Saudi Arabia Oil Production Has Peaked

Jim Brown
 
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It was all over the news yesterday that WikiLeaks had published a batch of diplomatic cables exposing the Saudi Arabia misrepresentations about oil reserves. Most people in the Peak Oil community already knew of these claims but now we have backup from government documents.

The information came from a diplomatic cable sent in 2007. Basically the cable claims Sadad al-Husseini, the person in charge of exploration and production for Saudi Aramco for 12 years until 2004, believes Saudi reserves are overstated by 300 billion barrels or one-third of their stated reserves.

Secondly Husseini claims Saudi cannot produce the claimed 12.5 mbpd because newly developed fields are proving harder to produce and older fields are depleting at an accelerated rate. Also internal Saudi Arabia oil consumption is increasing faster than expected.

Bottom line: Saudi Arabia oil output has peaked and they cannot come to the world's rescue.

So why didn't oil prices spike to triple digits on the news? Because this information has been known to the peak oil community for a couple years. Husseini spoke in confidence to several ASPO members about this in 2009. (Association for the Study of Peak Oil)

ASPO members including myself reported it repeatedly but the mainstream press refuses to cover peak oil issues. They would rather report on a two-alarm fire or some Hollywood actress in rehab than cover stories that will impact the rest of our lives.

Husseini claims the Saudi reserves are "oil in place" and not "recoverable oil." There are no international standards that national oil companies conform to in reporting reserves. This is especially true in OPEC nations. They report what they want and typically increase reserve estimates on a whim in order to get a larger production quota or achieve a higher standing in the OPEC community. Husseini believes Saudi can only produce about 51% of their claimed reserves.

Husseini claims Saudi Arabia's stated goal in 2007 of producing 12.5 mbpd in 2009 fell short because of production shortfalls in new fields and accelerating depletion in older fields. The Saudi super giant fields have been producing for 50 years. Secondly, as I have reported in these pages numerous times the increase in demand inside OPEC producing nations is double or triple the demand increases in the rest of the developed world. When you have a surplus of oil it is very easy to direct it to uses inside your own economy. Cheap energy is the building block of rapid economic expansion.

You may remember a piece I wrote several months ago about the "Land Export Model" and how the increase of oil inside producing nations was reducing the oil available for export at a frightening pace. If a country produces 4.0 mbpd and uses 1.0 mbpd they can export 3.0 mbpd. If internal use increases by 300,000 bpd every year (because your own oil is cheap oil) then three years from now you can only export 2.0 mbpd. Add in something for depletion and there is even less available. Multiply that by 28 producing countries and suddenly oil available for export is significantly less.

Husseini believes demand will continue to outstrip supply and for every million barrels per day of shortfall the price will rise by $12. Here I strongly disagree with him. If demand is 90 mbpd and we are only producing 89 mbpd then somebody is not getting the oil they need. Remember, we are talking about "per day" and not per month or year. Today there is 1.0 million barrels missing from the supply. This time next week there is 7.0 million missing. This time next month there is a total 30 million missing. In only a month the world would be short nearly 150 million gallons of gasoline, diesel and jet fuel. In six months nearly a billion gallons would be missing with the problem growing every day. How is that worth ONLY $12 per barrel of oil?

There will be mass hysteria six months after demand exceeds production on a permanent basis. In 2008 we never ran short of oil but we came close to disaster with less than a million barrels per day of excess capacity and the price ran up to $148.

Obviously there will be some demand destruction caused by the rising price of oil once the peak is passed. When gasoline goes over $4 in 2012 there will be a lot less driving. We saw that in 2008. When it goes over $5 in 2013 there will be a lot less spending for other products because people trapped in a job that requires commuting will be in significant trouble.

The change in our way of life is going to be dramatic and it is going to happen sooner than most think. Ask any 100 people when they expect "peak oil." Most will not know what you are talking about. A few will quote the IEA numbers of 2030-2035. I would bet that not ONE person in 100 will say 2012-2014. If you do find a person that believes this is coming then ask him what he is doing to protect his family and his way of life. You will know by his answer if it really believes it or not.

Tomorrow I will continue this article and describe my view of 2014 and how I believe we should be preparing for the coming disaster.

Jim Brown

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The OilSlick Newsletter is based on the expectations for global oil production to peak and begin to decline in the 2012-2014 timeframe. This is called "Peak Oil." This is the point where global production of conventional oil supplies can no longer be supplemented by enough oil sands production, deepwater oil production, biofuels and natural gas liquids to offset the decline in existing fields. The roughly 6% annual decline of existing production due to depletion is larger than the rate of new discoveries and new production being added each year. The Peak Oil countdown clock is ticking and time is growing short. Peak Oil is coming, are you prepared?

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