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March 03, 2007

Saudi Arabia In Decline? Peak Oil

This is one of those stories that ought to be front page news all over the world: recent trends appear to show that Saudi Arabia's oil production is now in decline — rather steep decline, at that. This would have to mean that Ghawar, the big daddy among the world's oil fields, is in decline. And if Ghawar and Saudi Arabia are in decline, then the world's in decline. It's that simple. Peak oil is here.

Analysis by Stuart Staniford at The Oil Drum:

What I did in this post was to look in more detail at what happened from the beginning of 2006 on, which is when the apparent decline begins. I added data from a fourth source (the OPEC Monthly Oil Market Review), and for each of the four sources of data, I fit a linear trend:

The resulting graph is extremely striking, I think. The four different sources all estimate Saudi production slightly differently - they fluctuate in different ways month to month, and disagree over the absolute level (that last may be differences in exactly what is defined as oil). However, the regressions make clear that all four sources are in strong agreement about the nature of the decline. The slopes of the lines are very similar.

The implied decline rate through the year is 8% ± 0.1%. (Note that the year on year decline from 2005 to 2006 will only be about half that, as the decline only began at the beginning of 2006). As far as I know, there are no known accidents or problems that would explain any restrictions on oil supply, and the Saudis themselves have maintained publicly that their production is unproblematic and they intend to increase it.

It's interesting to note the pattern in the underlying data where declines start, are interrupted in the middle of the year, and then resume. I take this to be due to the coming onstream of the 300kbpd of liquids from the Haradh III megaproject. [...]

It seems this did not do more than briefly interrupt the declines. We can get a clearer picture as follows. What I did was average the EIA, IEA, and JODI series for 2005 and 2006 into a single estimate. Onto that, I've hand drawn a couple of guidelines that are 300 kbpd apart vertically:

My intepretation is that the bump in the middle of the year that separates the two lines is due to the impact of Haradh III coming on stream. So that tells us that, given some extra production capacity, Saudi Aramco immediately threw it into the production mix. And the effect of that? It lifted the plummeting production curve up by 300kbpd, but did nothing to change the gradient of the plummet. That suggests that the Saudis had nothing else to throw at the problem.

It also suggests that last year's underlying Type II decline rate, before megaprojects like Haradh III, was 14%.

Overall, I feel this data is clear enough that I'm willing to go out on a limb and conclude the following:

  • 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. [...]

    I suggest that this is likely to place severe political strains on Saudi Arabia within a year or two at most. [Emphasis added]

  • To drive the point home, Staniford ends with this:

    I'll bet $1000 with the first person who cares to take me up on it that the international oil agencies will never report sustained Saudi production of crude+condensate of 10.7 million barrels or more.

    As we've noted a number of times in the past, modern production technology does such a good job of extracting oil from the ground that production doesn't fall off much until the end is near, and then the fall-off tends to be precipitous. The good news is that we're really good at getting the toothpaste out of the tube. The bad news is that we're so good at it that we don't get much warning that the tube is approaching empty.

    Staniford's analysis says that the underlying rate of Saudi decline over the past year was 14%. This is potentially earth-shaking news. Recall that production at Mexico's Cantarell, the world's second largest producing oil field, peaked and fell 25% last year. If Ghawar follows suit, the shit has officially hit the fan.

    Don't expect to see coverage of this on your tv. There's nothing to film, no celebrity angle, no rehabs, no funerals. Just what may turn out to be one of the biggest stories of our lifetimes.

    Posted by Jonathan at March 3, 2007 03:37 PM  del.icio.us digg NewsVine Reddit YahooMyWeb


    Here's a different perspective, published in the New York Times on March 5, 2007: Oil Innovations Pump New Life into Old Wells, http://www.nytimes.com/2007/03/05/business/

    Notable quote:
    "Within the last decade, technology advances have made it possible to unlock more oil from old fields, and, at the same time, higher oil prices have made it economical for companies to go after reserves that are harder to reach. With plenty of oil still left in familiar locations, forecasts that the world’s reserves are drying out have given way to predictions that more oil can be found than ever before."

    Posted by: aquaken [TypeKey Profile Page] at March 6, 2007 03:10 PM

    Aquaken's find above reiterates for me that nothing will be done until it's too late. It also reiterates the old saw that by the time you see it in the general news, the story's long over.

    Posted by: Derek at March 7, 2007 11:23 AM