Crude demand-supply balance is definitely tight, no one argues. The spare cushion has perilously gone down to two percent from six percent a few years back. Galloping consumption in the emerging economies of Asia coupled with rising demand within the Arab Gulf has contributed to tight markets.
Skepticism appears ruling the sentiments. Pundits continue churning out various, cooked and semi-cooked, theories about the Saudi capacity to sustain and increase its production from the current levels. Matthew Simmons and his disciples term the Saudi announcement to take production to 12.5 million bpd by next year, and 15 million bpd, if and when required as “a bunch of empty boasts.”
Confusion about the sustainability of some of the major Saudi oil continues to haunt. Debate about the super, giant Saudi fields, so essential for meeting the global energy needs, abound.
And this is confusing the entire world — somewhat unnecessarily — many here in Dhahran, the virtual global energy capital, strongly believe. And it would have serious consequences for the entire world, most agree. Every one including Custodian of the Two Holy Mosques King Abdullah also wants and emphasizes on the need of lower oil prices.
It was perhaps in this perspective that the Secretary-General of the Organization of Petroleum Exporting Countries (OPEC), Abdallah Al-Badri, recently denounced the “myth” of an oil shortage and blamed the crisis on speculation sparked by the subprime lending crisis in the United States. “Seventy percent of crude contracts on the Nymex are held by speculators... Some form of regulation is needed,” he emphasized, adding, “The market has no shortage of physical crude.”
On the forefront of the current Saudi drive is the giant Khurais oil field, about 90 miles east of Riyadh. The field holds 27 billion barrels of oil — more than all the proven reserves of the United States. Starting June 2009, it would produce 1.2 million barrels a day, enough to satisfy the projected growth in global demand next year. The Kingdom is investing more than $10 billion on the field, with 26 contractors, 106 subcontractors and 28,000 employees working on the mammoth task. It is the largest piece of a five-year, $60 billion effort to expand the Saudi oil production capacity.
A variety of new technologies, including multiple lateral wells and microscopic robots swimming through rock pores deep underground, will allow Saudi Arabia to start recovering much more of the oil from its fields, says Mohammed Saggaf, the head of Aramco’s advanced exploration research wing. Consequently, it is expected that the amount of recoverable crude, from the fields could go up to 70 percent from the current 50 percent over the next 20 years; Saggaf was quoted as saying, adding another 80 billion barrels to the Saudi reserves.
Saudi Arabia insists it would be able to pump at 12.5 million barrels per day for as long as the market needs once new capacity comes online next year, a Saudi oil official was quoted as saying earlier the week.
“This is sustainable for as long as the market needs it,” he said. “We are on track to reach production capacity of 12.5 million bpd by the middle of next year and we will do it.” The Kingdom is pumping at the highest rate since 1981, and has boosted output by 550,000 bpd since May. OPEC pumped an average 32.47 million barrels per day of crude oil in June, up 230,000 bpd from May, industry tracker Platts reported Tuesday in its latest survey.
In June, OPEC exports were reported at considerably higher levels. Higher volumes from Saudi Arabia accounted for almost all of the increase, Platts reported. Saudi Arabia produced an average 9.45 million bpd, up 210,000 bpd from the previous month.
The 12 OPEC members bound by output agreements, which excludes Iraq, pumped an average 29.98 million bpd in June, up from 29.75 million bpd in May, and above their 29.673 million bpd output target.
However, not every one seems convinced by the Saudi and the OPEC gestures and some continue to stay skeptic. What could then be done? The issue of sustainable supplies and future capacity continue to cloud the horizon with some warning new tensions from 2010. In order to dissipate these clouds, the International Energy Agency (IEA) has undertaken a mammoth project of auditing the super giant wells of the world so as to evaluate the supply side of the balance.
The field by field report of the IEA is scheduled to be released in November this year and reportedly Fatih Birol and his team seem to be burning the proverbial midnight lamp, in order to compile their report in time. Fatih though prefers to remain tight-lipped on the issue, until the final report is out.
But now another report has hit the energy fraternity. The influential BusinessWeek, on the basis of some ‘fresh data on Saudi Arabia’s oil fields,’ now claims that for at least the next five years, and possibly longer, the Kingdom is likely to produce less than the promised 12.5 million barrels a day.
The detailed document, reportedly obtained by the BusinessWeek from a person with access to Saudi oil officials, suggests that Saudi Aramco will be limited to sustained production of just 12 million barrels a day in 2010, and will be able to maintain that volume only for short, temporary periods such as emergencies. Then it will scale back to a sustainable production level of about 10.4 million barrels a day.
BusinessWeek claims it has obtained a field-by-field breakdown of estimated Saudi oil production from 2009 through 2013. It was provided by an oil industry executive who said he had confirmed it with a ranking Saudi energy official who has access to the field data.
The data about Ghawar, the super giant Saudi field, shows producing 5.4 million barrels a day next year, “but the volume then falling off rapidly, to 4.475 million daily barrels in 2013. That’s why Khurais is so important to make up for that decrease,” said the oil industry executive who generated the data.
Indeed how fresh are the data and how authentic the source remains to be evaluated. The two sides but are poles apart — ominous by any means — and something needs to be done rather urgently.
