increasing their output of “Oil stained brine” and by depleting inventories, I suspect that the Saudis could show some kind of short term boost in delivered oil, but I think that the time has passed when they could bring global prices down via a steady increase in net oil exports in excess of their 2005 annual rate.
The Saudis have some new production coming on line, but that was true of other post-peak regions too.
For example, Sam Foucher looked at new oil fields in the North Sea whose first full year of production was 1999 or later, and these new oil fields had a peak of about one mbpd in 2005 (versus the overall peak of six mbpd in 1999). These new fields, equivalent, at peak, to one-sixth of 1999 production only served to slow the overall decline to about 5%/year.
BTW, there were certainly have two stock markets in Saudi Arabia: (1) Through 2005 and (2) Post-2005:
http://www.tradingeconomics.com/Economics/Stock-Market.aspx?symbol=SAR
Interesting coincidence that the Saudi stock market crashed at precisely the same point at which the Saudis started “voluntarily” reducing their net oil exports.
Finally, Sam Foucher has done some extensive mathematical modeling of future Saudi production, consumption and net oil exports. The following chart shows the actual data through 2006, along with Sam’s projections. The dashed lines are the 95% probability limits. I presented this graph at the 2007 Houston ASPO-USA conference. The actual data points for 2007, 2008 and 2009 have been added (circled).
http://i1095.photobucket.com/albums/i475/westexas/Slide1-6.jpg
There is some argument that the Sauds decided to lower production to punish the US for not siding with them and Mubarak.
http://www.foreignpolicy.com/articles/2011/04/14/outraged_in_riyadh
Take it FWIW.
Everything I’ve read indicates oil is in oversupply. Full refineries, hold tanks at capacity, etc. The Saudis are simply opting to keep their oil in the ground and wait for higher future prices, instead of extracting it only for it to be stored in hold tanks, oil tanker ships, refineries and the like.
compliments and thanks for this article and j. Brown’s data.
Also, Jimmy Rogers, famed investor, has long said that Saudi oil reserve estimates are B.S.
As the #1 consumer the U.S. could effectively control the price of oil.
Oil goes up, increase the tax. Oil goes down, decrease the tax.
Thanks for this analysis. It’s also good to see Jeffrey Brown’s informative data.
We are now in a world where some people are able to see that peak oil, far from being a theory, is an historical fact. Unfortunately too many remain in the dark, ideology denying them sight.
It really is time to move forward with a serious discussion of the policy implications of peak oil, not the least of which is the matter of the flow of money from consumer to producer/extractor. For example, efficiency and conservation require investment. From where should this money come?
In some cases, the ratio of oil consumption (C) to production (P) provides some useful information (oil is defined as total petroleum liquids).
At the 2005 to 2009 rate of decline in the US oil C/P ratio, the US would approach 100% (which is the dividing line between net importer and net exporter status) around 2024.
A somewhat similar ratio is Chindia’s combined net oil imports, as a percentage of global net oil exports. This ratio increased from 11% in 2005 to 17% in 2009. At this rate of increase, Chinidia would consume 100% of global net oil exports around 2025.
For what it’s worth, note the similarity between the two projections (2024 and 2025).
Our work suggests that the US is gradually being outbid by developing countries for access to a slowly declining supply of global net oil exports.
Following are two articles and two scenarios for 2005 to 2015:
http://www.energybulletin.net/stories/2010-10-18/peak-oil-versus-peak-exports
Peak oil versus peak exports
http://www.energybulletin.net/stories/2011-02-21/egypt-classic-case-rapid-net-export-decline-and-look-global-net-exports
Egypt, a classic case of rapid net-export decline and a look at global net exports
In our 2010 ASPO-USA presentation, we looked at some near term scenarios for global net exports, out to 2015. We constructed two scenarios. For both scenarios, we assumed a slight 2005-2015 production decline of 5% (0.5%/year) among the top 33 net oil exporters, and we assumed that Chindia’s 2005 to 2009 rate of increase in net oil imports continued out to 2015. The only variable was consumption in the top 33 net oil exporting countries.
For Scenario #1, we assumed no increase in consumption among the exporting countries, from 2009 to 2015. For Scenario #2, we assumed that the exporting countries’ 2005 to 2009 rate of increase in consumption continued out to 2015.
Under Scenario #1, global net oil exports in 2015 would be down by 9.6% from the 2005 level, while the volume of “available” net oil exports, i.e., the volume of net exports not consumed by Chindia, declined by 28% from 2005 to 2015, from 40.8 mbpd (million barrels per day) to 29.5 mbpd.
Under Scenario #2, global net oil exports in 2015 would be down by 14% from the 2005 level, while the volume of “available” net oil exports, i.e., the volume of net exports not consumed by Chindia, declined by 33% from 2005 to 2015, from 40.8 mbpd to 27.4 mbpd.
To summarize Scenario #2, if we extrapolate the 2005 to 2009 rate of increase in consumption by the exporting countries out to 2015 and if we extrapolate Chindia’s 2005 to 2009 rate of increase in net oil imports out to 2015, and if we assume a slight production decline among the exporting countries (0.5%/year from 2005 to 2015), then for every three barrels of oil that non-Chindia countries (net) imported in 2005, they would have to make do with two barrels of oil in 2015.
The only issue I have at all is resolving Mr. Brown’s 7.6 MBPD production last year with SA’s claim of 9 MBPD in recent months–a roughly 20% increase.
It’s very hard to turn on the oil flow that much that quickly simply from an operational perspective (forget about reserves). My guess is that SA is overstating its actions whether in response to Libya or market opportunities or both.
That seems exactly right. The current spot price is set by the current supply and the current demand.
What Saudi Arabia has in the ground isn’t relevant unless they are willing to pump it at the current price. Clearly, any country with sizable reserves that wants to optimize its total return has to make ever-evolving calculations as to future supply and demand, substitution, etc.
That oil isn’t flowing from Libya, or consumption is temporarily down in Japan, are just tiny parts of the equation.
BTW, there’s an article in this week’s New Yorker about fracking for oil in North Dakota.
One last point, is anyone else annoyed by the use of Saudi as a substitution for Saudi Arabia? That’s like referring to the U.S. by the term American. It’s actually worse because the all the people of Saudi Arabia aren’t Saudis, just the rulers.
There is one more scenario that MENA type revolutionary supply disruptions spread to all (most) autocratic oil producing nations sooner or later , leading to punctuated demand/supply balance on top of increased demand from China/India and decreasing supply from fields beyond their peak extraction capability.
MENA type events will also punctuate the flow of investments in oil infrastructure and increase the costs of safeguarding (yes , militarily) oil supply.
That all leads to a following Brent price prediction chart in 2011-2012 ( made on February 6th) , which tells that oil above 150 USD will be here already in July-August, which in turn, means, the USA will be forced in recession in Q1 2012 ( or earlier, if China revaluates yuan).
http://saposjoint.net/Forum/viewtopic.php?f=14&t=2626&st=0&sk=t&sd=a#p30486
So far this graph has correctly predicted both peaks and through of oil price after February 6th, with a scale 5 USD below actual prices ( that is probably USD devaluation effect) .
So I am quite confident it will be accurate also in future, meaning bottom at week beginning of May and than rise to 140 USD ( Brent) by July, dip in August to 130 USD and breakthrough to 155-160 USD (Brent) in October 2011.
2012 looks proper for recession in the USA as well as fundamental changes in the USA politics towards oil ( e.g the pipeline prof. Hamilton mentioned will be built,drilling in Alaska started etc, but all too late to stop recession).
The graph was made based on long term patterns (> 6 times the length of shock) oil prices show in reaction to sharp financial or political shocks that leads to initial global cooperation and then de-cooperation as local interests win over.
This is an aggregate curve. The needed causal individual unpredictable events will show up in due course as they should. Just interesting to see which ones will be the culprits for e.g 2012 increase.
I do not believe in devaluation of USD to levels that will cause such oil prices. USD is world reserve currency, it will not be allowed to play with by e.g. oil suppliers as the USA might please.
We are now at the point where the price of oil serves as the key automatic stabilizer on world growth, ( or at a minimum, U.S. growth and any country that pegs to the dollar).
World economic activty gets too fast, the price of oil goes up, and slows the world growth rate. World economic activity slows, the price of oil falls and the world growth rate recovers.
Terry,
It’s always helpful to carefully read what people write. The critical number is the volume of net oil exports, which are defined as domestic production less domestic consumption, typically calculated in terms of total petroleum liquids (crude oil, condensate and natural gas liquids). The net export numbers for Saudi Arabia are what I showed above (versus annual US crude oil prices).
Another production metric is crude + condensate, which is what I showed in the Texas Vs. Saudi production graph. To make it even a little more complicated, OPEC production numbers frequently refer to crude only, not even counting condensate.
Incidentally, the US became a net oil importer in 1948, 22 years before our production peaked.
I’m not sure that the Keystone pipeline that Bob_in_MA referred indirectly to will be much of a solution. Their are some hidden issues that seem to be being ignored.(source)
We’re scraping the bottom of the barrel, as we get better at scraping the sooner we’ll reach the point where their is nothing but barrel.
The transformation to a society that is profoundly more productive with energy needs to happen sooner than later.
If Russia’s (or Mexico’s, etc) exports rose, we’d say that was a good sign for them. Why interpret falling consumption in the US, which frees up products for export, as a bad thing?
In other words, what does “outbid” tell us? It sounds negative, but it doesn’t really tell us what’s going on.
If someone chooses to buy a Prius to save money on gas, have they been “outbid”?
Nick,
I guess we can debate good versus bad, but following are the relevant data in chart form, which, in my judgment, suggest that the US is being gradually shut out of the global oil export market.
Incidentally, note that we are just barely self-sufficient in coal, and in fact on a tonnage basis, we actually slipped into net importer status a few years ago (100% = dividing line between net exporter and net importer status).
Two charts:
Normalized Oil Consumption for the US and four developing countries for 1998 to 2009 (EIA, 100 = 1998 consumption level):
http://i1095.photobucket.com/albums/i475/westexas/Slide3.jpg
US Consumption to production ratios for oil, natural gas and coal for 1998 to 2009 (EIA):
http://i1095.photobucket.com/albums/i475/westexas/Slide1-5.jpg
I tend to agree with Jim that probably the Saudis are facing some sort of limits on oil production, although there are some other things going on not mentioned here but reported by such folks as former US Ambassador to KSA, John Burgess on xrdarabia as well as Juan Cole.
So, Burgess mentions rumbles that deals have been made inside the Saudi royal family that need to be paid for, so they are interested in an especially high price now. Burgess also mentions, doubtingly, the theory about them wanting to punish the US. I doubt that as punishing the US involves punishing the whole world economy and damaging long run demand. Of all the oil exporters they have always had the lowest discount rate and worried about the price getting too high so it could push consumers to seriously get off oil.
They are upset with the US and bringing in Paki military units to help them. They are not only upset about Mubarak, they are annoyed at low level criticism by the US of their intervention in Bahrain.
What is most striking to me is that this is the first time that they have clearly simply misrepresented in public discussion what the global oil market situation is. Inventories may be high, but prices are high and rising, although possibly $15 of that is Libyan reduced production plus general nervousness about the region. But this disconnect from market realities is disturbing and unusual, especially given the long continuity of leadership there, with some people in for decades, such as Foreign Minister Sa’ud ibn Faisal ibn Abdulaziz al Sa’ud, in for over three decades now, making him senior in such a position in the world.
All this points in my mind to that Jim is right, that they are facing production limits. My guess is that the long secret supplies in the Empty Quarter do not amount to anything after much investment in them, including massive pipeline purchases from the Russians. Another is the long running reports that the northern part of al Ghawar, by far the world’s top producing field, is running low, or running difficult.
Some of these other problems or issues may be operative, but the top guess is that some or others of these production problems are an issue, and like Saddam not wanting to admit he had no weapons of mass destruction, KSA leaders do not want to admit that they are no longer the global balance wheel able to up production when needed.
As most people are aware, and wiki leaks verifies, the public statements of Governments do not paint the full picture. Clearly the Saudis are confronting the decreasing returns in oil production once a field matures. Ref: Hubbert curve. As large as Garwah was, it is spent. The next big oil crunch is very close and it will then become clear to ALL that there is no excess capacity. The best we can do is accelerate the transition to an economy that is less reliant on oil in the energy mix.
Let’s wait and see what the Saudis say this week. Bit I agree with Barkley. This appears the first time the Saudis have used oil as a political weapon since the early 1980s. If so, the message is, “Regime change is a two way street.” (See my article: “An Oil Shock in 2012?”)
Hunter: What does that mean: “Transition to an economy less reliant on oil.” Does that mean “reduce oil consumption” or does it mean “maximize the oil supply and augment it with additional sources of energy like CNG, GTL, CTL and electric vehicles?”
As a practical matter, the steps in addressing the problem could be as follows, in order:
1. Stop producing less. Gulf of Mexico production is forecast off by 600 kbpd by Sept. 2012. That has to be reversed.
1a. Stop producing less. Don’t gratuitously offend Saudi Arabia.
2a. Produce more. Alaska should be good for another 1.8 mpbd. Will it take time? Yes. We should have accelerated production there five years ago.
2b. Produce more. Fast track the Keystone XL line to facilitate enhanced Bakken production. The Bakken should be good for 1.5 – 2.2 mbpd by mid-2020’s if things go reasonably well.
2c. Produce more. Make sure Iraq holds together. That could be good for around 0.5 mbpd annually for the next several years.
3a. Substitute in. Nat gas is one-fith the price of oil in energy terms. We need a $1,000 CNG fuel tank. That’s it.
4. Use new technologies. Battery research is fine. The Nissan Leaf, however, looks not ready for prime time. The money for its manufacturing plant would have been better spent on CNG. For battery powered cars, the key is automony, to spread fixed costs over greater utilization. The technology for autonomy is reasonably advanced. It needs a regulatory framework, however.
5. Conserve. The most important issue here is to provide information to consumers. Obama has done some of that; I think he was not forceful enough. Flex taxes can be part of this, which establish progressive floor prices for gasoline. But keep in mind, the economy has a speed limit on conservation and efficiency. Break it, and you’re in recession.
We continue to ignore the impact on GDP and GDP growth an aggressive energy policy has. Each barrel increases GDP by the price. It increases GDP by the price a second time by reducing imports. This before considering multiplier effects of having workers located in the US when paid, and building of communities to support that work and those workers.
We also continually fail to realize the import role US action plays in signalling to the rest of the world and other producers. When we hoard our fossil fuel resources, can we expect any other behavior from other producers?
If we wantthe world to see renewable resources as viable competitors worthy of in vestment, we must aggressively pursue our own resources and announce that we are doing it because we believe the price of oil is peaking and that soon alternatives will drive the price down.
Signalling
Saudis are very careful in matters of diplomacy. They avoid offending anyone. I think a number of aspects play into the present situation. One for sure is the aspect of the USA supporting rebellions in the middle east. Another may be that the Saudis also realize (their riyals is at fixed rate to the $) that they need to benefit more if the US continues to inflate their money supply. And of course, their reserves may really be lower than they pretend. Therefore consider that it may be a combination of aspects. But they definitely will never state the real issues for their move.
Steve,
As noted above, it is likely that 2011 will be the sixth year in a row that Saudi net oil exports will be well below their 2005 annual rate of 9.1 mbpd (total petroleum liquids). Whatever has been happening in Saudi Arabia has been happening for a long time, and the decline in Saudi net oil exports is in sharp contrast to the rapid increase from 2002 to 2005.
And regarding supply, the problem with focusing solely on incremental increases in production is that it ignores depletion. As noted above, North Sea oil fields whose first full year of production was in 1999 or later (when the North Sea peaked) had a production peak of about one mbpd in 2005, but these new fields, equivalent to about one-sixth of peak production, only served to slow the overall decline to 5%/year.
Having said that, it is very important to keep domestic exploration and production going, but the fact that oil companies can make money in post-peak regions by incrementally increasing production in selected areas does not necessarily mean that they can make a material difference in the supply situation.
The Saudis are about making money from their oil production? In February they produced 9.125 million bbls at an average price of $89.7 or $818.3 million. In March they produced 8.292million BBLS at an average price of $103.01 or $854.2 million. If they can produce less and make $35.92 million more why should they produce more.
If April production continues at 8.0 million bbls they will make $31.2 more than March.
We are hoping that an increase in production will lower costs but the Saudis are perfectly happy. They have no need to produce more and this is especially true when oil reserves are remaining stable.
Most do not want to admit it but oil prices are more a function of the weak dollar than they are of production. What makes this even more abnormal is that usually global unrest strengthens the dollar because of a flight to safety. In today’s world buying the dollar is not considered a flight to safety. The best proof of this trend is in the rapid increase in the price of gold.
Steven,
An economy less reliant on oil is one that firstly conserves this valuable resources.
Secondly alternatives to oil based transportation need to come to market faster.
I disagree with your notion that we need to produce more. I don’t believe any more can be produced as the investment funds necessary to develop unexploited resources are not moving fast enought to offset the depletion rates in existing production locations.
Ricardo – Re-read what Jim has written.
Hunter –
In peak oil, by defintion, you cannot conserve oil resources, because you are supply-constrained, not demand-constrained. If we consume less, we’ll just move consumption to China. Evidence: Since December 2007 (the first month of the Great Recession), OECD consumption is down 4.0 mbpd; non-OECD consumption is up 4.3 mpbd. That is, increased non-OECD consumption was provided in overwhelming share by OECD consumers, not oil producers. Whatever we save, the Chinese will burn. Jim has also written on this topic (re-allocation of consumption).
We are producing more, and we can produce more. But, the permatorium lingers in the Gulf; Shell is being denied air permits in Alaska; and there’s dithering over the Keystone XL pipeline (about which Jim has also written). And we’ve done blessed nothing about bringing CNG into widespread use, although it’s not a particularly challenging topic and Boone Pickens has been pushing it for a good three years.
So, you can take a fatalistic view, and say there’s really nothing we can do about it. This is pretty close to the President’s rhetoric. Or we can be proactive and go out and get the oil, which essentially reflects the thinking of the Republican majority on the House Energy and Commerce Comm/E&P Subcommittee. I am in this latter camp.
Jeffrey Brown,
I just did some digging and coal exports from the US last year were 88 million short tons while imports were 19 million. Looks like the US is still a pretty substantial net exporter of coal.
Steve Kopits,
The Saudi royal family is a closed but collective decisionmaking body with some members more important than others, and clearly there are multiple factors going on here. I agree with Jeffrey Brown and Jim H. that it looks like the KSA is running into production limits, although characterizing al Ghawar as “run dry” is a substantial overstatement.
Nevertheless, some digging shows that the claim that there is “too much oil” floating around in world markets is patently false. Inventories are declining in the OECD and particularly sharply in the US, and of course Chinese demand continues to surge while global production is not increasing. It does look like something else is going on, probably a combination of punishing Obama for not supporting Mubarak and particularly the Saudis in their interventon in Bahrain, plus possibly some pressure from short-sighted royal family members gaining influence (second generation?) and demanding “it now.”
Steven,
I really appreciate your input and that of Barkley.
I don’t see my comments contradicting what Professor Hamilton has written. I simply wanted to make sure that the impact of US mismanagement of the currency was not forgotten in the analysis.
Barkley,
Your numbers are not inconsistent with what I posted. The EIA shows that the US consumed, on a tonnage basis, 96% of our coal production in 2008 and 93% in 2009. For 2009, the specific numbers were production of 1,072 million short tons and consumption of 1,000 million short tons.
On a tonnage basis, in 2000 we actually consumed slightly more than we produced.
EIA data:
http://tonto.eia.doe.gov/countries/country-data.cfm?fips=US#undefined
Regarding net coal exports:
It looks like the EIA may have some kind of BTU adjustment, but in any case, they show 2009 net coal exports from the US at 37 million short tons, versus 288 for Australia and 261 for Indonesia.
It appears that the average BTU content for US coal is about 20 million BTU per short ton.
If my math is correct, US net coal exports in 2009 were the equivalent of about 337,000 BOE per day (0.34 mbpd), versus recent Saudi net oil exports in the 7 to 8 mbpd range, which is why the common description of the US as the “Saudi Arabia of coal” does not seem quite accurate.
Here’s the math in terms of daily net US coal exports for 2009 (EIA):
(101,000 short tons per day X 20 million BTU/ton)/6 million BTU/BOE = 337,000 BOE per day.
And one more note about US net coal exports (and again there appears to be some kind of BTU adjustment), here are the EIA charts for US net coal exports and for Australia:
US Net Coal Exports:
http://tonto.eia.doe.gov/countries/img/charts_png/US_coanet_img.png
Australian Net Coal Exports:
http://tonto.eia.doe.gov/countries/img/charts_png/AS_coanet_img.png
I’m not convinced I’d push the analogy too far with Texas:
Texas (State, proved non-producing reserves)
– Proved reserves 2009: 1.5 bn barrels
– Proved reserves 2004: 625 million barrels
– Texas daily production: 1.1 mbpd
– Reserves / Annual Production: 3.5 years
Saudi Arabia
– Proved reserves: 266 bn barrels
– Daily production: 9.1 mbpd (latest EIA)
– Reserves / Annual Production: 80 years
If Saudi were pumping at the same pace as Texas, it’s daily output would be 200 mbpd. So, it Saudi a virginal oil country? No. By rights, should the country still have vast firepower? Yes, it should.
How can you determine if this is the result of speculation unless you know what the marginal cost of production is? I see nothing here that attempts to estimate that.
How can you differentiate this rise from the rise in 2008? Are we saying that the 2008 peak had nothing to do with speculation?
Concluding speculation is not involved is simply a restatement of a belief in free markets, particular since you make little reference to the actual costs of producing oil at the margin.
J J Brown,
You may be right that what is going on is some sort of revision due to BTU calculations.
Steven,
I agree with fladem. Yes, KSA has lots of oil (so do we, actually, if one counts all that very-expensive-to-extract shale oil in Wyoming et al). But there was a time when the MC was about $2 per barrel. Those days appear long past, and I suspect that the problem is in the northern part of al Ghawar, where it appears they have been making increasingly strenuous efforts just to keep the flow going. The MC has risen sharply, although I think one cannot justify the current price on the basis of it.
Apologies, Ricardo.
EPA denied Shell’s Alaska air permits, if I read correctly. Gasoline’s at $4 and the Administration won’t let Shell drill in Alaska because one of its vessels comes within 70 miles of a village. Astounding. The Administration better hope they’re reading the public mood correctly. They certainly seem to have hit the right tone with the Saudis.
Steven,
I’m afraid you don’t understand the argument that we made five years ago. Following is a link to a paper we posted in in May, 2006, in which we suggested that Saudi Arabia, in 2005, was at approximately the same stage of depletion at which the prior swing producer, Texas, peaked in 1972.
In this paper, we constructed a graph which lined up Saudi Arabia production in 2005 with Texas production in 1972 (crude + condensate in both cases). Note that we only had annual Saudi crude oil production through 2005 at the time.
http://www.energybulletin.net/node/16459
Texas and US Lower 48 oil production as a model for Saudi Arabia and the world (May, 2006)
1972 Texas production peak lined up with Saudi Arabia in 2005 (Texas in black, different vertical scales):
http://farm1.static.flickr.com/55/145186318_27a012448e_o.png
Texas/Saudi production graph with 2006 through 2010 data points added:
http://i1095.photobucket.com/albums/i475/westexas/Slide10.jpg
As we know, correlation is not necessarily causation, but on the other hand, just like Texas after 1972, Saudi Arabia has shown declining oil production, versus rising annual oil prices (relative to 2005).
Needless to say, in my opinion the 260 Gb number for Saudi Arabia recoverable reserves is more of a fairy tale than a realistic number.
And following is an excerpt of what I posted up the thread. Note that the following graph shows total petroleum liquids:
Finally, Sam Foucher has done some extensive mathematical modeling of future Saudi production, consumption and net oil exports. The following chart shows the actual data through 2006, along with Sam’s projections. The dashed lines are the 95% probability limits. I presented this graph at the 2007 Houston ASPO-USA conference. The actual data points for 2007, 2008 and 2009 have been added (circled).
http://i1095.photobucket.com/albums/i475/westexas/Slide1-6.jpg
Note that the large coal exporters – Australia, Indonesia, Russia – are much closer to the large coal importers – China, Japan, WEurope – than the US is, meaning their shipping costs are much lower. As an example, it’s about 3000mi from Darwin to Shanghai, but 6500mi from Los Angeles.
Transportation costs account for a large share of the total delivered price of coal; as a result, the fact that the US is not a major coal exporter probably tells us very little about its ability to produce coal.
Jeffrey –
I understand all that. But if you want peak oil in Saudi, it’s 9.9 mbpd (incl lease cond) in 1980, not 2005. Now, you could correctly counter-argue that 1980 was artificial, the result of Saudi policy, etc. And that’s true. It’s also the point.
Saudi Arabia is not a free market, where we can confidently say that production reflects the aggregate results of a large number of independent, profit-oriented companies. The decisions and politics of the ruling family matters.
Our best source of insight is still probably Sadad al Husseini, who served as Executive Vice President for Exploration and Production at Aramco from 1992 until his retirement in 2004. Here’s what he says (from Wikileaks):
“…All parties estimate this amount to be approximately 360 billion bbls. In al-Husseini’s view, once 50% depletion of original proven reserves has been reached and the 180 billion bbls threshold crossed, a slow but steady output decline will ensue and no amount of effort will be able to stop it. By al-Husseini’s calculations, approximately 116 billion barrels of oil have been produced by Saudi Arabia, meaning only 64 billion barrels remain before reaching this crucial point of inflection. At 12 million b/d production, this inflection point will arrive in 14 years. Thus, while Aramco will likely be able to surpass 12 million b/d in the next decade, soon after reaching that threshold the company will have to expend maximum effort to simply fend off impending output declines. Al-Husseini believes that what will result is a plateau in total output that will last approximately 15 years, followed by decreasing output.”
So, you could make the case that the Saudis do not intend to raise production (although al-Naimi has indicated a willingness to do so many times in the last couple of years), but the plain vanilla read of al Husseini is that they could.
I don’t remember where I read it, but it was suggested once that Saudi has not done significant new exploration because they believe there are other large fields, which would crash the price. Can there ne anything to this rumor?
Steven,
As you know, Texas was the prior swing producer, until the state hit its final production peak in 1972. So, our premise was that we would use the prior swing producer as a model for the current swing producer, in order to estimate when Saudi Arabia would hit their final production peak.
As noted above, we can’t prove causation, but the post-2005 Saudi response to rising oil prices was diametrically opposite from their 2002 to 2005 response to rising oil prices–and the post-2005 Saudi response was consistent with what we saw in Texas after 1972, and it is consistent with what our modeling predicted.
Time will tell if Saudi Arabia will ever again exceed their 2005 annual crude oil production rate of 9.6 mbpd or their 2005 annual total liquids production rate of 11.1 mbpd, but I think that it is extremely unlikely that they will ever again exceed their 2005 annual net export rate of 9.1 mbpd.
Regarding Sadad al Husseini, two points: (1) I believe that he and his family still reside in Saudi Arabia, which probably limits what he can say and in any case (2) Most Texas oillmen were shocked when Texas oil production fell in 1973, after the state went to a statewide 100% allowable in 1972.
As they say, frequently the simplest explanation is the best, and in this case, in my opinion, the simplest explanation is that Peaks Happen.
Jeffrey,
Those charts don’t suggest to me that “the US is being gradually shut out of the global oil export market. ” They suggest to me that the US is getting smart by getting more efficient and moving to substitutes.
You could extend that US oil consumption chart back to 1979 and it would be even more dramatic: US consumption is no higher today than it was in 1979, but US GDP is 2.5x larger, and manufacturing is 1.5x larger.
If a homeowner cuts their heating cost by 75% by moving from fuel oil to natural gas or a heat pump, how is that “being shut out”? I’d call it getting smart.
Nick,
Obviously it’s a complicated subject, but the fact remains that from 1998 to 2010 we have seen an average double digit rate of increase in annual oil prices.
What is remarkable is that it appears that most developing countries showed rapid increases in oil consumption over this time period, while US oil consumption in 2009 was below our 1998 consumption level.
It will be interesting to see what happens over the next 10 years.
For all:
Following are what we show for global net oil exports for 2002 to 2009 (oil exporters with net oil exports of 100,000 bpd or more in 2005, which account for 99% plus of global net oil exports).
Note that global net oil exports increased at about 5%/year from 2002 to 2005, and then we had flat to declining global net oil exports. I suspect that this inflection point was quite a shock to oil importing countries, especially developed oil importing countries.
From 2005 to 2009, I have added Chinidia’s combined net oil imports. The difference between the two is what I define as Available Net Oil Exports (ANE), i.e., global net oil exports not consumed by Chindia.
As you can see, ANE fell from 40.8 mbpd in 2005 to 35.7 mbpd in 2009. A plausible estimate is that ANE will be down to about 27 mbpd by 2015.
Global Net Oil Exports (BP + Minor EIA data):
2002: 39 mbpd
2003: 42
2004: 45
2005: 46 – 5.2* = 40.8
2006: 46 – 5.5 = 40.5
2007: 45 – 6.1 = 38.9
2008: 45 – 6.6 = 38.4
2009: 43 – 7.3 = 35.7
*Chindia’s combined net oil imports
This table shows the detailed data for 2005 to 2009:
http://i1095.photobucket.com/albums/i475/westexas/Slide3-1.jpg
Jeffrey,
So you’d estimate that ANE is dropping about 4% per year?
The US compares favorably:
From 1979 to 207 the decline in the US oil to GDP ratio was about 3%. Then net imports dropped by 25% from 2007 to 2010, for a compounded annual decline of about 11%.
I’d say we’re going in the right direction.
Nick,
The exponential decline rate in ANE from 2005 to 2009 was 3.3%/year.
Over the same time frame, US oil consumption fell at 2.6%/year (EIA). US net oil imports fell at a faster rate, about 6.5%/year, because of an uptick in domestic production.
But of course, the question going forward, say for the next decade, is how is this bidding war–between the developed countries and the developing countries–for (IMO) declining global net oil exports going to play out?
As noted above, the winners in the bidding war for the past decade were clear–the developing countries hands down.
Jeffrey,
You’re projecting a decline from 35.7 in 2009 to 27 in 2015, for a decline rate of 4.5%?
US net oil imports fell from 12.48 in 2005 to 9.54
in 2009, per the EIA, for a decline rate of 6.5%, but that has accelerated lately: 2007 was 12.22, so the decline from 2007 to 2009 was 11.65% per year.
Again, you use the phrase “bidding war”, which suggests that the US is losing out.
I would argue that the US is becoming more independent of oil, while China in particular is becoming much more dependent: the US has gone from 60% imports to 50% imports very recently, while China’s imports are rising above the 60% mark pretty fast.
One serious weakness for China: much of this oil is being used in diesel generators for manufacturing operations which can’t get enough power from the grid. This is a serious mis-allocation of resources, and it’s contributing to China’s recent inflation problems.
Re: “the US is becoming more independent of oil”
Actually, that’s how we characterized it in the following article, excerpt follows:
Peak Oil Versus Peak Exports:
http://www.energybulletin.net/stories/2010-10-18/peak-oil-versus-peak-exports
Peak oil versus peak exports
In our 2010 ASPO-USA presentation, we looked at some near term scenarios for global net exports, out to 2015. We constructed two scenarios. For both scenarios, we assumed a slight 2005-2015 production decline of 5% (0.5%/year) among the top 33 net oil exporters, and we assumed that Chindia’s 2005 to 2009 rate of increase in net oil imports continued out to 2015. The only variable was consumption in the top 33 net oil exporting countries.
For Scenario #1, we assumed no increase in consumption among the exporting countries, from 2009 to 2015. For Scenario #2, we assumed that the exporting countries’ 2005 to 2009 rate of increase in consumption continued out to 2015.
Under Scenario #1, global net oil exports in 2015 would be down by 9.6% from the 2005 level, while the volume of “available” net oil exports, i.e., the volume of net exports not consumed by Chindia, declined by 28% from 2005 to 2015, from 40.8 mbpd (million barrels per day) to 29.5 mbpd.
Under Scenario #2, global net oil exports in 2015 would be down by 14% from the 2005 level, while the volume of “available” net oil exports, i.e., the volume of net exports not consumed by Chindia, declined by 33% from 2005 to 2015, from 40.8 mbpd to 27.4 mbpd.
To summarize Scenario #2, if we extrapolate the 2005 to 2009 rate of increase in consumption by the exporting countries out to 2015 and if we extrapolate Chindia’s 2005 to 2009 rate of increase in net oil imports out to 2015, and if we assume a slight production decline among the exporting countries (0.5%/year from 2005 to 2015), then for every three barrels of oil that non-Chindia countries (net) imported in 2005, they would have to make do with two barrels of oil in 2015.
The Chindia consumption increase is not unique. Many developing countries have shown significant increases in oil consumption, relative to their late Nineties consumption levels, despite large increase in oil prices.
Our forecast for the US and for many other developed OECD countries is that we are well on our way to becoming free of our dependence on foreign sources of oil–just not in the way that many people anticipated.
Jeffrey,
You’re suggesting that the OECD countries will be forced to do without oil, and that this will be bad for them.
I’m suggesting that the OECD countries will find efficiencies and substitutes for oil, and that this will be good for them.
In other words, I think this amounts to arguing that “we are well on our way to becoming free of our dependence on foreign sources of oil” exactly in the way that many people anticipated.
Regarding coal discussions up the thread, Jeff Rubin has an interesting article:
Is Peak Coal Coming:
http://www.theglobeandmail.com/report-on-business/commentary/jeff-rubins-smaller-world/is-peak-coal-coming/article1999004/
Check out the following chart of what the EIA shows for net coal exports from China (swinging from net exports of 108 million short tons in 2003 to net imports of 113 million short tons in 2009):
Chinese net coal exports through 2009 (EIA):
http://tonto.eia.doe.gov/countries/img/charts_png/CH_coanet_img.png
How is capacity utilization across oil refinery types doing? Has growth in heavy oil upgrading and refining facilities kept apace of supply?
Saudi Arabia has never been able to stop economy-stopping price spikes. Why would the swing producer suddenly find itself in that position now? Surely Saudi cheap talk is being deployed in an effort to jaw down the supply-fear premium.
KSA may never have been able to “stop economy-wide price spikes,” but there is no doubt that they have slowed some of them from being worse on occasion. Thus, when Iranian production plunged after the Shah fell by something like 5 mbpd, the Saudis were able to partly offset that with about a 2 mbpd increase.