Peak Oil is You
Donate Bitcoins ;-) or Paypal :-)
Page added on August 6, 2015
Saudi Arabia Might Just Have Blinked In the Oil War
Kenny Rogers is probably not well known in Saudi Arabia but if recent speculation about the kingdom resorting to the international debt market is correct then the words of The Gambler should be called, loudly, from every minaret in Riyadh.
If you don’t know Kenny’s signature song it’s the one which includes the refrain: “You’ve got to know when to hold em, know when to fold ‘em, know when to walk away, know when to run.”
In the case of Saudi Arabia, and the unconfirmed reports of it seeking $27 billion in debt via an issue of bonds, it appears to be adopting the gamblers strategy of seeing off its opponents in the increasingly competitive oil world by calling “raise ‘em”.
Betting The House (Of Saud)
What the debt raising signals is that the kingdom is prepared to bet the house of Saud on a high-risk gamble based on a belief that it’s vast oilfields can outlast everyone else’s oilfields, especially the newcomer, U.S. unconventional (or shale) oil.
Until now Saudi Arabia’s low cost oil and its cash reserves estimated to be around $670 billion was believed to be sufficient to frighten rival oil producers out of the business, clearing the way for a much-needed increase in the price, once the oil-glut subsides.
Several recent events indicate that the tactic of flooding the oil market to drive high-cost producers out of business might not be going to plan.
More Rigs Drilling Not Fewer
The first hint that all is not well on the Saudi side of the table came in the form of last week’s count of active U.S. oil and gas drilling rigs by the oilfield consulting firm Baker Hughes BHI +1.86%.
Rather than fall, which had been the trend for months, the rig count rose, only by five to 664 active rigs, but the increase indicated that the tactic of oil-market flooding is not working as well as was expected when launched last November.
The next clue that the oil flood will not abate soon comes with estimates of U.S. unconventional oil production efficiency improving dramatically since the oil price started to fall because of the Saudi-led flood.
Shale Drillers Becoming More Efficient
One claim is that U.S. unconventional oil producers are 50% more efficient than this time last year, and that more savings have been identified which could keep oil output at near record levels for months and possibly years.
Saudi Arabia’s rumored resort to the debt market is not a sign that the kingdom is about to “fold”, but it is a pointer to the increasing pressure under which the big oil producer has found itself with oil income falling as it seeks to spend more on defense to counter the likely reemergence of Iran as a regional power.
A year ago the Saudi government was confident that the traditional approach to an oil glut, a cut in production, was not the correct approach in the current situation.
The Technology Is Out Of Its Box
The concern was that a production cut would encourage even faster expansion of U.S. unconventional production and a worldwide spread of the technology which has made it possible to extract oil and gas from rocks once considered to tightly packed to ever produce commercial quantities of oil.
Increasing, rather than decreasing output was seen as a clever move because in a war of attrition the leaders of Saudi Arabia were confident that they would win.
But, rather than U.S. unconventional oil producers being squeezed out of business a dangerous game of bluff has developed with everyone in the energy business being hurt in some way.
The question which no-one can answer yet is who will blink first because the pain has become too great and while the Saudi debt plan might not be a blink it is a hint that other gamblers at the oil table might see as a sign of weakness.
56 Comments on "Saudi Arabia Might Just Have Blinked In the Oil War"
Davy on Thu, 6th Aug 2015 8:13 am
The idiots at forbes twisting another story to justify US shale and mask US shale’s problems. The Saudi’s need money to finance their Yemen adventure among other things. They are not going to liquidate their wealth fund so they issues debt. Sounds like a smart move to me and nothing related to US shale. Besides the probably want to jump on the debt bandwagon before it is too late. I imagine at some point the global system will have one larger than life debt jubilee that is also the end of life event.
shortonoil on Thu, 6th Aug 2015 8:50 am
“The idiots at forbes twisting another story to justify US shale and mask US shale’s problems.”
When Forbes begins talking about some of the real problems facing US petroleum producers they might be worth reading? Problems like how producers are going to replace reserves at existing prices, how the industry is going to service its exploding debt, how the thousands that are losing their jobs can be put back to work. When it begins talking about the real problems, and not how the mean, ugly, greedy Saudis are going to be sorry that they tangled with US shale, they might be worth the cost of the postage to subscribe to them. In the mean time they have become just another tabloid press. Another Enquirer on the news stands. Expect an article soon on how the Saudis are working with the Aliens to keep them in business.
rockman on Thu, 6th Aug 2015 9:18 am
“The next clue that the oil flood will not abate soon comes with estimates of U.S. unconventional oil production efficiency improving dramatically since the oil price started to fall because of the Saudi-led flood.” There has been no meaningful gains in efficiency in the last year. Wells are being drilled and frac’d now as they were 12 months ago.
The productivity PER WELL might be better now since the poorer prospects aren’t being drilled. And the costs have fallen a bit thanks to the sudden oversupply of rigs and frac crews. But with half the number of rigs drilling obviously half the number of wells will be drilled. Thus the amount of new production coming on line will have to decrease. Average initial flow rates might be better but the total amount of new oil will have to decrease. And now that the lag time between spudding a well and first production is used up we’re beginning to see the effect. By 1Q 2016 there should be enough data to estimate the new trend. Remember many of the wells drilled in 2Q 2015 won’t begin producing until some time in 4Q 2015. Likewise the wells not drilled in 2Q 2015 won’t reveal their loss of new production until later this year.
The dynamics are really simple: drill fewer new wells with the same tech and there will be less new production. The fact that this simplicity escaped so many is truly sad. But by the end of this year those cornucopians will have little choice but to hide in the bushes and lick their wounds. LOL.
shortonoil on Thu, 6th Aug 2015 9:36 am
You missed one Rock. Production from existing wells is declining by what? 3-4% per year. Not only do the shale wells have to be drilled fast enough to compensate for their own spectacular decline rates, they have to drill enough to compensate for the decline in all the other wells that are now producing. It is kind of bizarre how so many think oil is pumped out of a Wall Street balance sheet!
BobInget on Thu, 6th Aug 2015 9:50 am
Not a word about Saudi Financing Syria’s downfall. (see US ‘airstrikes’) Never mentioned, KSA’s turning Yemen into another Syria.
(see US complicity)
Biggest of all..
‘Overlooked’, Saudi, US treasury holdings that are doubtless over a hundred billion dollars.
If Saudis try to cash out, USD would be wiped
out as a world exchange currency. Effectively
KSA is blackmailing US into Mideast ‘adventurism’ not seen since the beginnings of Iraq invasion/occupation.
The Saudis have convinced reluctant Egyptians
and hard pressed Turkish military to come on board with boots for Yemen. This must have cost KSA dearly, cash and oil.
Iranians have won. Not because of brilliant diplomacy but Saudi stupidity. Not only has Iran prevailed politically, they are not stressing out oil fields for peanut returns.
Airstrikes never wins friends. Al Qaeda is making huge gains in Yemen. Doubtless, ISIS
is getting its share as well. This is exactly the way ‘House of Saud’ gets US troops to battle
dissidents in Yemen. (just as the Saudis got us into a Syrian bombing campaign)
President Obama speaks of ‘preventing another
Mideast war’. LOL
By my count over forty nations are involved.
revolution in saudi arabia coming on Thu, 6th Aug 2015 9:50 am
combine this with the recent bombing of a mosque used for the Saudi’s special operations teams, its clear the house of saud is on shaky ground, pretty soon, they’ll have a full scale rebellion on their hands. And, for a country so rich, does seem odd they had to borrow money, obviously the low price of oil is hurting them, and soon, they’ll have to stop flooding the market to get the price up some. Assuming of course Iranian commandos haven’t invaded their oil fields by then.
Apneaman on Thu, 6th Aug 2015 10:22 am
BobInget the MSM never makes connections or puts things in context. Keep it stupid simple. In addition, this piece is written at about a 5-6th grade level. The author actually went to journalism school for 4-5 years to get trained up to do this. Who is Forbes core readership? A bunch of other university programmed, suit wearing automatons. Most apes really are like sheep and Forbes is like a border Collie nudging them this way or that for the masters purposes that neither the dog or the sheep understand.
Davy on Thu, 6th Aug 2015 10:22 am
Bob, I am sure you didn’t mean what you said because I thought you were smarter than this:
Bob said – “Overlooked’, Saudi, US treasury holdings that are doubtless over a hundred billion dollars.
If Saudis try to cash out, USD would be wiped out as a world exchange currency.”
rockman on Thu, 6th Aug 2015 10:47 am
True shorty. But at this point I would hope we didn’t have to remind any of our cohorts about the inevitable depletion of the existing wells.
But forget about that low decline rate…it only applies to wells 4+ years old. The wells drilled during the last two years will see decline rates much higher. IOW all the production surge from mid 2013 to the end of 2014 is quickly disappearing. And that’s in addition to the lack of production from new wells. But even the wells that are drilled in 3Q/4Q 2015 will still suffer the 30% to 40% decline by the end of 2016.
As I pointed out the math is inescapable no matter how the cornies try to spin it. The reality will lay it all out over the next 12 months.
joe on Thu, 6th Aug 2015 10:59 am
I read allot about ‘efficency’ this and ‘cost saving’ that, but in the end the tech is not new, nothing is new, it’s been around for decades. Maybe you can count chapter 11 as cost savings and new bank debt as innovation, but the tech of the drilling is not new, the formations might not change, but the scanning tech might and that might deliver the sweetest of the sweet spots but will that last a decade? Tight oil is all about getting investors or big oil to come in. If I were are king in Riyad ( and everyone knows the Arab sheiks love Monaco ) I would raise em too. After all what’s the loss of 100bln when there is literally so much more cash in the ground.
Kenz300 on Thu, 6th Aug 2015 11:05 am
FORBES — the spokesman for the OIL industry and the top 1%………..
Forbes and Faux Noise present “OPINION” and NOT FACTS and present them as NEWS.
karina on Thu, 6th Aug 2015 11:28 am
Why, by GOD, why do we prohibit export of oil!???
drwater on Thu, 6th Aug 2015 11:30 am
Not sure I see the Saudis “flooding the markets” in the data. Their production has been bouncing around between 9.75 and 10.25 Mbpd since 2011, currently at 9.94 – basically flat for 4 years.
http://ycharts.com/indicators/saudi_arabia_crude_oil_production
They are just not cutting production like they did in the past. They are leaving it up to the shale and deep water guys to balance the market this time.
Plantagenet on Thu, 6th Aug 2015 11:36 am
The bottom line is that the oil glut isn’t ending as quickly as many here predicted.
US shale oil production hasn’t plunged to zero, as many here predicted.
AND new drilling in tight shale hasn’t stopped, as many here predicted.
Cheers!
Apneaman on Thu, 6th Aug 2015 11:45 am
Planty, they first would have had to acknowledge your glut and most here have not. Making shit/strawman up again planty.
rockman on Thu, 6th Aug 2015 11:59 am
karina – “Why, by GOD, why do we prohibit export of oil!???”. From that statement I assume you aren’t aware that, according to the EIA, as of last April the US was exporting oil at the rate of 200+ MILLION BBLS PER YEAR.
In addition the US was exporting the refinery products made from 1+ BILLION BBLS OF OIL PER YEAR. In essence the US is currently exporting over 1.2 BILLION BBLS of oil/hydrocarbon products per year.
And this you consider a “ban”?
rockman on Thu, 6th Aug 2015 12:12 pm
drwater – “Not sure I see the Saudis “flooding the markets” in the data”. The data: North American producers (Canada + USA) are delivering 12.5 million bbls per day to its markets. The KSA is currently delivering 7.7 million bbls per day to its markets.
IOW US oil producers are currently delivering 620 million bbls more per year to its buyers than the KSA is delivering to its buyers. So who is flooding the market place?
Plantagenet on Thu, 6th Aug 2015 12:47 pm
@Apey
That fact that you and others here still won’t acknowledge that the world is in an oil glut just shows how out of touch with reality you are.
This is why all your predictions about tight oil shale production plummeting to zero have proven to be wrong—-since you don’t understand the current realities of the oil market, all your inferences and predictions are predicated on a mistaken assumption so they inevitably turn out to be wrong.
CHEERS!
HARM on Thu, 6th Aug 2015 12:52 pm
“US shale oil production hasn’t plunged to zero, as many here predicted.”
Who here predicted U.S. shale would plunge to zero?
“AND new drilling in tight shale hasn’t stopped, as many here predicted.”
No, but rig count is falling pretty dramatically, which (obviously) is a precursor to falling production.
zoidberg on Thu, 6th Aug 2015 12:54 pm
Aw c’mon peakers. Shale wrecked your peak oil 2005 party so you hate and wish for it to disappear so the doom party will start up again.
As prices go down they will all try to increase production to make up revenue short fall. The Saudis will do the same now since they’re borrowing money again. The shale guys Will get new loans to keep going. They’re bankers are in too deep to take losses especially now. It’s too early to call the production collapse. My bet is war destroying the excess production not market forces.
zoidberg on Thu, 6th Aug 2015 12:56 pm
Saudis got few friends. Maybe none.
Apneaman on Thu, 6th Aug 2015 1:10 pm
Planty says, “This is why all your predictions about tight oil shale production plummeting to zero have proven to be wrong”
You got a quote where I said that? No you don’t. You just pulled it out of your ass like every thing else you come up with. About 90% of your comments are spent on poor attempts to twist and re-frame others commenters words and valid points. Any rational views you come up with fall on deaf ears due to your long track record of lying and obfuscation.
HARM on Thu, 6th Aug 2015 1:10 pm
Not all “Peakers” are as anti-shale as you think, nor was everyone convinced 2005 would be the top. If tight oil undermines Saudi power and influence, that’s a plus in my book. It’s also a bridging fuel that hopefully can help ease the transition to renewables.
However, I *am* concerned about what fracking is doing to the water table, long-term. Even if the KSA gets overthrown, that hardly matters if there is no clean water for you to drink.
Davy on Thu, 6th Aug 2015 1:11 pm
I not sure what planet you live on zoider but there is something call profitability. The concept of profitability operates in economics and thermodynamics. Shale is striking out on both lately. Throw in debt overhang and you get three strikes your done. So much for that cheap song you were singing zoider.
Plantagenet on Thu, 6th Aug 2015 1:14 pm
@HARM
Read the article. US Rig counts aren’t “falling dramatically” as you claim. According to the article US rig counts went UP last week.
Face facts:
1. We are in an oil glut.
2. US shale oil production isn’t collapsing as many here predicted.
3. US rig counts did drop at the start of the oil glut, but drilling activity in US shale hasn’t come close to stopping. The facts show that US rigs are still actively drilling shale—-in fact according to this article US rig counts went UP just a smidge last week.
CHEERS!
Apneaman on Thu, 6th Aug 2015 1:20 pm
zoid, your bet that is war destroying the excess production not market forces is much like Bob’s position and I suspect it is at least a big factor, but am not totally certain. Given the world changing implications of peak oil, do you really believe that peakers with families and lives really want to see it that bad? Just to say “I told ya” to a bunch of anonymous internet sparing partners and savor 2 minutes of satisfaction before everything changes? I think you may be attributing something that is not there. Changes? yes. Major crash? I don’t think so.
Davy on Thu, 6th Aug 2015 1:23 pm
Planter, we are just far more sophisticated than you concerning the so called “glut”. We avoid looking like a parrot redundantly squawking the same word over and over. We speak of nuances of demand destruction and supply issues. Most of all planter we respect our fellow posters and avoid irritating our friends with redundant terms like glut.
Plantagenet on Thu, 6th Aug 2015 1:24 pm
@Apey
So you are now claiming you predicted Shale Oil production would stay high in spite of the oil glut? Really?
Hahahahahahah! HAHAHAHAHAH!
Cheers!
Plantagenet on Thu, 6th Aug 2015 1:31 pm
@Davy
We are in an oil glut, Davy.
People who quibble over words usually have lost whatever argument is going on and want to change the subject to an argument over words and terms.
This is the case here. You and others here who claimed there was no oil glut have been proven wrong, and rather then admitting you wee wrong that you want to quibble over the term “oil glut”.
Why not just face facts? We are in an oil glut. On you accept that we are in an oil glut, then we can go on to intelligently discuss what is going on in the oil market now, including the fact that US tight shale oil production hasn’t collapse as David Hughes and others here predicted and the surprising news that there has actually been a small INCREASE is US rig count last week.
CHEERS!
BC on Thu, 6th Aug 2015 1:46 pm
Kenz300: Forbes and Faux Noise present “OPINION” and NOT FACTS and present them as NEWS.
Do you have something against Foxy Noise’s “fair and balanced”? Or is it the bottle-blond hottie newsreaders?
I tell ya, some people are hard to please.
😀
HARM on Thu, 6th Aug 2015 1:50 pm
@Plant,
The tiny uptick in rig count (+5) in the past month is hardly enough to compensate for the ~50% decline since last year. There is also a “lag effect” where production does not immediately drop following a drop in rigs –even one as dramatic as this.
http://wolfstreet.com/wp-content/uploads/2015/03/US-rig-count_1988_2015-03-20oil.png
Yes, we are in a (temporary) “glut” right now, partly due to demand destruction in China, as their twin real estate and stock market bubbles collapse. You don’t need nearly as much oil when you have essentially stopped building residential stock and already have enough ghost cities to house everyone in California + Oregon + Washington.
Davy on Thu, 6th Aug 2015 1:54 pm
Calm down Planter I didn’t intend to piss you off. I am just trying to help you make friends here at the same time helping you open your mind to more sophisticated conversation.
apneaman on Thu, 6th Aug 2015 1:57 pm
Planty, neither you fucking moron. You suffer from severe black and white thinking and have no concept of nuance. If you could manage to slow your brain down for a few minutes and concentrate on what the different commenters actually write you would quickly see that people have a wide variety of reasonably ideas on how far away a peak is and some(like me) don’t pick dates. You’re like GW Bush – either every one is with you (100%) or with the terrorists. In reality, the only sure way to know peak has happened is after the fact. Kinda like extinction.
Boat on Thu, 6th Aug 2015 2:02 pm
Harm/Apnman,
Easy enough to google. Worlds rig count by country history. You will see the rig counts have dropped over the entire world. What ever the reason the glut will dissipate with rig count drops over time.
Then the price will begin to recover and the rig counts will go back up.
Plantagenet on Thu, 6th Aug 2015 2:27 pm
@HARM
You said oil rig counts were “collapsing.”
You are wrong.
There is actually a tiny uptick this week
Why not face facts?
apneaman on Thu, 6th Aug 2015 2:49 pm
Boat, you’re not paying attention either. I don’t count rigs or barrels and especially not 14 times a day. I’m big picture and trend. I’m also big on the consequences of burning and running out (so to speak) all that black gold if you haven’t noticed.
waltz on Thu, 6th Aug 2015 2:52 pm
“according to the EIA, as of last April the US was exporting oil at the rate of 200+ MILLION BBLS PER YEAR.”
SEVERELY MISLEADING
When you import over 2,500 million barrels of oil a year, exporting an order or magnitude less does not make you an “exporter”.
NET importer, not an exporter….
Chuck on Thu, 6th Aug 2015 3:05 pm
When this all started, and then again when Boone Pickens tried to jawbone a floor in, I said Saudi would keep the spigot wide open until they get whatever it is they want to get.
This proves it.
HARM on Thu, 6th Aug 2015 4:23 pm
“@HARM
You said oil rig counts were “collapsing.”
You are wrong.
There is actually a tiny uptick this week
Why not face facts?”
Oh, gee, you’re right. I should have said “oil rig counts have already collapsED” past tense.
My bad.
Truth Has a Liberal Bias on Thu, 6th Aug 2015 4:52 pm
Is Plant the resident troll on this site?
Truth Has a Liberal Bias on Thu, 6th Aug 2015 4:55 pm
Not only does Plant post on here a lot, it also appears from the date/time stamp that he also does it around the clock; morning, noon and night. Somebody needs to get some real life friends lol.
Are you an elderly shut-in?
rockman on Thu, 6th Aug 2015 5:00 pm
“The tiny uptick in rig count (+5) in the past month is hardly enough to compensate for the ~50% decline since last year.” I’m not picking sides in this heavy debate. But: a rig is counted as drilling if it is actually on location under contract. I may be drilling with Rig A on 1 July. On 5 July I “release” that rig…release is a very specific contract term. IOW I stop paying for the rig on 5 July. It takes 2 to 3 days to rig down, move to someone’s location, and then 2 to 3 days to rig up and be back on contract.
IOW there are a number of days when the rig isn’t posted as “drilling” even though it might be working continuously. So depending when the count is taken the number rigs operating might be constant but the “drilling rig count” could easily vary +/- 5…or more.
BC on Thu, 6th Aug 2015 5:14 pm
Plant, are you a masochist? 😀
zoidberg on Thu, 6th Aug 2015 5:24 pm
Energy production and profitability aren’t tied together as strongly as we may think. Energy is tied into politics. And all bets are off during war time.
And politics during this period are desparate. Hubris and incompetence and corruption have shrunk the economy and poisoned relations. Shale was never only about profits but politics.
Also credit is infinite. It’s claims on wealth Cant all be honored but banks can make as much credit as they want. Lossses can be hidden till it’s fixed or becomes too big to ignore.
And apeman. Yes I think many peakers are indeed fixed on death and misery. I find it sad but real.
Nony on Thu, 6th Aug 2015 5:48 pm
1. I really doubt that shale drillers have “become more efficient” systemically. As an average, they are drilling better projects, but that is from cutting the marginal ones, not from getting better. It’s like having a taller class of college kids by dismissing everyone who us under 6 feet. You didn’t grow anyone, you didn’t even attract taller kids. You just cut the tail and improved the average.
2. As far as cost efficiency, a lot of that is temporary and based on excess capacity of services. They didn’t get more efficient either and those costs would go up if the market recovered. (Or will go up as excess capacity is rationalized…like rigs getting cut up for scrap.)
3. A blip of 5 rigs can just be noise. The number moves around. The 21 rigs a few weeks ago concerned the market. It’s no longer a story of the market and Saudi don’t care what US LTO does. They care now. My take is that a lot of the rig climb is from when we had price in the low 60s and contracts were inked then. If we stay in the 40s, rig counts may resume their drops. There is a big difference between 45 and 60.
4. The more worrying thing for Saudi is how low the futures strip is. This is no longer a temporary glut being worked out, but a changed view of the medium term supply-demand equilibrium. The DEC2016 contract is at the lowest price it has ever been. Yes, it is expected to go up from 45 to 52.5. But that 52.5 is a lot lower than the market was predicting even back in JAN-MAR this year. About $10 lower.
5. The Saudis actually watch Brent, but story is similar there, just a few dollars higher. I think the Saudis will need to take the long view and think about how to weather Brent in the 45-65 range for the next several years.
P.s. And US LTO did that. Drill, baby, drill!
Nony on Thu, 6th Aug 2015 6:04 pm
Here is a peaker in 2008 calling the peak. OOOOOOOPS!
“There is a growing consensus among those who follow such things, that the new high of world oil production (87.9 million barrels a day) reached last July is likely to go down in history as the all-time peak.”
http://www.resilience.org/stories/2008-12-05/peak-oil-crisis-july-2008-%E2%80%93-month-remember
Davy on Thu, 6th Aug 2015 6:08 pm
Zoid, being fixed on death and misery when they are a possibility are something those in leadership positions should do. Some of us have people to provide for. Some of us feel responsible as good citizens to face these issues and talk about them.
If you choose to be a joyrider living a cavalier life that is fine. You have an individual choice to happiness but don’t criticize those who provide and protect because bad news rains on your parade. Some face reality and others play.
You corns who complain about doom are the worst because you refuse to entertain the dangers ahead because they ruin the appearance of the good life you want portrayed.
It is the aggregate summation of your type that is leading the sheep to the cliff. It may not matter in the end but I believe we have a responsibility to try to minimize pain and suffering that are likely in our future. What’s your plan zoid more golf courses and theme parks?
Davy on Thu, 6th Aug 2015 6:16 pm
NOo, you gotta be getting nervous with all this bad news with crude oil and commodities. Add to that bad news all the hazmat of economic news. You are going down friend and hard. NOo, you got a golden parachute or just a 10 speed bike?
Nony on Thu, 6th Aug 2015 6:26 pm
Ten speed bike man. Red 1985 Schwinn Super Le Tour. Best bike ever. Wear a tee shirt and crush yuppies all geared up in compression shirts riding on carbon fiber.
http://schwinncruisers.com/catalogs/images/1979_schwinn_le_tour_4.jpg
I have enough cash for a few years, but not for my life. And if things really go south, like the currency devalued…I don’t have assets. Like my freedom and not buying property. Urban creature. Still able to find work pretty easy though.
Davy on Thu, 6th Aug 2015 6:28 pm
Good boy NOo, you got life figured out.