What the Death of the Super-Giants Means…

If you couldn’t tell, my foray into grade-school poetry a couple posts back was triggered by Stuart Saniford’s recent post on the Oil Drum about Saudi Arabia’s oil production declining by eight percent in 2006. This is potentially news of great importance, but since the Saudis keep their cards close to their chest, it’s hard to tell.

It might mean that the Ghawar field is finally entering terminal decline. The largest oil field ever discovered, Ghawar has been the bulwark of Saudi oil production since the 1940’s, consistently producing around 5 million barrels per day, and it has produced the majority of Saudi Arabia’s oil production for the last 50 years. Considering that that world produces around 75-80 million barrels per day, the death of Ghawar would be a huge loss.

It might also mean that the Saudis are ratcheting back production to keep several million barrels of oil production offline. The kingdom is the world’s swing producer for oil, able to make up for a lack of oil production by any other producer. This gives them the ‘oil weapon’ – being able to dump extra oil on the market to drive prices down. There has been talk about them feeling the need to do this soon if tensions with Iran continue to rise, with the idea being that the Saudis can weather the revenue losses from lower oil prices much better than the Iranians can. It’s a dangerous game to play, but they have done it in the past so I wouldn’t be surprised to see it happen again.

Unfortunately, we don’t know exactly what is going on, since Saudi Aramco keeps on serving up the same pablum about how things are great, they have more oil fields coming online all the time, and don’t worry. We’ll find out soon enough, I think. The next time there is oil crisis of some sort and the Saudis don’t kick up their production to cover other nations’ losses, we’ll know that the jig is up. While OPEC enjoys oil prices being high, if they get too high it will cause an economic crash that will drive oil prices way down due to lack of demand. So, they play the high-wire act of keeping prices just high enough to return juicy profits without killing the golden goose.

What we do know for sure is that there are just a handful of oil fields that produce a million or more barrels per day. They were all discovered a while ago, and all of them are either in terminal decline (Burqan, Da Qing, Cantarell), or we suspect that they are (Ghawar). In Ghawar’s case, that field has been been producing continually since the late 1940’s, and many oil experts think that it cannot continue to do so for much longer. There are new fields coming online all the time, but in many cases they are just making up for production losses of other mature fields. The largest of these new fields are estimated to produce between 100,000 and 400,000 or so barrels per day, so when Ghawar drops to producing half of it’s current production rates, we’d need to have a half-dozen of the largest new fields come online just to cover the lost production in one (albeit crucial) field. Eventually, the new fields will not be able to cover the losses from the death of older fields, and that’s when we start the slide down the back side of Hubbert’s Peak.

So, the next time there’s a hurricane hitting the Gulf of Mexico hard, or perhaps more unrest in Nigeria, or a widening war in the Middle East, pay attention to oil prices, and Saudi Arabia’s production numbers. If oil approaches $80 per barrel again and Aramco does little or nothing to increase production, then I think it’s safe to say that we’re at or past peak. If you’re thinking about making large changes in your life (like moving, changing professions, etc.), I’d suggest you not dither much longer. We’ve got some time left before we see real economic troubles, but once they arrive, any lifestyle choices we make will likely be of the involuntary type.

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