See this interesting article from the Oil Drum's Stuart Saniford. A convincing argument for peaked Saudi production is based on three facts. The first being increased upstream investment by the Saudis. The second being increased rig counts. Third and most importantly, declining production despite this. There is a supply pay off lag that may account for all or some of this. Supply figures in the next two years or so will confirm this hypothesis.
Peak Oil
March 10, 2007
March 04, 2007
T. Boone Pickens: Oil Production Has Peaked
Quoting from the WSJ article:
The legendary Texas oilman, 78, who heads Dallas hedge fund BP Capital, told the Forbes CEO conference in Doha that oil production has peaked.
If demand for crude rises beyond the current global output of roughly 85 million barrels per day, Mr. Pickens said, prices will rise to an annual average of around $70 this year
Another article mentions that Saudi production dropped 8% last year.
This could mean that Saudi Arabia has been living up to its OPEC commitments, it could also mean that cheap production is dropping off. A fact that lends some support to the latter possibility: Saudi Arabia is investing some $70 billion over the next five years to boost production capacity. I assume this is significantly more than the cost of maintaining production from young, prolific fields - especially given the conventional wisdom that the marginal cost of a barrel of oil in Saudi is (was) around $2.00/bbl. Given the lag effect of upstream investment on production capacity, we should expect that Saudi production capacity (actual + reserve capacity) would increase in this five year period - if all is well with Ghawar. If it doesn't, then it looks like cheap Saudi production will be fading and that Saudi production may be peaking.
Some hearsay: I spoke with a Saudi petroleum engineering student who told me that the prolific Ghawar field is in decline. As a result, Ghawar is being reworked. If this were, in fact, true, then this is yet another fact that suggests that cheap Saudi production is on its way down.
Iranian, Nigerian, and Iraqi production have also been declining. These countries' production declines are explained by U.S. sanctions, ethnic turmoil, and an insurgency / civil war (respectively).
One could imagine that if OPEC were trying to maintain the world's dependence on their oil, would present production cuts as being the result of collective action or political turmoil. If OPEC's production declines were seen as being caused by depletion, then the world would more quickly move towards replacing oil. This is not to say this is what is happening, but that OPEC has an interest in keeping the consuming public's concerns directed away from depletion.
A final note: I do not believe in peak oil. That is to say, I do not believe in the theory that there is some day in the conceivable future where liquid hydrocarbons cannot be extracted from the Earth. Most production technology in use today can only recover 40-50% of conventional oil (source: petroleum engineer hearsay, again). Many countries that produce the bulk of the world's current oil supply are using technology less efficient than this. I'll post more on this some day soon.
