Monday, April 09, 2007

The Saudi Arabia Story Continues

Stuart has been busy over at TOD lately, continuing to build up his picture of the state of KSA. Most recently there has been Water in the Gas Tank, then Further Saudi Arabia Discussions, and finally The Status of North Ghawar. What we have developing here is a picture of KSA dangerously depleted and facing significant declines, if not immediately then in the next few years. The old saying is that, as KSA goes, so goes the world and I believe that to be true.

It is important to remember that the 20 largest oil fields, out of roughly 50,000 total worldwide, produce over 20% of the total petroleum. Remember also that the 1% largest oil fields (507 total) produce over 60% of the total petroleum. All of the top 20 are in decline if Ghawar is now. Almost all of the top 507 are in decline. This means that 49,500 other fields produce 40% of the oil. To replace the top fields means we must find another 74,250 small oil fields to replace the top 507 oil fields. And that assumes no decline in any of the existing 49.500 fields, which is preposterous. If we posit that this replacement must take place over the next 20 years and that we must replace basically all of the remaining fields to even have no growth, then we need 123,750 new small oil fields. This means that we must find and bring on-stream 16 new oil fields per day, which is also absurd. Pretty clearly, we are going to have to turn elsewhere for our energy needs or they are not going to be met.

Meanwhile, oil prices are still acting weird. I'd even say they look manipulated, or at least WTI looks that way. When you notice that Saudi Arabia, Libya, and Gulf producers raising their crude price formulas then clearly KSA raising it the most just for the US, then KSA has realized that the spread is too wide too and are charging the US for it separately to bring us back into line. This also suggests that WTI is losing meaning as a benchmark crude oil price globally. But why would this happen short of deliberate manipulation by our own government to try to deceive the American consumer that nothing is seriously wrong?

All of this brings me to a slowly blooming fear - that we're finally on the front edge of troubled times and that problems are going to begin cropping up. I've said before that while I hope global civilization will survive, I certainly do not expect it and this may be the leading edge of the collapse in sight. We've got severe economic pressures, spurred by resource issues and which are now manifesting themselves in our housing bubble collapse (which is itself a desperate measure by Greenspan to prop up the market after it flopped on its belly post-9/11). It feels like we've got less than 24 months before trouble seriously bites us in the rear end. It could be as early as this summer if we see rationing and shortages. Pretty clearly I need to accelerate a few plans, though it's going to be hard to do.

If we're lucky, the decline rate of the oil fields will be modest enough that we can ride this out, at least theoretically. But if the decline rate is too high, then all bets are off.

P.S. Ace added Further Evidence of Saudi Arabia's Oil Production Decline as fuel for Stuart's KSA fire. I guess the question now is whether the decline rate post-peak will ultimately end up looking like Stuart expects, slow and steady, or whether Yibal is the model for most of the major oil fields produced with Enhanced Oil Recovery (EOR) techniques.

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