Energy Tweets -- November 11, 2015; Saudi Oil Production Dropping

Platts survey of oil industry officials/analysts estimates Saudi Oct crude oil output at 10.1 mil b/d, 3rd straight month volumes down; see re-posted post below the break.

• OPEC Oct crude oil output drops 120,000 b/d to 31.08 mil b/d, led by Saudi & Iraq falls, Platts survey of industry officials/analysts shows
• Annual non-OPEC oil production to fall in 2016 for first time since 2008, EIAgov STEO says.
• EIA sees US crude oil output losses continuing through Sept 2016, when it avg 8.5MM b/d
• EIA estimates total US crude oil production has dropped 500K b/d since April, averaging 9.1MM b/d in October, 2016
• Midwest US gasoline differentials continued to plummet Tuesday amid an abundance of supply
• US refiners continue to enjoy golden period. Strong gasoline margins more than offset disappointing cracks on diesel

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Re-Posting A Note Regarding Saudi Arabia

Updates

November 17, 2015: I think this article is a bit of hyperbole, written to attract "clicks" or "eyeballs." But one can argue the slump in the price of oil is an existential problem for Saudi Arabia. Investopedia is reporting that Saudi Arabia could run out of cash in as little as five years if excessive spending is not curbed. 

Saudi Arabia is doing what it can to get its fiscal house in order, but it remains to be seen if they are doing enough to deal with the current economic reality facing the country. 

Bloomberg reports that the government is creating a project management office that will report to the Committee of Economic Development, chaired by Deputy Crown Price, Mohammed Bin Salman to tighten oversight of government spending.

This will be sorely needed to prevent the IMF’s warning from coming true. Bloomberg reports that Saudi’s 2015 total budgeted spending is $229.3 billion, and the FT says foreign reserves as of September 2015 are $647 billion. So at the current rate of spending, current reserves are exhausted in a little less than three years.

Original Re-Posted Note

 

Long-term readers know my views on Saudi's ability to produce oil. I was most intrigued by the first tweet posted at the very top of this page. With that in mine, I am re-posting, almost in its entirety, is a post from June 13, 2015.

I think one of the most interesting stories to follow for the next two years will be OPEC oil production. Well, duh.

I keep going back to the graph at that post:

Look at that graph closely; pay attention to oil production. It appears Saudi crude oil production in 2013 was about 12 million bopd; and, about the same, 12 million bopd in 2014. Maybe only 11 million bopd but clearly well above 10 million bopd but about the very same that it was in 2008.

I keep repeating the same data points, and adding some:

• Saudi embarked on a $35 billion, 5-year program back in 2012 to sustain oil production
• Saudi's oil production has hardly moved since 2012
• Saudi's budget is based on $100 oil
• domestic consumption of oil and natural gas is increasing in Saudi Arabia
• apparently the Saudi quest to find natural gas in Rub al Khali failed; one of many links; a better link;
• Saudi Arabia is embarking on a huge refinery program (see below)
• the water situation in the Mideast is getting more and more challenging, and the amount of energy needed for desalination is beyond one's imagination (see below)
• Saudi has a huge new terrorist organization to worry about
• Saudi is engaged in a fairly expensive shooting war
• President Obama has made it very clear that Saudi is on their own when it comes to security
• the Saudi oil minister is making some bizarre statements about the end of fossil fuel (bizarre or disingenuous)

Saudi Arabia's huge refining program, The Wall Street Journal reported this earlier this year (2015):

Saudi Arabia plans to become the world’s second-largest exporter of refined oil products in 2017 as part of its drive to diversify its economy and increase its share of the global crude and petroleum products markets, the kingdom’s oil minister Ali al-Naimi said Wednesday.

The kingdom’s two new refineries will add 800,000 barrels a day in refining capacity this year. A planned 400,000-barrel-per-day oil refinery in Jazan will bring Saudi Arabia’s refining capacity to more than 3 million barrels a day.

“That will make the kingdom one of the five largest countries in the world in terms of refined crude capacity and the second largest exporter of refined products after the U.S.,” Mr. al-Naimi said.

And even more:

Last year, Saudi Aramco started output at one of the largest oil refineries built in recent years—a 400,000-barrel-a-day project in a joint venture with Total SA. Another 400,000 barrels a day plant in Yanbu, a joint venture with China’s Sinopec called Yasref, started trial runs in September and exported its first shipment in January.

Saudi Aramco has previously said it plans to increase its refining capacity to 8 million barrels a day in the next decade through expansion both at home and abroad.

To some extent, this is a "wash." Countries currently importing Saudi crude oil may switch to importing Saudi petroleum products instead.

Saudi Arabia's domestic energy consumption and desalination: several links --

• desalination, Mideast, 2013, Stanford University study
• Saudi uses 1.5 million bopd for its 30+ desalination plants (this does not provide water for agriculture; agricultural water comes from non-renewable resources)
• desalination, Saudi Arabia, an overview

If Saudi Arabia's oil reserves were inexhaustible, their desalination program would not be an issue. But apparently, Saudi Arabia has concerns.

The kingdom is now embarking on a huge solar-powered desalination project. It will be the world's first large scale solar powered desalination plant.

Just a few weeks ago, on May 22, 2015, The Guardian had a big story on Saudi Arabia turning to solar energy for its desalination program, and then even made the crazy assertion that someday Saudi's solar energy industry would "export" electricity.

This is where the minister of energy sounded a bit bizarre:

“In Saudi Arabia, we recognise that eventually, one of these days, we’re not going to need fossil fuels,” said Naimi at a business and climate conference in Paris on Thursday.

“I don’t know when - 2040, 2050 or thereafter. So we have embarked on a program to develop solar energy,” he said in comments reported by the Guardian, Bloomberg, and the Financial Times. “Hopefully, one of these days, instead of exporting fossil fuels, we will be exporting gigawatts of electric power.”

Naimi also said he did not think that continuing low crude oil prices would make solar power uneconomic: “I believe solar will be even more economic than fossil fuels.”

Be that as it may; it is what it is. It's bizarre but it may be telling.

However, what caught my eye was this, buried deep in the article, why I wrote that this is reason #4,534 why I love to blog:

Saudi Arabia had already said in 2012 it aimed to be powered by 100% renewable energy and later that year announced a $109 billion solar plan. In January, that plan was delayed by eight years. 

Their solar program wasn't just delayed a year or two or three or four, it was delayed eight years. Anyone who has spent any time living and/or working in the Mideast knows that a) it took a lot for Saudi to admit this 8-year delay ("losing face"); and, b) "eight years" was simply a figure pulled out of thin air. It's as likely that it will be an 18-year delay.

Ever since I began following the Bakken, it's been my understanding that Saudi Arabia's budget is based on $100 oil. Most of that budget, based on conjecture and what little I know, was before these huge big projects and challenges came along.

These are big ticket items that will not do well on $50 Saudi oil:

• fighting the war in Yemen
• fighting ISIS
• preparing to fight Iran
• if Saudi decides to go nuclear (and I think they will) that's another huge financial outlay;
• 1.5 million bopd ($100 million/day on the open market worth of oil) to run its desalination programs; that's about $40 billion /year just for potable water (not agricultural water)
• $35 billion, 5-year program to sustain current oil production; it's not so much the dollar cost; it's the fact it takes so much of their only resource (oil) to run the plants
• a $109 billion solar plan (now delayed); there's only one reason to delay, I would imagine: cash flow
• aggressive, expansive refining program
• a Bentley for each Saudi pilot striking Yemen: 100 Bentleys

That was a long note for just a single point, but it provides a starting point for the archives with regard to big-ticket items that Saudi Arabia needs to pay for and why their crude oil production needs to increase to meet their new refinery requirements. One almost gets the feeling that if Saudi increases their production from 10.3 million bopd to 11.3 million bopd they are simply running faster to stay in the same place.