Production "Capacity" May Be Back To Normal, But "Refining" Certainly Is Not -- September 29, 2019

Remember this from September 25, 2019?

Not so fast. Today we are learning this:

This will not be easily or quickly fixed. Just a hunch.

MSB said he would spare no expense getting this back up and running. I wonder what American companies have the service contracts to accomplish this. There's no way the Saudis are doing this themselves.

Even The "Expert" Was Really, Really Wrong -- September 29, 2019

Daniel Yergin wrote the bible on oil. I've read his book twice. Since then he has come out with updated editions; those I have not read. But if anyone knows oil, it's Daniel Yergin.

But even he was really, really wrong -- again, US shale changed everything.

From North American Shale -- an essay three days after that attack --

It begins:

Following the attacks on Abqaiq and Khurais in Saudia Arabia, the largest single disruption of oil production in history, the experts at global energy analysis firm IHS Markit have issued several plausible outcomes.The outcomes are based on a timeline linked to the time required to bring back online the production volumes impacted from the unplanned outages that recently took place and caused the price of Brent Crude to rise by roughly $10/b overnight.According to IHS Markit, the potential impact can be thought of in three time dimensions:

• limited (7 to 14 days)
• extended but manageable (30 to 120 days)
• structural (120+ days) 

Daniel Yergin, vice chairman of IHS Markit, said that what was a risk scenario at one point has become a reality. “The amount of Saudi oil offline is equivalent to one-third of what passes everyday through the strait of Hormuz,” adding that two things will jangle the oil market in the coming days, “how long the recovery and what comes next.”

Again, another red herring:  “The amount of Saudi oil offline is equivalent to one-third of what passes everyday through the strait of Hormuz." 

I've talked about this before. Whenever I see the Saudi attacks as "the largest single disruption of oil production in history," a lot of things pass through my mind.

Within a week, price of oil back to where it was pre-attack. "The largest single disruption of oil production in history" and oil is back to pre-attack price in less than two weeks.

We never saw any appreciable jump in gasoline prices; if there were regional jumps in the price of gasoline, the rise was very, very short-lived.

There were no lines of vehicles waiting to get gasoline.

So, if this was the "the largest single disruption of oil production in history" it sure didn't amount to much.

Compare that to the Suez Crisis of 1956 and the OPEC embargo of 1973.

Saudi Attack + 9 Days -- Gasoline Shipments From Europe To The Mideast Surging -- September 23, 2019

Saudi attack: tea leaves / from twitter past twenty-four hours or so --

• UK PM Boris Johnson says Iran was responsible; UK could join US-led military effort
• the repair work is going to last a lot longer than "official" pronouncements suggested
• consensus over the weekend, now that tours of the facility have been made: eight (8) months
• Saudi's "sweet oil" was major casualty
• Saudi will now try to replace "sweet oil" with "sour oil" -- my hunch: customers will object
• Saudi will have to offer discounts on "sour oil"

But look at this, link here:

From Reuters, the linked article:

Gasoline exports from Europe to the Middle East and Asia are set to surge this week after recent attacks on Saudi Arabia’s oil facilities crippled output at the kingdom’s refineries.

Over 400,000 tonnes of gasoline and gasoline blending components have been booked in the past week for loading between Sept. 21 and Sept 26 out of northwest Europe with Mideast Gulf delivery options, shipping data shows. The flow is the equivalent of around 500,000 barrels per day. [Why didn't they say that to begin with; who in the ... measures gasoline in "tonnes"? I guess you do when loading a sea-going tanker. LOL.]

It is unclear where the cargoes will end up, but traders said that Saudi Arabia’s state-run oil company Aramco is seeking to buy large volumes of refined oil products.

Europe’s exports of gasoline and blending components to Saudi Arabia averaged 60,000 bpd in the first five months of the year, according to data analytics firm Vortexa. 

One can opine / prognosticate all one wants on twitter, but when the actual data starts filtering in, then we can get serious. And this is serious.  500,000 bpd vs 60,000 bpd. Rounding, that's 10x.

So much for that Saudi Aramco IPO.

From the graphic at the linked article, these are Saudi's refineries, and capacity or throughput:

Heavy oil:

• Satorp, 400,000 bpd
• Yasref, 380,000 bpd
• Yanbu, 220,000 bpd
• Sub-total: 1,000,000bpd

Light oil:

• Samref, 380,000 bpd
• PetroRabigh, 380,000 bpd
• Ras Tanura, 300,000 bpd
• Sasref, 280,000 bpd
• Riyadh, 110,00 bpd
• Subtotal: 1,450,000 bpd

Total: 2.5 million bpd
  The attack knocked out one million bpd capacity.

Idle Rambling On A Friday Morning -- The Saudi Attack -- September 20, 2019

What a great way to start the morning. I had a great note from a reader regarding the attack on the Saudi export terminal and the oil field(s).

Debating whether or not to post the whole note, but here was my reply. One can probably guess the contents of most of the reader's note regarding the attack based on my reply:

1. A great note.

2. I have had a similar note (without the Goldman Sachs angle) from another reader who is very, very knowledgeable about all of this.

3. The common thread between that reader and your note is the emphasis on MSB being squeezed. In fact, now, it's become so much worse -- less oil to sell, and possibly even buying oil on the open market (Iraq) to fulfill contracts and keep market share.

4. From a conspiracy point of view, I agree with you: the strike was incredibly surgical. And incredibly well-planned, timed. It seems like it was a perfect operation except for perhaps a few drones/missiles being duds. Comparing it to "Pearl Harbor"  -- which some in the media did (not you) was way "over the top" but it did have the timing, surprise, surgical components that "Pearl Harbor" had but not the consequences/effects (at least yet)

5. At the end of the day, though, no matter what motive one might come up with to explain this attack, none seem to have panned out:

• no one takes Iran any more seriously than they did before the attack 
• Iran is to blame 
• Iran is not to blame 
• the media can highlight the plight of the rebels 
• no one in American understands the Yemen rebel situation any more now than before the strike 
• oil did not spike to $200 
•  the IPO looks more tenuous than ever (investors more skirmish) 
• Trump looks more presidential, just sitting and waiting, no massive retaliation (yet) 
• Clausewitz: war is politics by other means in this case, the attack on Saudi was spectacular but I can't think of any one thing it might have accomplished 

At this post, September 15, 2019, I noted my initial thoughts on the attack.

The big winner: Iraq.

The second biggest winner: US shale.

Timing: Both this most recent reader and I noted the same thing: the timing of the attack was most interesting. It came "immediately" after the heir to the Saudi throne fired the kingdom's minister of energy and replaced him with another member of the royal family, MSB's step-brother (one of hundreds, if not thousands, I assume). That may be where the answer lies. Nothing like giving the new minister of energy a huge problem at the beginning of his tenure.

Dueling Stories -- Saudi Peak Oil -- September 19, 2019

In an earlier post, I had this data point:

• Saudi's largest oil field is fading faster than anyone realizes, Bloomberg, April 2, 2019;

I did not want to clutter that post, get off track, muddy the waters, or confuse the point I was trying to make, but wattsupwiththat? posted a guest editorial two days ago saying the Bloomberg article was wrong. Here is the link to that article.

I'm a huge fan of wattsupwiththat? but in this case the Bloomberg article was more accurate than the wattsupwiththat? article, though technically both were correct, and interestingly enough, both saying the same thing.

The point that Bloomberg was trying to make -- and used a bit too much hyperbole --was that until the prospectus for the SaudiAramco was released, most folks thought that Saudi Arabia was producing 5 million bopd from their Ghawar, their largest field. In fact, it appears more like 3.8 million bopd. That was the headline.

wattsupwiththat? said, fine. So what if it's 3.8 million bopd? It's called "managing their assets."

But in this case, on the continuum from wattsupwiththat? to the Bloomberg story, I lean a bit more closely to the Bloomberg story. In light of recent events, the Bloomberg story becomes much more interesting, especially in light that it was published just a few months before the recent Iranian attack on Saudi Arabia.

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Sophia's Unicorn

Dimensions: about 2 inches by 2 inches
September 18, 2019
Age: 5 years 2 months

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.

Saudi Storage -- September 18, 2019

This may be the most interesting "thing" being talked about over at twitter right now. These are the tea leaves:

• the attack was worse than first thought
• it will take longer than first forecast for Saudi to be back to "normal"
• it appears the end of September is the earliest Saudi would be back to "normal"
• most suggest back to "normal" will occur NET the end of October
• most agree that 5 million bopd were knocked out of the "pipeline" by the attack
• Saudi says they will make up the difference from their oil in storage
• the most interesting thing over on twitter regarding Saudi storage: no one really has the same number
• I've seen figures as low as 60 million bbls in storage
• I've seen figures as high as 400 million bbls in stoage
• the most "consistent" figure coming from the more "credible" sources has been 160 million bbls in storage
• prior to the attack, Saudi Arabia was dropping the amount of oil in storage for a number of reasons
• prior to the attack, in the month of July, 2019, Saudi Arabia's crude oil storage dropped by 8 million bbls

With all that data, it's easy to come up with some back-of-the-envelope numbers. We'll come back to this later but see if you see what I'm seeing.

Later, 8:43 p.m. September 18, 2019: let us continue. I think this is a most incredible graphic. For some reason, Saudi Arabia has been deliberately filling customers' orders with oil from storage for the past several months, not from "new" oil:

This is an amazing graphic. Spend some time thinking about it.

Worse Than First Reported? -- September 15, 2019

Updates

September 29, 2019: production "capacity" may be back to normal, but "refining certainly isn't.

September 29, 2019: even the experts got it wrong.

September 26, 2019: the reason Saudi Arabia is switching from sweet oil to sour oil to meet export contracts.

September 25, 2019: Saudi Arabian production said to be "back to normal." 

September 23, 2019: back to normal in four days; maybe one week; maybe by the end of the month (September, 2019); maybe in eight weeks.

September 19, 2019: dueling stories. 

September 19, 2019: peak oil for Saudi Arabia?

Later, 6:00 p.m. CT: WTI jumps 10 - 12%; trading near $61.

Later, 3:30 p.m. CT: oil price has still not reported anything since it's original short blurb on the attack yesterday.

Later, 3:27 p.m. CT: in all the analyses so far, no one has mentioned that the Kingdom has a brand-new Energy Minister -- was it less than a week ago that a new "Alfalfa" was named Minister of Energy. Welcome to the Mideast. How "Alfalfa" (officially, ABS) responds could determine his long-term status in that role. 

Later, 3:26 p.m. CT: CNN update here. It's too bad CNN lost its way. Their reporting can be good, but CNN has lost all credibility. 

Later, 3:16 p.m. CT: at the moment, this is the best update so far, "the Kingdom is rocked." The AP is still calling it a "drone" attack when others suggest Iran used cruise missiles. In the end, it may not really matter what was used, but "words" matter and "cruise missiles" sound a lot more ominous than "drones."

Without question, heir-to-the throne Prince MBS needs to determine if this incredibly well-planned attack using very, very sophisticated weapons was:

• simply orchestrated by a rogue group of terrorists; or,
• state-sponsored.

If it's the former, things will quiet down.

If it's the latter, the heir to the throne will be seen as very, very weak if he doesn't take commensurate retaliation.

This was a pretty big deal. To just "let it go" seems unlikely.

Original Post

Original Post: 10:18 a.m. CT

September 15, 2019 

Say what you want, but this sounds worse than earlier reports.

First report: massive damage at Abqaiq, Saturday.

Next report, an hour later: will be back to normal by Monday, only 48 hours after attack. Tweeted by Baghdad Bob.

Most recent report, 5:00 p.m. Saturday evening, September 14, 2019: two facilities shut-in; deliveries will come for "Saudi's strategic reserve."

Worse than thought?

Biggest winner? Iraq.

Next? Maybe US shale.

This is bizarre. Oilprice not even "headlining" about it. No updates since a small story yesterday.

Financial Times, link here: Saudi Arabia faces weeks without full oil production after attack.

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Intel

Missiles, not drones.

Cruise missiles.

From Iran.