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World Oil Demand Surges- Saudi Oil Capacity Doubts

World Oil Demand Surges
As Doubts About Saudi Oil Capacity Grow

OPEC President Retracts Slip Of The Tongue - But Reality Is Grim

IEA Predicts 2005 Global Demand At 84 Mbd
August 2004

In the autumn of 1999 Dick Cheney expressed concern that in the coming years
world demand for oil was projected to rise at the rate of 2% per annum:

"For the world as a whole, oil companies are expected to keep finding and developing enough oil to offset our seventy one million plus barrel a day of oil depletion, but also to meet new demand. By some estimates there will be an average of two per cent annual growth in global oil demand over the years ahead along with conservatively a three per cent natural decline in production from existing reserves.That means by 2010 we will need on the order of an additional fifty million barrels a day. So where is the oil going to come from? Governments and the national oil companies are obviously in control of about ninety per cent of the assets. Oil remains fundamentally a government business. While many regions of the world offer great oil opportunities, the Middle East with two thirds of the world's oil and the lowest cost, is still where the prize ultimately lies, even though companies are anxious for greater access there, progress continues to be slow."
Dick Cheney, Chief Executive of Halliburton, now Vice President of the United States
Speech at London Institute of Petroleum, Autumn Lunch 1999

In the summer of 2004 the International Energy Agency revised its figures once again
and confirmed that growth in world oil demand is currently running at over 3%.

"The IEA [International Energy Agency], set up thirty years ago to advise oil consuming nations, said world demand would rise by a further 1.8 million barrels next year to 84 million barrels a day.....'The market is tight, production and infrastructure capacity is less than desired, and uncertainties continue to weigh on the market,' the agency said." - World oil demand estimate raised BBC Online, 11 August 2004

"With so much uncertainty roiling oil markets these days, analysts say one thing is clear: The world's supply cushion is perilously thin. Whether the amount of extra fuel that could be pumped in a pinch is 1 million barrels a day, as many believe, or significantly more than that doesn't really matter, because the amount of actual production at risk these days is even greater. As a result, the threat of output disruptions in Iraq, Russia, Venezuela and beyond has thrust crude futures above $46 a barrel for the first time -- the latest run-up coming even after Saudi Arabia offered the market all it had. If world demand continues to rise, don't expect cheap prices anytime soon, analysts said.... In the past, a comfortable surplus of available output, or capacity, could be depended on to temper the effects that geopolitical fears might have on oil markets, said Lawrence Goldstein, president of PIRA Energy Group in New York. 'But today all uncertainties must be immediately factored into the price,' Goldstein said. 'We simply don't have the cushion anymore.'.... The world has anywhere from 500,000 to 1.5 million barrels a day of spare capacity -- the bulk of it in Saudi Arabia -- that could be tapped instantly to offset a temporary loss of supply.' This is an exceptionally low ratio for an 81.4 million-barrel-per-day supply system and is well below the 10-year average of 5.0 million barrels per day," notes A.G. Edwards senior oil analyst L. Bruce Lanni."
- World's oil supply cushion perilously thin - Associated Press, 14 August 2004

"The price of oil went through $46 (U.S.) a barrel yesterday, setting another record high. Many energy experts say $50 -- a figure unthinkable only a couple of years ago -- is likely. At least one oil analyst says $100 is possible. In 1998, the price was about $14. In 2002, it was about $27. How did glut turn into shortage so quickly?... Here's a simple way of making sense of the shortage. Every day, the world guzzles about 80 million barrels. The reservoirs that produce all that oil are depleting by about 7 per cent a year [more than twice the rate predicted by Cheney in 1999], equivalent to 5.6 million barrels a day. That amount is equivalent to the daily production of the North Sea, or two Abu Dhabis or more than two Nigerias. The problem is that discoveries the size of the North Sea are exceedingly rare, and will get rarer still. Each of the various non-OPEC projects coming on stream might add 50,000 to 200,000 b/d of production. Now add in the fact that oil demand is climbing rapidly. The International Energy Agency estimates world demand will rise to 83.2 million b/d next year, up from 78.9 million last year and just under 77 million in 2001. Put natural depletion and rising demand together and you get an oil crunch that won't disappear quickly just because classic economics says supply will rise in tandem with price. The gap is too wide.... Two years ago, the spare capacity was about six million b/d. Today, it is thought to be 1.5 million barrels or less.... Years may pass before the supply-demand balance is restored, that is, if it can be restored. The world consumes almost 30 billion barrels of oil a year, the equivalent to 1½ times the size of Alaska's Prudhoe Bay. Prudhoe, discovered in 1968, is one of the biggest reserves discovered anywhere on the planet. How many more Prudoes are there?"
- This oil crisis won't end soon -- if ever - Globe and Mail (Canada), 14 August 2004


OPEC President Retracts Slip Of The Tongue

'Oh No We Can't'

"Concern about oil supplies was further heightened when the president of Opec, Purnomo Yusgiantoro, gave warning that it was unable to supply more oil to the market."

- 'Crazy' oil price casts shadow over economy - London Times, 4 August 2004

'Oh Yes We Can'

"Oil prices have pulled back from 21-year highs as fears over threats to supplies eased thanks to good news from Opec... Opec said it had the capacity to ramp up production by up to 1.5 million barrels a day..... Only a day earlier Opec said it could not pump any more to cool prices, and that Saudi Arabia, the world's biggest exporter, had spare production capacity but could not raise output immediately."
- Oil slips as supply fears recede - BBC Online, 4 August 2004

'Oh No We Can't'

"The Organization of Petroleum Exporting Countries (OPEC) has reached its maximum production capacity, Venezuelan Energy Minister Rafael Ramirez said Ramirez said the group's 11 member countries have no immediate way to respond to increased oil demand 'I don't see any possibilities of that situation changing much,' he told reporters here.... Ramirez's statements clashed with those of OPEC president Purnomo Yusgiantoro, who said Monday in Jakarta that the group was capable of beefing up production because of excess capacity."
OPEC has now reached maximum production capacity - Venezuelan energy minister - AFX News Feed, 11 August 2004

OPEC On The Edge

"[Saudi Oil Minister Ali al-Naimi] said Riyadh was pumping 9.3 million barrels a day of crude and was ready to tap surplus capacity of 1.3 million bpd should it be required. Saudi would meet demand for more than 9.3 million bpd in September, Naimi said. A capacity crunch among members of the Organization of the Petroleum Exporting Countries is a leading factor supporting prices. The International Energy Agency, in its monthly oil market report, said OPEC's sustainable spare production capacity shrank to 600,000 barrels a day in July as the cartel raised output to try to contain prices. 'The thin margin of spare capacity held by OPEC producers has contributed to recent price strength,' said the IEA, adviser on energy to 26 industrialised nations. The IEA figures would mean a buffer of less than one percent on the 82-million-bpd world market, compared to about eight percent in 2002 when spare capacity in OPEC was 6-7 million bpd."
- Oil holds strong near $45 despite Saudi supply vow - Reuters, 11 August 2004

"Saudi Arabia, the world's largest oil producer, can pump another 1.3 million barrels a day and keep that up 'indefinitely,' Adel Al-Jubeir, foreign affairs adviser to the Saudi crown prince, told U.S. reporters. The Saudis are now pumping about 9.3 million barrels a day, up 1 million from earlier this year. 'We have the capacity and are ready to tap into it immediately,' Al-Jubeir said. He called current prices 'absolutely not justified' and said clients have not suggested they are looking to buy more oil. 'There is no shortage,' he said. Wachovia economist Jason Shenker calls the Saudi announcement 'a lot of smoke and mirrors,' an opinion that was reflected in the markets."
- Saudis try to calm prices, deny politics involved - USA Today, 8 August 2004

"With Opec now producing at over 95 per cent of its current capacity, a loss of 1-2 million barrels per day [in Iraq] could, in theory, result in a doubling of the current oil price."
Adam Sieminski, Deutsche Bank analyst - Iraq oil shutdown sends price to record - London Times, 10 August 2004

The Saudi Situation - Is There Worse To Come?

"It seems a growing number of analysts are falling into line with the Simmons & Company International view that Saudi Arabia may be running out of steam and may not be able to perform the role of global swing producer for many more years, despite being credited with oil reserves in the order of 260 billion barrels. The Centre for Global Energy Studies hinted at the beginning of the year that the kingdom appeared to be heading for difficulties. Now one of its analysts has said that having reserves does not equate to production capacity. Citing the Haradh field, he said it required 500,000 barrels per day of water injection to get out 300,000 bpd of oil.
Moreover the problem is even more serious in the Khurais field."

- Doubts grow about Saudi As Global Swing Producer - Aberdeen Press & Journal - Energy, April 5, 2004, p. 15

"As OPEC raises oil output by 2 mm bpd as of July 1 and another 500,000 bpd as of August 1 to stop the upward spiral in oil prices on the international market, the reserves claimed by many leading oil producers are being challenged. The lower reserves preclude the possibility of oil dropping below the $ 35-$ 36 range. According to Dr V. Anantha-Nageswaran, director of global economics and asset allocations at financial services conglomerate Credit Suisse, the sudden jump in the reserves announced by several oil-producing countries in the late 1980s is 'puzzling.' 'It was during this period that OPEC introduced the quota system and the same was linked directly to each country's reserves,' Anantha-Nageswaran said. This should have prompted these countries to inflate their reserves to grab a larger chunk of output quotas, he said. He questions the logic behind oil reserves jumping three to four times between 1988 and 1990. Since new discoveries do not match production, the reserves are unlikely to increase the way these countries have been claiming, he said. Though OPEC succeeded in stopping the price rise, it is going to be a short-term phenomenon, he said. Moreover, the floor price of oil has risen and it is unlikely to fall below the $ 35-$ 36 range."
- Oil reserves may be lower than producers claim - Al Nisr Publishing, 2 July 2004


So What Are The Doubts About Saudi's Ability To Deliver?

Petroleum News And DMD Publishing

Simmons hopes he’s wrong
Leading energy analyst believes Saudi Arabia’s crude oil supply near peak; calls for greater global reserve transparency to anticipate ‘cataclysm’
F. Jay Schempf
Petroleum News Contributing Writer (Houston)
North America's Source for Oil and Gas News
August 2004
Vol. 9, No. 31 Week of August 01, 2004

Matt Simmons hopes he is wrong.

But if he’s right in his belief that Saudi Arabia’s giant oil fields might already have peaked and could start into rapid decline in as few as three years, somebody better have a “Plan B” ready or there’s no way, he says — absolutely no way — to avoid a world energy cataclysm.

Pretty strong words. Stronger, perhaps, than any uttered before about energy. Simmons spoke them, and more, at a July 9 Washington, D.C., presentation made at a meeting on Saudi Arabia’s future. The Hudson Institute sponsored the meeting.

Simmons asked for anybody, including the Saudis themselves, to refute his claim. But so far, in his view, nobody’s stepped up. He acknowledges, however, that the Saudis recently have been more forthcoming about their ability to supply all the extra oil the world will require from Saudi fields. But still, it appears that nobody is willing to counter his specific charges.

See full article here:

Trouble in the World's Largest Oil Field-Ghawar
by Glenn Morton
Published on Friday, July 30, 2004 by DMD Publishing

There are four oil fields in the world which produce over one million barrels per day. Ghawar, which produces 4.5 million barrels per day, Cantarell in Mexico, which produces nearly 2 million barrels per day, Burgan in Kuwait which produces 1 million barrels per day and Da Qing in China which produces 1 million barrels per day. Ghawar is, therefore, extremely important to the world's economy and well being. Today the world produces 82.5 million barrels per day which means that Ghawar produces 5.5 percent of the world's daily production. Should it decline, there would be major problems. As Ghawar goes, so goes Saudi Arabia.

The field was brought on line in 1951. By 1981 it was producing 5.7 million barrels per day. Its production was restricted during the 1980s but by 1996 with the addition of two other areas in the southern area of Ghawar brought on production, Hawiyah and Haradh, the production went back up above 5 million per day. In 2001 it was producing around 4.5 million barrels per day. There have been 3400 wells drilled into this reservoir

I have noted elsewhere that the data I am being told by engineers who have actually worked on Ghawar, that this decade will see it's peak. (Morton, 2004 PSCF in press). Others have noted how the percentage of water brought up with the oil has been growing on Ghawar. There are published reports that Ghawar has from 30-55% water cut. This means that about half the fluids brought up the well are water. Today the decline rate is 8%. Thousands of barrels per day of production must be added each year.

See full article here:


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