Peak Oil? For Saudi? -- April 7, 2013 -- Re-Posting -- September 19, 2019

Things are not adding up. Or maybe they are.

Too much to write. Y'all will have to connect these three data points:

• for the past two years Saudi has been draining their crude oil storage tanks like there was no tomorrow; 
• Saudi's largest oil field is fading faster than anyone realizes, Bloomberg, April 2, 2019; and 
• back in 2013, Saudi spent a ton of money trying to raise production, and to the best of my knowledge, not much came of it.

With regard to the first data point (draining their crude oil in storage), see this post.

With regard to the third data point, trying to increase production, continue reading.

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Peak Oil? Saudi?

January 1, 2021: borrowing big -- unthinkable a few years ago.

Gulf Arab energy firms borrowed $30.5 billion in 2021, the highest level in at least 25 years, as the region’s national oil companies sought to inject foreign investment into their balance sheets.

Qatar Energy led the region in issuing debt, according to Bloomberg calculations. The company sold $12.5 billion of bonds in July to fund an expansion of its liquefied natural gas output capacity and cement its position as the world’s biggest exporter. 

Energy companies in the United Arab Emirates raised $7.7 billion in new debt, a four-year high for the country. Saudi Aramco, which dominated the region’s energy corporate debt market in the previous two years, was its third-largest borrower in 2021, with $6.5 billion. 

The Middle East’s petrostates borrowed more and even sought to sell some energy assets in 2021, in a series of moves that would have been unthinkable a few years ago.

March 21, 2015: Reuters/Rigzone is reporting:

As the global energy industry stares transfixed at a spectacular drop in U.S. rigs, Saudi Arabia is ramping up the number of machines drilling for oil and gas despite a sharp fall in the price of crude.

Industry sources and analysts say the OPEC kingpin is looking beyond the halving of global oil prices since June 2014 to a time when crude could again be in short supply.

Riyadh is therefore keen to preserve what is known as its spare capacity - the kingdom's unique ability to raise oil output quickly at any given moment.

But to achieve that, Saudi Arabia has to drill much more than in the past, after boosting output to record levels to compensate for global supply outages in the past four years.

"The Saudis are probably worried about everyone else reducing CAPEX as a result of low oil prices and about non-OPEC output falling off a cliff at some point. We all know that supply disruptions are unpredictable but they are certain," said [an analyst].

"The increase in Saudi rig numbers is like a signal to the industry - let's be rational. We will need supply growth in the future."

Comment: something doesn't ring true.

Re-posting from April 7, 2013, more than six years ago:

July 5, 2013: Reuters is reporting -- 

Saudi Aramco plans to develop two less productive areas of major oilfields, industry sources said, as Riyadh takes care to maintain excess capacity for the long term, even while non-OPEC oil supplies are on the rise.

The plan to increase capacity from Khurais and Shaybah by a total of 550,000 barrels per day (bpd) by 2017 will take the strain off Ghawar, the world's largest conventional oilfield.

Such projects are not intended to raise Saudi production capacity beyond the current stated 12.5 million bpd, Saudi oil officials have previously said.

After pumping its biggest fields at near record rates to make up for lost supplies from Libya and Iran over the last two years, the kingdom wants to focus on less productive fields to ease pressure on aging reservoirs to help keep their output robust.

July 2, 2013: Bloomberg is reporting -- 

Saudi Arabia started a program to assess its potential for generating renewable energy, part of an effort to lure $109 billion for building a solar industry that will free up more of its crude oil for export. [Comment: if Saudi's reserves were as robust as they say they are, one wonders whether there would be this need for renewables?]

June 6, 2013: Oil & Gas Journal is reporting --

Saudi Aramco has begun construction of a gas plant in an industrial region of northern Saudi Arabia to handle production from Midyan gas-condensate field under development in the Red Sea.

April 7, 2013: This Bloomberg article may explain a bit more for the reason behind Saudi's increase in number of active rigs. Note the date of the article (January 23, 2013):

Saudi Arabian Oil Co. is set to boost its use of drilling rigs to a record this year as it pushes exploration for oil and shale gas into the Red Sea, a local energy analyst said.

Saudi Aramco, as the world’s largest crude exporter is known, will probably use about 163 rigs this year, up from 133 at the end of 2012, said Sadad al-Husseini, who founded Husseini Energy, an independent energy consultant in Dhahran, Saudi Arabia, after retiring from the state producer in 2004.

Aramco was using 98 rigs to produce oil and gas from onshore fields and perform maintenance on existing wells at the end of last year, with a further 35 employed in exploration activity and offshore operations, al-Husseini said. This year, the company may use as many as 170 rigs in total should the country step up production of oil or gas, thus activating more rigs, he said.

Schlumberger Ltd., the world’s largest oilfield-services provider, also expects a gain in Saudi drilling activity. Saudi Aramco ended 2012 with 134 rigs and that number will grow to 160 rigs by the end of this year, Schlumberger Chief Executive Officer Paal Kibsgaard told analysts and investors on Jan. 18 in a conference call. 

Unfortunately there's no "SAUDI EIA" to track monthly metrics.

One reader suggests that Saudi could be deploying an increased number of rigs in anticipation of disruptions or "live fire" hostilities: Iran, Syria, Egypt, Libya, Korea. To name just the ones I can count on my left hand. This was noted a year ago, March 1, 2012:

Saudi Arabia is deploying the most oil rigs in four years as it prepares for possible shortages caused by tension with Iran, giving President Barack Obama one less reason to answer calls to curb prices by releasing supplies from America’s emergency reserves.

My hunch: it may be both -- tactically Saudi is increasing the number of rigs in anticipation of disruptions and/or a shooting war somewhere; strategically, Saudi is aware its legacy fields are on the right side (the down side) of the production curve.

By the way, another Oil Drum article on January 30, 2013, noted the same thing about Saudi production. Coincidentally, it also referred to "a Figure 7" and said:

Finally it is worth taking a look at Saudi Arabia (Figure 7). The number of rigs operating in The Kingdom reached a record high of 88 in October 2012 and there has to be a message in that statistic in itself.

The split was 58 oil and 30 gas. But Saudi Arabia continues to produce around 11.7 million bpd on a slowly rising bumpy plateau with a relatively tiny number of operational rigs.

The production world changed in Saudi Arabia in 2005 when the drilling rig count more than doubled, drilling new wells to combat declines from legacy assets like Ghawar. Like the USA, there has been a recent prioritization of oil drilling over gas. With Brent crude trading at over $113 / barrel it is quite clear that the world's major producers are working flat out to meet demand.

Others have said the same thing; from wiki:

After US President Bush asked the Saudis to raise production on a visit to Saudi Arabia in January 2008, and they declined, Bush questioned whether they had the ability to raise production any more.

In the summer of 2008, Saudi Arabia announced an increase in planned production of 500,000 barrels per day. However, there are experts who believe Saudi oil production has already peaked or will do so in the near future. 

Original Post

For what it's worth, there's another "peak oil" article and discussion over at The Oil Drum.

As a quick 30-second sound bite / reminder, from wiki:

Based on his theory, [Marion King Hubbert (1903 - 1989)] presented a paper to the 1956 meeting of the American Petroleum Institute in San Antonio, Texas, which predicted that overall petroleum production would peak in the United States between the late 1960s and the early 1970s. 

At first his prediction received much criticism, for the most part because many other predictions of oil capacity had been made over the preceding half century, but these had been based purely on reserve and production data rather than past discovery trends, and had proven false.

Hubbert became famous when this prediction proved correct in 1970.

There is only one interesting data point at the first linked article that I had not seen before. I've always maintained that things are not as rosy as Saudi Arabia would suggest regarding their oil reserves. This past week Saudi announced they were decreasing production in light of decreasing refinery demand (which, of course, are about the only folks who "use" crude oil, the refineries, but I digress).

Saudi does this periodically, capriciously, sometimes it makes sense, sometimes it seems not, but this most recent production decrease by Saudi, in my mind, is a non-event.

However, having said that, it is interesting what the author of the linked article has to say about Saudi's production capabilities and reserves.

Stuart Staniford speculates that the recent Saudi cutback may have been a deliberate response to U.S. production gains in an effort to prevent oil prices from declining. On the other hand, his graph shows that Saudi effort (as measured by active drilling rigs) has ramped up significantly in the last two years.

Perhaps it's the case that Saudi Arabia isn't willing to maintain its previous production levels, or perhaps it's the case that Saudi Arabia isn't able to maintain its previous production levels. But whatever the explanation, this much I'm sure about: those who assured us that Saudi production was going to continue to increase from its levels in 2005 are the ones who so far have proved to be dead wrong.

The graph he refers to is Figure 7: comparison between Saudi oil production and Saudi oil rig count. Wow, if that doesn't get your attention. For newbies: it's just the opposite in the Bakken: increasing production in light of decreasing rig count. I doubt the Saudis are using old, inefficient and ineffective rigs.

Check out that graph, figure 7, at the linked article. Like I said, it's an interesting, very interesting graph. And why I love blogging. Here is a screen shot of figure 7 and the caption:

However, the number of rigs above -- shown in the graph -- does not come close to agreeing to this 2015 article in Rigzone:

State oil giant Saudi Aramco used a record-high 210 oil and gas rigs in 2014, up from around 150 in 2013, 140 in 2012 and some 100 in 2011, according to previous industry estimates.