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Page added on April 10, 2016
Saudi Oil Gambit Moves to Phase Two
There’s an oil supply crunch looming and Saudi Arabia and its local allies are positioning themselves to take advantage.
In what would be the second phase of the kingdom’s strategy to defend its market share against rival producers (most visibly U.S. shale), Gulf states are planning to raise output capacity to fill the hole left by the lack of investment in new projects elsewhere.
It may seem odd talking about an oil shortage when the world seems awash with the stuff and storage tanks are brimming, but listed oil companies are slashing spending for the second year running, leading the International Energy Agency’s Neil Atkinson to warn of possible oil-security surprises in the “not too distant” future.
There are too few new projects being sanctioned by non-state oil companies to offset the inevitable decline in output from existing fields and to meet additional demand. This is expected to increase by 1.2 million barrels a day each year for the rest of the decade. New fields due to start producing this year and next are the result of investment decisions taken when oil was about $100 and expected to stay there.
The collapse in company spending is illustrated perfectly by the level of drilling activity. After all, if you don’t drill, you can’t get the oil out of the ground.
Baker Hughes updated its monthly international drilling statistics last week. Unsurprisingly, they showed another steep drop in rigs drilling for oil, a 12 percent decline between February and March. There were 1,551 rigs active last month in the countries covered by Baker Hughes, the least since September 1999 and down nearly 60 percent in little more than a year.
But one part of the world is bucking the trend and drilling furiously to add the capacity needed when demand once again exceeds supply. Three countries on the Arabian Peninsula — Saudi Arabia, Kuwait and the United Arab Emirates — are seeing near-record drilling rates.
All three saw drilling reach at least 20-year records in 2015 and activity remains close to that peak. An expansion at Saudi Arabia’s Shaybah field should add 250,000 barrels a day as early as June, while the Khurais field could contribute another 300,000 barrels by the end of 2017. State-owned Saudi Aramco says this will let it ease pumping from older fields yet maintain a production capacity of more than 12 million barrels per day, 2 million barrels above its current rate.
For Kuwait and the U.A.E., the goals are even higher. Kuwait plans to raise production capacity by 5 percent from 3 million barrels a day by the third quarter, and to reach 4 million barrels by 2020. Abu Dhabi means to lift production capacity to 3.5 million barrels a day by 2017 from about 3 million.
For Saudi Arabia the expansion is as much about gas as oil. The number of rigs drilling for gas there has jumped from about 20 in early 2013 to 60 last month, as the country tries to develop its own resources to support a growing petrochemicals industry and free up oil for export.
The first part of Saudi Arabia’s “market share” strategy saw it refuse to continue cutting output to prop up high-cost producers elsewhere. As a result, U.S. production has fallen by about 600,000 barrels a day from its recent peak and other high-cost areas are following.
The Saudis may not have announced part two of the strategy yet, but it’s well underway.
25 Comments on "Saudi Oil Gambit Moves to Phase Two"
makati1 on Sun, 10th Apr 2016 8:30 am
Bloomberg … spreading the bull shit again. Must be Spring. LOL
Kenz300 on Sun, 10th Apr 2016 8:57 am
Are the deep pockets of the Koch brothers keeping Canadian tar sands alive…..
Seems like tar sands are the highest cost producers……
How long before the pain makes them fold…….
shortonoil on Sun, 10th Apr 2016 9:16 am
“The Saudis may not have announced part two of the strategy yet, but it’s well underway.”
If one wants to call fighting for survival a “strategy” the Saudis have one. The price of oil is now insufficient to cover its full life cycle production cost; producers can now no longer afford to replace the reserves that they are extracting. It is now the game of the last man standing as the oil age winds down to its conclusion. Producers have seen their revenue stream decline by $2.3 trillion per year over the last 22 months; when they can no longer make money producing oil they will stop doing it!
Bloomberg likes to dance around the reality of depletion. The amount of oil that is economically extractive at any point in time is controlled by it, and after a 150 years of frantic extraction that is now becoming very apparent. There is not much oil remaining that can be removed at a price that the economy can afford pay. That should certainly not be a surprise, but to admit it is to admit that there are limits to everything. Bloomberg wants to phrase it as the Saudis have a “strategy”; which may be nothing more than a rehash of “oligarchs of a feather flock together”!
http://www.thehillsgroup.org/
paulo1 on Sun, 10th Apr 2016 9:22 am
Kenz
Once the Plants are built it is cheaper to keep them running than shut them down. Some make money at $35/bbl., and newer ones need much more. But, if you have ever seen a shuttered school or business/factory you know that after a year or two you might as well bulldoze them. The plants are too big for that.
Canada produces close to 4.9 million bbl/day and uses close to 2.5 million/day for her own needs. (Ballpark). I wouldn’t mind seeing a law banning all imports on the east coast (where they need a pipeline to utilize Canadian product) and require Canadian refiners to use our product, exclusively. Stop the current exports to US, which means they/you lose their largest foreign supplier. When the crunch comes, fuck ’em, we’ll just use our own. Of course, this was what NAFTA was really all about in the first place, keeping our oil stuck in the supply pipe to US. Trumpeteers and Sanderites seem to miss that little fact. Luckily, water exports did not make it on the list. (Thank God it is illegal to ship/sell bulk exports of water). They tried to get water exports but citizens started to go ballistic about it. When oil supplies start to dwindle, and they will, then ‘Muricans can use their delining aquifers for fracking LTO and become another desert state running out of oil. 🙂
Davy on Sun, 10th Apr 2016 9:37 am
What about food imports Paulo or the huge loss of economically vital trade with the US. Sounds like another cake and eat it game from Canada. You guys hate the fact you are tied to the hip to the uS (as Toronto anonymous likes to indicate the US) or sometimes americant. Truth with a liberal dumbass from Montreal is even harsher he just as soon shoot us as talk about uS. Nope, we are going down together Paulo even BC with the ape hole and greggor.
Cloud9 on Sun, 10th Apr 2016 9:54 am
The Saudis are putting billions into fracking. Expensive alternatives are developed out of necessity. All is not well back on the farm. Malthus was delayed not wrong. There is plenty of examples of population overshoot and die offs in history. These events were regional and tied the local carrying capacity.
http://www.ancient-origins.net/news-general/new-study-shows-it-was-feast-or-famine-europe-s-first-farmers-00895
Now that we are tied to a global market, it would be folly to assume that historical patterns of over shoot and die offs have been relegated to the dustbin of history and cannot play out on a world stage. One study before Congress asserted that if the lights were to go off in a Carrington event, we would lose 90% of our population within the first year. Ours is a very complex integrated system with the key support being energy. Evidence of systemic strain are evident in the Middle East, China, Latin America and on main street. I have no doubt that at some point we will hit Liebig’s Law of the Minimum and we will have a systemic collapse.
JuanP on Sun, 10th Apr 2016 10:09 am
I don’t believe the KSA has a production capacity of 12 mbpd, I believe they are producing flat out right now and that they will be lucky to sustain this production level next year. Depletion is a bitch and these new projects may manage to create a plateau or slow down production declines, but they are extremely unlikely to lead to increased production in Saudi Arabia.
The world is running out of countries that can potentially increase oil production. There are less than 10 left by my count and the list gets shorter every year. The time of consequences is here; we need to pay the piper, but we are broke.
shortonoil on Sun, 10th Apr 2016 10:17 am
Let’s stop this “the American’s are raping” Canada bull shit. Canada has acted as a dumping ground, and resource base for every Imperial power for the last 400 years. The French stole its furs, the British cut down every GD tree on Newfoundland to make masts for the Queen’s Navy, and the Dutch and Spanish just got finished stripping the Grand Banks bare. At least the Americans paid for some of the destruction they caused, which is a hell of a lot more than can be said for the British. The Canadians were thrilled to see the Yankee dollars appear; it let them get in their Ford Expeditions, and go to Florida for the winter!
JuanP on Sun, 10th Apr 2016 10:36 am
I bear witness that we have a lot of Canadians in Miami Beach, they have even invaded our community gardens! 😉
forbin on Sun, 10th Apr 2016 12:31 pm
“Gulf states are planning to raise output capacity ”
capacity , not production
well thats paper barrels , isnt it ?
Forbin
Boat on Sun, 10th Apr 2016 1:10 pm
mak,
The international rig count has been much more resilient until about a year ago. In spite of the glut there are over 980 rigs drilling. A year ago the number was 1200.
file:///C:/Users/Kevin/Downloads/Worldwide%20Rig%20Count%20Mar%202016.pdf
The world count is at 1550 vrs 2550 a year ago.
The middle east is at 397 vrs 407 a year ago.
Remember to look at the actual numbers. They tell a different story.
GregT on Sun, 10th Apr 2016 1:53 pm
Boat,
Providing links to your computer’s hard drive isn’t exactly bright, Kevin.
geopressure on Sun, 10th Apr 2016 2:09 pm
Cloud9; Can you provide a link that supports your statement of the Saudis putting $ Billions into financing???
I know that they study it, I know that they have source rocks that are capable of being developed via fracking techniques, but investing $ Billions suggest that they are executing a drilling program to develop a tight oil play… If this is correct, then it is the first I have heard of it & I would be very interested in reading more…
shortonoil on Sun, 10th Apr 2016 2:27 pm
“I don’t believe the KSA has a production capacity of 12 mbpd, I believe they are producing flat out right now and that they will be lucky to sustain this production level next year.”
Ghawar hit a water cut of 50% almost 15 years ago; for a field with a permeability of a sieve that is not good. Burgan probably can’t be much better off. The world’s Giants are running way past their expiration dates, and 60% of the world’s production comes from the Giants. They constitute less than 1% of all the world’s fields.
http://www.peakoil.net/AIMseminar/UU_AIM_Robelius.pdf
We’ve been pounding the table for the last three years that the world is on a fast track to the end of the oil age. Our Model predicted the collapse of prices two years ago; we stated that 84% of the extractable oil had already been removed 5 years ago. We are not the only ones who see what’s coming; we are the only ones talking about it!
Let’s just extend and pretend for a couple more years. We’ll just worry about when it arrives; fortunately we won’t have long to wait!
http://www.thehillsgroup.org/
paulo1 on Sun, 10th Apr 2016 2:52 pm
Relax Short, don’t have a cow about our relationship. I just get sick and tired of the ‘Tar Sands’ being lambasted when their use and development is fundamentally for export and other people to use. Plus, it is always conveniently forgotten that Canada is the US biggest foreign energy supplier.
As for those so willing to line up to sell exports….look at foreign ownership and absentee ownership as the biggest culprits. Personally, I believe local communities should have a far far bigger say and role in resource development. Don’t blame some poor schmuck who just needs to feed his family and buy food. I used to fly big game hunters for a living. Did I like it? No. Did I like flying mine geologists and prospectors who were looking at ‘developing’ (raping a property)? Of course not. I just had to eat like everyone else. Did I like working for fish farms? No.
Davy, (sigh) yes I agree with your statement. Like I said to short I just get tired of the blame bullshit, as apparently so does he.
Well, compadres…just ate a snadwich and now will go and roto-till my 1/4 acre spud patch before it rains. Nice looking soil this year after seeding in fall rye. Plan to mulch hills with alder chips taken from clearing powerlines earlier this spring. I have 4 dump truck loads of it!!!
Take care.
geopressure on Sun, 10th Apr 2016 2:55 pm
Saudi Can produce @ 12 Million BOPD… If they want to, need to, or the US forces them too…
There is still a lot of oil left in Ghawar… Especially if they get more Chemical / Industrial plants up & running & develop a source of CO2 to inject… LOTS of oil comes out of the ground when you inject just a little CO2…
Boat on Sun, 10th Apr 2016 3:27 pm
paulo1,
I don’t buy any of the blame game. We are where were at and that’s just the way it is. The world will only make smarter decisions as a reaction to trouble or a better energy solution that creates a profit.
Apneaman on Sun, 10th Apr 2016 3:33 pm
I blame Boat – for all of it!
Boat on Sun, 10th Apr 2016 3:40 pm
ape,
Lol, am sure you do.
shortonoil on Sun, 10th Apr 2016 3:49 pm
“There is still a lot of oil left in Ghawar… Especially if they get more Chemical / Industrial plants up & running & develop a source of CO2 to inject… LOTS of oil comes out of the ground when you inject just a little CO2…”
Ghawar now has better than a 50% water cut. That means that the oil seam is now less than 30 feet of its original 350. Ghawar is now over 90% depleted.
http://www.ijens.org/Vol%2011%20I%2001/1110201-4343%20IJET-IJENS.pdf
Hoping and wishing is not going to change the math!
shortonoil on Sun, 10th Apr 2016 3:53 pm
PS: see figure 3.7
geopressure on Sun, 10th Apr 2016 4:06 pm
It’s way more complex than what you are envisioning… Probably a bit too complex to delve into on a forum such as this designed for casual conversation…
If only reservoir engineering were as simple as you suggest…
shortonoil on Sun, 10th Apr 2016 4:35 pm
“There is still a lot of oil left in Ghawar… Especially if they get more Chemical / Industrial plants up & running & develop a source of CO2 to inject… LOTS of oil comes out of the ground when you inject just a little CO2…”
It takes on averge between 0.3 and 0.5 tons of CO2 to extract an additional barrel of oil. CO2 cost run from $0.5 to $8 per ton. At $30 oil Saudi is not going to be using much CO2.
http://energyskeptic.com/2015/the-difference-between-depletion-and-decline-rate-in-oil-fields/
https://en.wikipedia.org/wiki/Enhanced_oil_recovery
http://www.thehillsgroup.org/depletion2_022.htm
If only reservoir engineering were as simple as you suggest…
It is a bunch of linear equations. It took me a week to get through Dake.
theedrich on Tue, 12th Apr 2016 2:48 am
There is another reason why the KSA is turning into the Mad Max of oil drillers: politics. In the last few days, there has been a serious leak of information by individuals who have read the hitherto super-classified “28 pages” of the 9/11 Report. It turns out that the 2001 devastation was financially underwritten by the Saudi government. Naturally, the Kingdom vehemently denies this, calling it all a lie, a smear, etc., etc.
And the Republicrat establishment will continue to agree with the ultrarich, royal Sand Negroes. After all, that is why the 28 pages were classified to begin with. And the underlying principle is: one dollar, one vote.
Cloud9 on Tue, 12th Apr 2016 6:38 am
Saudi Fracking http://www.cnbc.com/2015/05/26/technology-for-a-saudi-fracking-boom-moves-closer-to-reality.html