Tech Talk - Where to look for more oil this year.

The news that Saudi Arabia is planning to employ 200 drilling rigs next year (up from 20 back in 2005) suggests that there is a recognition that future reserves may not measure up to the planned volumes needed. Plans now include exploration of the shale deposits in the country, looking primarily for natural gas. There are estimates that this resource could run as high as 600 trillion cubic ft. Current plans are to drill seven exploratory wells in the Red Sea, off Tabuk.

Figure 1. Location of Tabuk in the Kingdom of Saudi Arabia (WikiMedia )

This is across the country from the major oil fields currently in use, which lie more along the Persian Gulf coast, centered perhaps around Damman. It therefore suggests that they are looking for extensions of the Israeli and Egyptian fields into northern KSA. (Minister Al-Naimi said that they still “had to find them.”)

In discussing the venture Saudi Minister of Petroleum and Mineral Resources Ali Al-Naimi also noted that, choosing to look for – and presumably finding - natural gas, would take the pressure off the country to maintain its oil reserve.

Al-Naimi said that prospects for global production of shale gas and oil – including in China, Ukraine, Poland and Saudi Arabia – were so promising that the Kingdom might not need to continue with its decades-long policy of maintaining an oil-output cushion for use in global supply disruptions.
“It is not a question whether Saudi Arabia has spare (oil) capacity. It is a question of whether we need to spend billions maintaining it at all,” Al-Naimi said.

Now over the years KSA has lowered the volume it has projected that it can produce from 12.5 mbd to 12 mbd, and this is, perhaps, an early indication that they intend (whether by policy or natural reserve availability) to lower that maximum further.

This has to be of at least a little concern, since the number of places with significant flexibility to increase production are getting closer to zero every year. The gains in global production that are foreseen by OPEC in the next year, for example come in dribs and drabs.

OPEC notes that in May the 8,915 producing wells in North Dakota collectively produced over 800 kbd. (The Department of Mineral Resources reports 821 kbd in June, over the 811 kbd in May with well numbers of 8,932 in May and 9,071 in June. Production per well is thus running an average of 90 barrels a day, with a well cost of $9 million.) There are 187 rigs plus/minus working and this is still enough to keep production rising at a rate of 1.3% per month. One of the maps I find interesting is this, from the Department.

Figure 3. Location and production values for wells in North Dakota (Department of Mineral Resources )

It is this illustration of the relatively heavy drilling already in the “sweet spots” and the poorer performance in the less well drilled regions that gives me concern for the longer term prospects for the formations. And as an aside note that crude from Alaska is declining, July output was 498 kbd against the year-to-date average of 542 kbd. The EIA is noting that, since there aren’t any major oil pipelines running into California from the East, that there is an increase in rail traffic to make up the difference. The EIA is suggesting that the traffic is already at a level of around 100 kbd.

And this in happening in the most promising region to increase production (though it includes Canada, for which OPEC projects a growth over the year of around 40 kbd, which is set against Mexican production, for which OPEC sees a decline of around 60 kbd).

Malaysia is projected to increase production by 50 kbd, from the Gumusut field. This is a Deepwater project, and one can get some estimate of the shape of the field from the well pattern. The production gain is viewed by OPEC as likely being the highest in the region.

Figure 4. Planned Well pattern for the GUMUSUT KAKAP project in Malaysia (Rawingbadi)

In Latin America Colombia is expected to increase production by 80 kbd, though the country is having some issues with pipe damage from terrorism. There have been more than 30 attacks this year. OPEC also looks for an increase in Brazilian production of 10 kbd over the year, this gain coming after some 14 months of decline, which drop hopefully will be recovered before the end of the year.

Oman will grow production by 20 kbd, but it is in Sudan and Southern Sudan that OPEC anticipates the greatest growth, of 90 kbd. However the two countries are not the best of friends, with oil from Southern Sudan having to ship by pipeline to Sudan, for shipment onwards. At present oil, at an average rate of 75 kbd is continuing to flow up the pipe, but Sudan continues to threaten to halt shipments, leading Southern Sudan, in turn, to plan to shut-in the wells. The OPEC projection seems to be best defined therefore as “iffy.”

OPEC expect Russia to increase production by 80 kbd in 2013, yet there is some caution in that estimate, with other numbers suggesting that Russia is reaching a modern peak in production. Kazakhstan is projected to increase production by 50 kbd (coming from the startup of Kashagan, now expected at the end of September). The 100 kbd production will more than offset declines in the rest of the country. And China may increase production over the year by 60 kbd.

I have listed the countries that OPEC anticipates will grow production by more than 10 kbd, and have not listed the many countries that will see production decline by more than that amount. It is remarkable that listing the increases in production outside of OPEC can be done with just a few paragraphs. And it is a little disturbing that the threats to pipeline security throw questions over the reliability of some of the numbers. And yet this only addresses the possible growth in production, declining producers would require a much longer list. Combined it becomes a little more difficult, as turmoil in MENA continues to grow, to remain optimistic over the OPEC projections.

OGPSS - Oil producing countries around 1 mbd, Kazakhstan, Qatar, Indonesia and Azerbaijan

In this series of posts I have been taking a quick look at the current oil and natural gas production from the world’s top oil producers, using initially the table that the EIA developed for 2008. In just four posts (the top tier at above 3.1 mbd; the upper second tier, the lower second tier and those at about 2 mbd ) I have now reached the final few that produce above 1 mbd. As it is I have slightly re-arranged the order since back in 2008 India was producing more that Azerbaijan, but while Indian production stayed the same, Azerbaijan production has now risen above 1 mbd, so I made the switch.

This limited number of countries includes those whose production is waning, as well as those to whom we might look for improved output to meet the rising demand. That, I would remind you, has been predicted to be about 1.4 mbd more this year than last, providing of course that the recession continues to recede from the global markets, a question that rising prices for oil might throw in doubt. With civil war in Libya appearing more likely, there is a significant possibility that the 1.6 mbd that the country produces might disappear from the scene for a while. So where can the make-up to a total of an additional 3 mbd come from? Well let’s take a look at what these four countries are doing and see whether they are going to be able to help.

First let’s look at Kazakhstan, which was producing 1.43 mbd back in 2008. And to begin with, where is it? South of Russia, and North of China it lies on the Eastern shore of the Caspian Sea.

Kazakhstan (EIA)

In 2005 Kazakhstan began sending oil to China through a pipeline and while some of the oil is locally produced it also provides a conduit for Russian oil flowing to China. The pipeline was originally planned to carry 10 million tons of Kazakh oil, and, by now, the same amount of Russian oil. However it was only at the end of last year that it reached the first target, (200,000bd) with the second now reset to 2013 but now dependant on Kazakh oil from Kashagan, rather than from Russia.

The country depends on pipelines to export its oil. The EIA notes that as production has increased, now at around 1.6 mbd, it will depend both on pipelines and barges across the Caspian to connect to that market.


There is still considerable potential for the slope of the production curve to continue upwards. Chevron has announced that the Tengiz field, which is now at 567 kbd will, in the next phase, ramp that up to 780 kbd. That oil flow to Russia through the Caspian Pipeline Consortium pipe At Kashagan, which will in time produce up to 1 mbd, development is slowed as it faces Government resistance to the high costs of the next phase of the program. Given that the field, located offshore in the Eastern Caspian is the main bulwark for the planned expansion of Kazakh production through 2020, postponing that development may reduce export capacities. There is other news that is also not positive, production from Karachaganak, currently the second largest field dropped 4% last year . Smaller production gains are anticipated from other fields in the country, such as the Tethys Petroleum development, which is going to use a radial drilling method that I might post on in some future time. But it is questionable whether any dramatic gains in production will be available to meet increased global demand in the short term. The target of a 3 mbd export level by 2020, set by the Prime Minister will depend on ironing out some of the current contract difficulties.

Kazakhstan has also participated in the natural gas pipeline that runs from Turkmenistan to China and which was opened in December 2009. That pipeline has increased the marketability of the products, and while all natural gas used to flow to Russia which thus had a considerable say on volumes and prices, the existence of alternatives is causing the Kazakhs to rethink the relationships and distribution of profits.

Qatar (Middle East Political and Economic Institute)

Qatar lies in those Middle Eastern countries whose long-term production might be threatened by domestic unrest. Within the past decade an increasing portion of the country's resource is being devoted to internal consumption:

Qatar is more widely written of in terms of its vast gas fields and potential, rather than for its oil, even though, in 2008, it averaged 1.2 mbd of production. In January of this year OPEC reported that Qatar produced 813 kbd of oil. However, with the large natural gas production the country also produced around 380 kbd of non-crude liquids to provide the overall 2008 volume. It is through an increase in the latter volume to 590 kbd that has raised overall 2010 production to 1.4 mbd.

Source Energy Export Databrowser

It had been viewed as one of the more stable countries of the region, back in 2006. That ranking puts it just ahead of Oman, and Oman has now seen some disturbance and death. (And receiving support from the UAE to meet those threats, suggesting that they are perceived as deeper than reported.) Qatar has the second highest per capita income (at $95k) but it should be remembered

The royal family, the Al-Thani, has a history of internal conflict and competition over political power. The last three leadership transitions—in 1949, 1960 and 1995—came about as a result of forced abdications, due to in-fighting within the ruling family. However, this ruling family has maintained social peace in Qatar for decades.

Qatari political stability is baffling.

The production of natural gas from the country is increasingly going into liquefied natural gas (LNG ) and the significance of the production can be seen from the EIA report

RasGas and Qatargas have 13 LNG trains currently online, with a total LNG liquefaction capacity of 3,400 Bcf/y (69.2 MMt/y). Five of these trains were added in 2009 and 2010. RasGas III, Train 7, with a liquefaction capacity of 380 Bcf/y (7.8 MMt) of LNG began operations in February of 2010. Qatargas III, Train 6, came online in November of 2010 with the same liquefaction capacity. The 7.8 MMt train is considered a mega-train, and is currently the largest operating size in the world.

In March of 2011, Qatar will complete its monumental cycle of LNG infrastructure expansion with the inauguration Qatargas IV, Train 7 (80 Bcf/y (7.8 MMt)), which will bring the total capacity to 3,750 Bcf/y (77MMt/y). Qatari government officials have noted that they do not anticipate building any more LNG facilities in the near-term future.

Qatar growth in LNG production (EIA )

Whether those decisions will affect the slope of the increasing levels of production will have to await the test of time, but with 70% of production going into the LNG market, that still leaves room for growth elsewhere.

Source Energy Export Databrowser )

Indonesia left OPEC in May 2008, since it had become an oil importing country. (This also saved them the $3 million annual membership) Recent production has been down around 1 mbd (similar to that of 2008) but a recent dispute over cabotage may cut this dramatically. Cabotage is the requirement that fuels be transported in domestically-owned vessels, and Indonesia proposes to ban the use of foreign-owned vessels next May. This will affect both oil and gas production with cuts that threaten to be about 157 kbd of oil, and 2.5 bcf of natural gas.

At present the country is third in LNG exports after Qatar and Malaysia. The world’s largest buyer of LNG is the Korea Gas Corp (KOGAS) and they have agreed, with Mitsubishi to build a new processing plant in Indonesia to help supply the Japanese and Korean markets. With an estimated reserve of 112 Tcf , the country has the potential to grow this export, though it is quite likely that this increased production may end up in China, which is looking at increasing imports to over 9 Tcf over the next 5 years.


Domestic demand for energy continues to grow, and Indonesia plans to build a second LNG receiving terminal on Java, using domestically produced gas to meet the demand.


And that brings us to Azerbaijan, on the other side of the Caspian from Kazakhstan. Baku, the capital, has hosted oil development since the late 19th Century . In 2008 the country produced 876 kbd of crude, at the time just below India. However ,with the increased development of the Chirag, Azeri and Guneshli oilfields the country is hoping to exceed (if only slightly) the 1 mbd mark this year. However it did fall a little short of predicted volumes in this past year. Current plans are for production to continue to increase, with a target of 1.25 mbd in 2014. The difference between those numbers and that of the EIA figure for the country comes from the inclusion of other non-crude liquids.


The majority of the oil is shipped through the Baku-Tbilisi-Ceyhan pipeline with smaller amounts being sent to Georgia.

Natural gas production is expected to continue to grow with the development of the Shah Deniz field., to the point that additional pipeline capacity is being planned. The plans call to treble capacity, but may require some $3 billion of additional investment. The pipeline carries a flow, at present, averaging 770 mcf/day. One of the issues as Shah Deniz increases total production (it is considered the 9th largest gas field in the world) concerns how the natural gas produced will get to its customers. One of the ongoing options is the Nabucco pipeline. The planned increase of 565 bcf by 2017 can be shipped by possibly three pipelines, but the Nabucco needs a volume of about twice this, and so is currently looking for an additional supplier to make up the numbers. That search has been going on for a while.

Looking at the numbers that I have just gone through, it is clear that the world is going to see an abundance of natural gas likely continuing through the decade. In the shorter term, however, there does not seem to be that much capacity for an increase in oil production. For while countries such as Kazakhstan and Azerbaijan can increase volumes over the present, the increases are not that great, when compared with the need. (The slopes look good, but the vertical scale less so).

But on the other hand the aggregation of a hundred thousand here, and a hundred thousand there can add up to a significant volume in the end. So I will continue this set of posts, looking next at those countries which just can’t quite make that 1 mbd.

The changing state of Turkmen gas exports

As the Financial Times has noted, while all the world watched Copenhagen, a rather more ultimately significant event took place in Turkmenistan.

as all eyes were set on Copenhagen, a 4,350-mile gas pipeline was opened by Hu Jintao, the Chinese president, in a tectonic shift that western eyes can ill-afford to ignore. The pipeline starts at the Samandepe gas field in Turkmenistan, crosses Uzbekistan and Kazakhstan and ends in north-west China. With little publicity and at the turn of a wheel, Russia’s post-Soviet dominance of gas export routes from central Asia has been undermined. Likewise, the European Union’s chances of winning Turkmen supplies for its Nabucco pipeline project now seem severely diminished.

The new route solves a problem for both parties. China needed a reliable source of natural gas, with pipelines being better than tankers, and Turkmenistan needed a customer who would not be as predatory and fickle as Russia has been. Both are thus satisfied.

The Turkmenistan to China pipeline

Russia is trying to suggest that the change is of little moment, however the potential loss in revenue from the gas that it would transport from Turkmenistan to Western Europe (with a considerable increase in price) cannot but cause them a little worry, since that supply significantly supplemented what they were making available themselves. However the Uzbek’s are also in line to send any additional supplies they have through the same pipeline (since it crosses their territory). And the President of Kazakhstan was also at the opening of the pipeline. And they are just another link in the chain that China is building under the Russian border.

All four Presidents (China, Turkmenistan, Kazakhstan and Uzbekistan) joined in turning the ceremonial wheel that inaugurated the pipeline. There are actually two parallel pipelines being put into place, the first is now working, while the second is expected to start delivering gas next year. The pipeline ties into natural gas pipelines that were installed to the Chinese border earlier, and tie into the existing Chinese network.

New gas pipeline being laid in China this year.

UPDATE. I have added a comment from the Moscow Times which tries to put a different "Russian" slant to the story.

Uzbekistan has more than 171 oil and gas fields , of which 52 are natural gas fields, with an estimated reserve of some 66 tcf. It has been producing around 2 tcf per year, with about 0.5 tcf being exported. It is considered to be the eighth largest producer in the world. Historically exports from the country (as with Turkmen gas) has been delivered to Russia. There has been little interest in joining the Nabucco pipeline, though with the advent of the Chinese pipeline they consider that they can increase exports by perhaps 25%, perhaps making up some of the shortfall to Russia from Turkmenistan with their own supply.

And apropos an earlier post where I mentioned dredging the Amu Darya river, which runs along the border, the two countries are seeking to collaborate more on hydro-technical matters.

Since becoming independent, Uzbekistan has increased its natural gas production by over 30%, from 1.51 Tcf in 1992 to 1.99 Tcf in 2000. According to preliminary 2001 data, Uzbek natural gas production increased to 2.03 Tcf for the year. However, Uzbekistan's natural gas fields were heavily exploited in the 1960's and 1970's by the Soviet Union, and as a result several older fields, such as Uchkyr and Yangikazgan, are beginning to decline in production. In order to offset those declines, Uzbekistan is speeding up development at existing fields, such as Garbi and Shurtan, as well as developing new fields and exploring for new reserves. The Shurtan field, which began producing in 1980 and is the second biggest in the country after Gazli, accounted for approximately 36% of Uzbekistan's total natural gas output in 2000.

Shurtan is located some 215 miles southwest of Tashkent, and is now the site of a major gas chemical complex.

Production and domestic consumption of natural gas in Uzbekistan

It is interesting to note that the Ukbeks have not been averse, in the past, to a little profit from their gas.

the Uzbeks charge Kyrgyzstan $240 per 1,000 cubic meters of natural gas, while only charging Kazakhstan $84 for the same amount.

Kazakstan has thus had some problems with its neighbor

The two branches of the Central Asia Centre (CAC) gas pipeline, the main gas export pipeline from Central Asia, meet in the south-western Kazakh city of Beyneu before crossing into Russia at Alexandrov Gay and feeding into the Russian pipeline system. Therefore, Kazakhstan is a major transit route for gas from Turkmenistan to Russia and on to other FSU markets.

Southern Kazakhstan receives its gas needs from Uzbekistan via the Tashkent-Bishkek-Almaty pipeline. In 2008 Uzbekistan will supply a small amount of gas to Kazakhstan's southern regions, including the area around Almaty, for $100/1,000 CM, a price unchanged from 2007. This pipeline snakes through Uzbekistan before reaching Shymkent, crosses Kyrgyzstan, and terminates in Almaty. Dependence on imported gas for its southern regions has at times been problematic since erratic pricing and supplies from Uzbekistan, combined with illegal tapping of the pipeline by Kyrgyzstan, have resulted in significant supply disruptions to Almaty in the middle of the heating season.

It is anticipated that the pipeline to China will deliver about a quarter of its 40 bcm volume to Kazakhstan, where it will be sent down south. This will offset the 8 bcm that the Kazakhs have sent to Russia. But it is also hoped that the pipeline will be connected to the Kazakh fields which are up near the Caspian.

Meanwhile the Russian deals to restart gas supplies from Turkmenistan, which have floundered since the “accidental” blowing up of a pipeline last April, have not yet reached the point where gas is anywhere close to starting to flow. And while President Medvedev is supposed to be visiting Ashgabat again before the end of the year, no final agreement is yet in place. The Turkmen are trying to reassure the Russians that there is no cause for alarm.

And in Turkmenistan they still have enough natural gas available that a well that collapsed at Darvaza, and caught fire, is still a burning pit in the desert some 30 to 40 years later.

Darvaza – The gate to hell (photo N Griener Google Earth at 40 deg 10’56” N, 58 deg 24’27” E)

UPDATE: The Moscow Times, in reporting the story,

In the current plan for the gas balance from 2010 to 2012, Gazprom aims at reducing the annual import from Turkmenistan to 10.5 billion cubic meters, while the target figure in the 2009-11 plan was to increase the intake from 42 billion to 50 billion cubic meters. China has come to the rescue in a desperate situation where Turkmenistan stood to lose about a quarter of its gross domestic product, despite the fact that it increased volumes to Iran at agreed-upon low prices. The main issue for Gazprom was actually to ensure that the redundant gas would not find a channel to the European market, so blocking the plans for a trans-Caspian pipeline has been a high-priority goal for Russia’s foreign policy.

The only problem with that story is the chronology of the actual events.

P31 Pick Points

Half-a-dozen or so stories of interest:

Sweden has just lifted its ban on nuclear power growth, with the intent of increasing from their current 10 nuclear reactors. Last October the NEA published its first Nuclear Energy Outlook with predictions up to 2050, and with the renewed interest and this global switch to a more favorable atmosphere concerns about supplies of uranium are rising. India has just signed agreements with Kazakhstan to assure its supply. With as many as 300 new reactors planned around the world, assuring supplies is becoming more necessary. India alone will bring four new reactors on stream this year. And just this week Areva has agreed to supply $6.3 billion worth of uranium to France. It will likely come from Canada, Kazakhstan and Niger. In regard to the weapons side of uranium purchases Iran is apparently finding it more difficult to find supplies. There is however a prediction that supplies of uranium (once mined) may well last 200 years though that carries the usual caveat of “at current levels of consumption.” With the growing number of reactors, that prediction becomes increasingly meaningless.

China is also pressing ahead with its nuclear power program, doubling its nuclear power target for the next decade. The country currently has 11 reactors generating about 1% (9 Gigawatts) of the countries needs. By 2020 the new target is 70 Gigawatts. Construction planned for this year will add over 8 Gigawatts alone. It may need the power since hydroelectric sources will be hurt as the country sees a lack of rainfall since October that has caused China to declare a state of emergency in eight provinces. 40,000 sq miles of wheat and red seed, about half the crop, are at risk.

It has been suggested that the creation of the Zipingpu dam triggered the Wenchuan major earthquake in China last year, this is a concern, since China is still building hydroelectric dams. This dam was set to generate 760 megawatts of electricity. That report is not stopping China Hydroelectric from raising $200 million to help with hydroelectric projects. China is also investing heavily in wind energy aiming for an installed capacity of 122 Gigawatts (the size of five Three Gorges Dam outputs) by 2020

The Xinjiang region of China found more gas in the last year than in the previous 50, and now considers that with 11 trillion cu m it has a quarter of the Chinese reserve. China used 76 billion cu m in 2008, up 12.3% over 2007. Note that this was down from the 23% growth rate of 2007, when it used 67.3 billion cu. M. China is expecting that its economy will lead the world out of recession. One way of doing this is to subsidize the purchase of appliances, particularly in rural communities.

Along those lines President Obama is raising the standards for energy efficiency in appliances, bringing the regulations into line with Congressional will. “We will save in the next 30 years, the energy produced over a 2-year period by all the coal-fired power plants in the United States.” (Incandescent bulbs are to be phased out by 2014). It is a message that more companies are hearing, and increasing renewable energy power, even though it is more expensive. A move to capture carbon dioxide in rock, however, may need to burn 40% more coal to power it (reducing reserves from 200 years to 100).

Iran is making some noises about being a possible source of gas for the Nabucco pipeline. And speaking of pipelines there is talk of providing load guarantees for an ethanol-only pipeline in the United States.

Interestingly just as Pakistan is seeing serious problems with shortages of natural gas , the onset of more LNG trains and the slowing economies of he world may be leading to a world gas glut, at least according to Platts.

For more stories see The Energy Bulletin and Drumbeat at The Oil Drum