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Thanks for the link to the story by Stuart Staniford at the Oil Drum.  I read it a couple of times now and have given it some thought.  I also read nearly all of the comments by other readers. I had never really explored that particular website before although I have spent a lot of time on the ASPO, AAPG, USGS, “Hubbert Peak of Oil Theory”, Chevron, BP, Matthew Simmons and Congressman Tom Udall websites.

I have several reactions to Stuart’s article and all of the commentary.  First, I would say that Stuart’s mathematical analysis of the data seems pretty good and the data seems to support his thesis that the coming online of 300 kbpd from Haradh III merely temporarily increased output by that 300,000 bpd and did not slow down the overall decline rate at all.  Also the geometric shape of the decline curve formed by these recent data points does not seem to follow the geometric pattern of previous periods when the Saudi’s did in fact deliberately cut production in order to prevent price declines.  (The Saudi’s have also greatly increased production in the past in order to keep prices from going “too high,” and to maintain their market share.)

The main problem with the data is that it covers a fairly brief production period, less than a year.  I would agree with many of the commentators that we should have a much better idea by roughly September of this year if this is really the onset of “terminal” decline for oil production in the Kingdom of Saudi Arabia and therefore of the world altogether.  The problem with Saudi Arabia is that it is altogether too much of a “black box.”  The overall lack of transparency is a huge obstacle to any attempts to make accurate predictions of future oil production there.

Apart from those problems, the other points discussed would generally support Stuart’s thesis that KSA is now in irreversible decline and trying to hide that fact by claiming that they are making deliberate production cuts.  The fact that they have tripled the number of rigs working in their oil fields is indeed a kind of “smoking gun” piece of evidence.  There could be other explanations for this increased drilling activity---for example, that Saudi Aramco needs all these rigs to bring the five or six “mega-projects” they have planned into actual production and that they can in fact increase their total production capacity to around 12 mbpd by doing so.  However, this would also undermine the claim that they already have 10.7 mbpd capacity right now, with an unused production capacity “cushion” of about 2 mbpd.  Overall it gives the impression that the Saudis are trying to maintain production as much as they can, and if they really do like the idea of a “temporary” production cut it is being achieved by depletion and not by any deliberate cutback.  Even Alan Greenspan recently admitted that there is currently no effective global oil production spare capacity (not enough to matter) in his testimony to the Senate Foreign Relations Committee in June of 2006.

It is also highly instructive that the latest project that the Saudi’s have brought online is Haradh III.  As one of the commentators kept pointing out, Haradh is simply the southern end of Ghawar.  As Simmons demonstrates with prodigious research, the south end of Ghawar is extremely complex geologically with most of its production parameters greatly inferior to the “sweet spot” in the north end known as Ain Dar.  Haradh has much lower average pay zone thicknesses, much worse permeability, a lower grade of crude oil (higher viscosity for one thing, which retards flow rates) and generally has severe geological and petroleum engineering complexities that have made it very difficult to get much production from that area.  The odds are that whatever technological miracle they may have pulled off there will be short lived.  Besides, 300 kbpd is nothing to write home about for Saudi Arabia in the first place.

The other big projects mentioned in all of the commentary are all re-workings (or possibly extensions) of several of the other very large old oil fields that Simmons talks about at great length in “Twilight in the Desert.”  It is extremely doubtful that any of these fields can be operated at sustained production levels of 500,000 bpd more than current levels (much less at increases of 1million bpd over current levels) for any significant length of time, and even a short boost of this magnitude may be achieved with only Herculean efforts.  The decline rates after such efforts could be steep enough to cause vertigo.  And as Simmons and others point out, the Saudi miracle is in danger of being drowned in its own water flooding processes at any time.  The end of virtually all the world’s giant oil fields is a watery grave with the great production-sustaining reservoir pressures forever lost……… quoth the raven, “Never more.“  Or to quote Shakespeare from Macbeth “…..and all our yesterdays have lighted fools the way to dusty death.”   Even the big field that the Saudis have recently been “crowing” about that is 45 miles or so southeast of Ghawar is a field that was actually discovered about 20 years ago (according to Simmons) and has also proven to be problematic to develop.

Couple all of this with the fact that Saudi Arabia does not appear to have discovered any other truly “super giant” fields in any other part of the kingdom after intense exploration over the past 25 years and the picture looks bleak for Saudi Arabia’s future as the world’s “swing” producer.”  Even the Saudi’s themselves have been backing away from that role and publicly saying so.

Now if you also look at the new king’s recent political moves and statements things get even more interesting.  The kingdom is rapidly distancing itself from the United States, its long-time ally, including publicly stating that the US presence in Iraq is an illegal occupation, pretty strong words from an old reliable ally.  The king has also begun to prominently promote some kind of effort toward a peace process between the Israelis and the Palestinians, something Saudi Arabia has usually stayed very far away from, letting the US and others risk their necks in that kind of diplomacy.  Maybe the Saudis are mainly concerned about the recklessness of the US military adventures in Iraq, the ongoing instability in Lebanon and Syria, the increased tensions between the US and Iran and the growing political and social instability of the whole region.  However, this could also be another signal that they are aware that their future as the world’s major oil supplier is in danger, and the Saudi’s see an urgent need to create a new regional political, economic and cultural order as a way to promote stability going forward into this highly uncertain future.

Probably the only way that a person can understand the fact that the global oil markets have remained relatively calm and stable for these past few years (mainly being influenced by the geopolitical factors and macro-economic demand factors and largely discounting any geological factors) is to understand the previous one hundred and fifty years of global oil industry history.  If you read just the first half of “The Prize” roughly through the period of the Great Depression or perhaps on through World War II you can get a sense of how most oil men, investment bankers, economists, politicians, military people and others see the oil industry and the basic workings of the global economy.  Their views have been so thoroughly shaped by that history that they are nearly totally blind to all contradictory signals and evidence.  This view of virtually eternal abundance of fossil fuels was reinforced by the experiences of World War II and the economic boom of the post-war all the way to the end of the 1960s.  Then the period of the great energy crisis of the 1970s and early 1980s appears to have been a short-lived anomaly.  From the so-called mainstream perspective, this period of high volatility, stagflation and general economic chaos was a purely geopolitical event, caused by bad monetary policy, Middle East wars, the Cold War, the long period of low oil prices (from about 1930 until 1972 prices were mostly low and stable) and other “economic” factors, all of which (they believe) can be explained by conventional economic theory.  When prices collapsed again in 1985, this pretty much proved the old mainstream prevailing paradigm.  All was well again.  The stars were all in their proper places, the world was back to “normal.”  In this mainstream view the current period of little or no supply cushion is also an anomaly and will soon pass.

In order to get the maximum benefit from reading the first half or so of “The Prize” you need to take your time, relax with the book and allow yourself to contemplate what the world must have been like in the late 1800s and how it evolved decade by decade into the early 20^th Century up through World War II.  Of course, reading this history of oil will also convince any thinking person that even this very conventional narrative written by Daniel Yergin pretty much proves the non-conventional view that the entire modern global economy is in fact built on this miracle of virtually free energy known as petroleum, and without its great abundance and extremely high EREOI the modern economy as it is currently conceptualized and operated would simply not exist, i.e., there is no known “commodity” that could have replaced petroleum during that entire period, nor is there any known commodity that can replace it going into the next few decades, which of course is not accepted by mainstream economic dogma.  Unfortunately, the one “commodity” that could come close to replacing petroleum is that other fossil fuel, coal.  If we did begin to replace petroleum with coal, well I will leave that scenario up to your own imagination.  Scenes from “Blade Runner” come to mind for me.

--Reese