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 Profile:  Kingdom of Saudi Arabia

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Matt Simmons, forecaster extraordinaire! Laherrère Creaming Curve (URR) oops at theOilDrum

an Update

60 Minutes Saudi Aramco Segment 5th Annual KSA Supply Outlook

Scroll down for[New!]KSA charts ...

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[New!]  2011 update of Saudi Arabia Crude Supply Targets & MSC
[New!]  update of legacy  Saudi Arabia crude production forecasts by Husseini & theOilDrum
 

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  Saudi Arabia MSC & Supply Outlook ... an update

March 31 2012 delayed FreeVenue public release of Dec 31st MemberVenue guidance ~ Guidance from the Kingdom and/or Saudi Aramco with respect to MegaProjects & Surplus Capacity has been limited to fine-tuning over the past three years.  OPEC mandated quota restrictions had kept Supply below national targets in 2008, 2009 & 2010, but geopolitical issues surrounding Libya & Iran drew KSA from its reluctant role as swing producer.  Saudi Arabia set new monthly/quarterly/annual production records in 2011.

In 2009 I predicted that year would prove to be the Kingdom's Peak Year for Maximum Sustainable Capacity (MSC).  Today it appears the 12.5-Mbd high will be unchallenged and high idle capacity (2.0-Mbd) continues to hide this milestone event.  Last week's URR Linearization update re-confirms the Kingdom appears to be inflating their total resource base.  In 2009 I revealed their claim of 900-Gb was more like 212-Gb.  Nothing has changed.

All the announced MegaProjects are still underway.  Due to the subdued Demand growth since the Great Recession, final commissioning of Manifa will be stretched out to 2014.  The preservation of Surplus Capacity reconciled with new construction indicates the Underlying Decline Rate Observed (UDRO) for regular conventional oil has climbed from 2.5% to to 3.6% per annum over the past two years.  RCO extraction should remain above 8.0-Mbd 'til 2021.

Evidenced in brown, green & blue lines in the chart, the terminal decline scenarios by Stuart Staniford & Ace at theOilDrum illustrate the danger of listening to agenda-driven pundits...

Pundits at theOilDrum, along with forecaster extraordinaire Matt Simmons were the main originators/disseminators of the disruptive 2007/2008 rumours that Ghawar & KSA went into terminal decline in 2006. Their common error was inability to distinguish real decline from production decline. The latter is not probable 'til 2024, in large part due to Aramco's unrivalled Surplus Capacity.

  Update of legacy Saudi Arabia Crude Production Forecasts by Husseini & theOilDrum

March 31 2012 delayed FreeVenue public release of Dec 31st MemberVenue guidance ~ Here's my annual look-see at how the legacy predictions by Sadad al Husseini and theOilDrum's Stuart Staniford & Ace (Joker) have performed against facts on the ground.  Admittedly, all efforts have been stymied to some degree by OPEC mandated quota restrictions.  This is exactly why it was decided back in Feb/2009 to depict my Peak Scenario-2500's as Maximum Sustainable Capacity ... not Production.

The PS-2500 continues to project 2009 as Peak Year for MSC.  The Kingdom's 3.6% Underlying Decline Rate Observed (UDRO) for regular conventional oil makes it almost impossible for any future announced megaprojects to have sufficient magnitude necessary to breach 2009's 12.5-Mbd high.  Based on last week's Linearization update, my estimate of KSA URR nudges up slightly to 211-Gb.

The Husseini Outlook takes a similar view with its production high (2023) of only 11-Mbd.  The Ace (joker?) over @ TOD forecasts extraction going south after 2011.  Meanwhile, the infamous high-case worst-case scenarios by theOilDrum's Stuart Staniford continue to be emblematic of the agenda-driven rhetoric, fabrication of data, misinformation and mass hysteria at that place.  Since 2002, McPeakster websites & pundits have been the best thing to ever have come along for oil sector shareholders & NOCs since the invention of the automobile.  The dozens of alarmist "news feeds" disseminated by McPeaksters each week contribute directly to the bottom line of Producers via windfall profits.

 

5th Annual Saudi Arabia Supply Outlook

Feb 9 2009 ~ Saudi Arabia's Maximum Sustainable Capacity (MSC) will be a record 13.05-mbd in 2009. Enjoy it. Peak Oil has arrived in the Kingdom. From 2004 to 2007, Saudi Aramco had bettered its self set targets. It didn't happen in 2008. Fortunately, the miss was due to outside forces! By June, Saudi supply had attained last year's goal of 9.5-mbd and was on the verge of busting the nation's 2006 All Liquids record. But within 30 days, Contract Crude was selling at a record $134/barrel and Demand Destruction was kicking in. By year end, OPEC members had agreed to pare down global quota by 4.2-mbd.

In compliance, Saudi production was ratcheted down to 8.5-mbd and the 2008 year-end targets set back in 2004, 2006, 2007 all came up shy. A very similar circumstance occurred in 2006 albeit not as dramatic. Fortunately, these are merely asterisk events, and not a sign of terminal production decline.

Saudi Aramco starts 2009 with an awesome 2.7-mbd of Surplus Capacity, far above the 1.5-mbd allowance in this Outlook.  Altho 5 of the G-20 countries are in Recession, it is probable that most countries will see some decent expansion in 2009Q3 and Q4.  But while healthy Demand may return, OPEC is not entirely giddy about only a $8 rise in Contract Crude Price from its Winter low of $32/barrel.  This will cause OPEC to slow up its return to September 2008 quota levels.  In turn, this may force Saudi Arabia to miss its 2009 self-set targets as well.

Ironically, the very action of OPEC cutting quotas has very much to explain the current collapse in crude price.  McPeaksters such as the theOilDrum, PeakOildotcom & forecaster extraordinaire Matt Simmons are credited for originating/disseminating most of the 2007 disruptive rumours of Saudi Arabia's giant Ghawar field being in terminal decline.  But each time OPEC restricts quota by 1-mbd, it is another nail in the coffin of the McPeaksters.  Albeit these measures cause a very short term rise in crude prices, as OPEC tightens Inventories, the market is factoring in an even larger price component by acknowledging that spare capacity is indeed rising.  Since 1989, McPeaksters have made annual proclamations that worldwide Peak Oil is upon us.  With traders' present recognition that Saudi Arabia alone has 2 to 3-mbd spare capacity, the issue of Peak Oil is all but dead.

2009 continues Aramco's trend of accelerating its short term targets.  In 2004, we reported that the world's largest petroleum producer had hoped to breach the 10-mbd threshold in 2015.  A major commitment to MegaProjects may bring this event to fruition in late 2009!  Unfortunately, another trend in play is very troubling.  In our 2006 Outlook, Saudi Arabia was poised to see an Extraction Peak of 11.25-mbd in 2012.  Aramco has noticed that Underlying Decline Observed (UDO) is becoming a factor to be reckoned with, and has been actively increasing its forward allowance for UDO.  When this increasing magnitude of the UDO allowance is coupled with our recent heavily reduced estimate of their URR, it can be determined that Saudi Arabia is presently undergoing an effective Peaking of Regular Conventional Crude (RCC); one that is shielded by its substantial Surplus Capacity.

TrendLines Research calculates Saudi Arabia's 2008 Underlying Decline Rate Observed for RCC to be 5.3%.  UDO is increasing by 100-kbd annually and cause for concern in the long term.  The rise may be the result of major shuttering operations, or perhaps due to significant natural decline.  If be it the latter, Saudi fields could attain 10% UDRO by 2017.

It is improbable that there will be a substantial increase in KSA production in the future.  The Kingdom's record extraction of Regular Conventional Crude was 9.9-mbd in 1980.  Within five years, it had shuttered 65% of its capacity and Russia became the #1 producer with a record 11.5-mbd in 1987.  The KSA bounced back in the 90's.  If the Kingdom's URR is indeed only 212-Gb, then it is likely that the nation passed the half-way crossover of its URR in Spring 2007.

Unless major field retirements are again under way, it is almost certain that the Kingdom is presently undergoing an effectual Peaking, one that is masked by their unrivalled spare capacity.  This is evidenced by its Underlying Decline Rate Observed hitting a recent record 5.3% in 2008.  Analysis of the Kingdom's past and future Maximum Sustainable Capacity (MSC) reveals the 2009 Peaking of its Regular Conventional Crude.  In our 2006 Outlook, RCC was destined to peak @ 13.75-mbd in 2012 (incl Neutral Zone).  Despite accelerated MegaProject commission dates, larger than expected UDO has both dampened targets to the point where Peak MSC has shifted to a reduced 13.05-mbd in 2009.  This concurs well with our position that the KSA URR had a midpoint crossover in 2007.  It is also consistent with the unfolding of Peak RCC on the global scale.  In that context, if our calculation of RCC's URR being 2003-Gb is correct, then the midpoint was crossed in 2006.  Again, within one year of the RCC production peak of 69-mbd in 2005.  It appears that conventional crude production peaks precisely at the midpoint of extraction.  M King Hubbert would be proud, eh!

The road to a brighter scenario is ugly.  Let us make two reasonable assumptions:  (a) that projected UDO of 0.75-mbd in 2011 does not increase in the short term and;  (b) that a five year lead time is required for new MegaProjects.  Based on present build schedules, the current 13.05 MSC will decline to 9.55-mbd by 2015.  To create a hypothetical MSC high of 13.5-mbd in 2015, Aramco must announce 3.75-mbd of new capacity that would have to be completed by 2015.  In short, three 1.25-mbd MegaProjects must be announced within 24 months to avert 2009 from being declared Peak MSC Year.  Alternatively, if 2016 is targeted for Peak MSC, then 4.5-mbd of commissioning is required in the form of announcing 4 x 1.1-mbd MegaProjects over the next 36 months.  For perspective, be mindful that Aramco's current MegaProject track record is an average 0.55-mbd/yr.

Despite the negative long term ramifications, Saudi Aramco has sufficient Surplus Capacity to set new annual, quarterly & monthly records over the next five years.  TrendLines Research calculates that if the firm chooses to Peak early and high, say 11.5-mbd in 2012, Decline will commence no later than 2020.  By choosing to maintain a more conservative 9.6-mbd plateau, Decline can be postponed 'til 2025.

~

Our Scenario-2200 primarily estimates global & national URR using geologic and technical data. However, alternative Linearization analysis of the Regular Conventional Crude component indicates that Saudi Arabia's share is a mere 212-Gb.

Saudi officials insist a more appropriate figure is 900Gb:

112 Past 2008/12/31
260 1P
39 2P
68 3P
479  
240 Contingent
719  
181 Undiscovered
900  Gb URR

The chart above projects crude exhaustion by mid century.  It is purposely misleading in order to illuminate the harsh effects of Underlying Decline and the necessity for Aramco to maintain its commitment to MegaProjects.  The 2009 scenario reflects a Saudi URR of only 158-Gb.  With 112-Gb already extracted, implied reserves are a mere 46-Gb.  On the contrary, Saudi officials assert that they have 367-Gb of 1P/2P/3P Reserves and a URR of 900-Gb.  Jean Laherrère adds credibility to a larger figure with his creaming curve analysis indicating a URR of 400-Gb or 288-Gb Reserves.  Alternatively, our own linearization analysis projects a Saudi URR of 212-Gb and 100-Gb of Reserves.  The 2009 projection presented would appear to be far below a Worst Case Scenario.

Saudi Arabia has recently commenced to develop the second half of its vast Resource fields.  Because less than 50% of the Kingdom had active fields, Aramco officials assert that many Linearization Estimates of its URR indicating ultimate crude volume of approx 200-Gb are flawed.  Some post-2002 linearization studies are demonstrating a "dog leg up" anomaly that has been routinely explained away as EOR activity.  With assurance within the IEA WEO-2008 that Ghawar is indeed not in decline, the proof of the asserted high URR will not be substantiated by an expected announcement of a major upward revision of Saudi Reserves this year.  The only proof of a higher-than-212-Gb URR lies in the Kingdom's ability to maintain or grow production levels after 2015.

The improbable 900-Gb URR implies that Aramco has the potential to pump at its present rate 'til the end of the Century.  To get there, Saudi Arabian leadership must address their intent and commitment to future MegaProjects.  One can be less than confident that the present 55-kbd/yr trend for new capacity build will continue in light of recent statements by the House of Saud that they will moderate their growth program "for the sake of future generations".  Better guidance would be appreciated.

In the meantime, Saudi Arabia (8.3-mbd) continues its status as the number two extractor of regular conventional crude (behind Russia's 9.9-mbd) and remains the numero uno producer of All Liquids.

 

Dec 7, 2008 ~ Enjoy CBS's 60 Minutes segment "Saudi Arabia Bullish On Oil's Future"  (parts 1 & 2 - 12 minutes each featuring Lesley Stahl) on Saudi Aramco, or read the transcript

   

The green line indicates that the URR for Saudi Arabia is estimated at over 400-Gb.

 

Jean Laherrère April 2007

 

   

 

Alarmists at theOilDrum expected Saudi Arabia supply to be down to 7.5-Mbd by December 2008.

Instead, production rose from 8.6 to 9.5-Mbd

Today it's 10.0-Mbd

 oops!

March 1 2007 ~ This graph is the new battle flag of theOilDrum forum.  Yup, all the marbles on one call.  Remember them?  They are the pundit alarmists (Mainstream Media calls them wacko's) that in October 2004 published that the USA was entering an economic Recession.  Oops.  Well, they're back...

TOD's March 2 2007 prediction:

The green line shows that Saudi Arabia crude supply of 8.7-mbd of January 2007 is headed to 6.5-mbd by Autumn 2011 ... or as low as 4-mbd!

Accompanying comments by Stuart Staniford:  "It also suggests that last year's underlying Type II decline rate, before megaprojects like Haradh III, was 14%.

Overall, I feel this data is clear enough that I'm willing to go out on a limb and conclude the following:

# Saudi Arabian oil production is now in decline.
# The decline rate during the first year is very high (8%), akin to decline rates in other places developed with modern horizontal drilling techniques such as the North Sea.
# Declines are rather unlikely to be arrested, and may well accelerate.

They published it the exact same day that Colin Campbell published a graph showing Saudi Arabia won't decline until 2025 & he changed the ASPO Peak Oil Date to 2011 ...

So, who has got it very wrong?  TOD or ASPO?  Let's see if TOD can do better than Matt Simmons, eh!

Note - Saudi Arabia's supply output target for Autumn 2011 is 10.5-mbd ... right off the top of his graph!

(Jan 20 2009 Update:  To the chagrin of TheOilDrum McPeaksters, KSA extraction rose to 9.5-mbd by June 2008, at which time Saudi Aramco was forced to submit to OPEC quota restrictions.  After these production cuts, KSA is far above the 7.5-mbd predicted for December 2008 by TOD's Stuart Staniford.)

   

    

January 2006 ~ Matt Simmons, forecaster extraordinaire!

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 Profile:  Kingdom of Saudi Arabia

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