Tech Talk - Rig Counts in the Middle East

In recent posts about the situation in the Middle East, I have noted the need for Aramco to increase the number of drilling rigs that it must use, since it is now looking for natural gas in their tight sand deposits rather than finding the large reserves that they had hoped in the shale reservoirs. It is interesting in this regard to plot the number of rigs that have been working in the Middle East.

Getting the overall data from Baker Hughes the rig count can be plotted, over time, to give the following:

Figure 1. Rig Counts in the Middle East (Baker Hughes)

If one looks at the trend for the last twelve months, it has remains on a fairly consistent upward trend, following that of the longer time interval plot of Figure 1.

Figure 2. Recent trend in Middle East Rig count (Baker Hughes)

Back in the days of The Oil Drum, Euan Mearns and I had this concern, which occasionally surfaced, about these numbers. From my early post on the subject which noted that back in 2005 the KSA were running around 20 rigs, which would not be enough to get them the production they were claiming to need in the future, to Euan’s in 2011, the topic was revisited regularly over the time that the count steadily mounted as the Kingdom had to drill an increasing number of wells just to keep production at around the same overall level.

I am using the KSA as the example, given the large volume of its production relative to that of the others in the Middle East, but as the numbers show, the trend toward increased drilling rate to create enough productive wells to sustain production as the larger volume wells dry up is starting to become a steadily more frantic race across the region.

Rune Likvern used the phrase “Red Queen” in discussing the overall long-term need of the companies in the Bakken to have to drill an increasing number of wells, with individually reducing production, in order to remain in place with regard to overall production. As the production from the Bakken now exceeds a million barrels a day it may seem foolish to be predicting this “squirrel cage” view of the future, but the rig count up there is still running at around 190 rigs, which is not enough to sustain future growth for long, given that access to the sweet spots is limited, and they are beginning to run out of new sites.

So it is in the Middle East. The rig count numbers are mounting steadily, it is reported that there were 88 rigs drilling in the country in October 2012. Last year this rose to 170, and the number is expected to rise to 210 by the end of this year.

Aramco have done remarkably well, over the past decade, in developing new technologies to harvest the attic oil left around the tops of the major producing formations such as Ghawar, as the main body of the fields begin to be exhausted. But the problem with these secondary rig operations is that they were directed at the smaller pools around the field, rather than tapping into the major volume, and thus they had an expected and finite life. That life is starting to come to a close. Just as, when sucking a thick milk shake through a single immovable straw, when it stops drawing fluid, there is still a fair amount left in the cup. But as you move the straw around and slide it up and down the sides, the amount that you recover gets less, and it takes greater and greater effort to get it, to the point where you quit and discard the carton. And that is where the Middle Eastern oilfields are beginning to find themselves.

The high-quality light oils of the mainland are rapidly running out, and the remaining fields with the promise for sustaining Saudi production at around 10 mbd for the next few years, are the heavier sour crudes from the offshore fields such as Safaniya and Manifa. At the same time there is a need to reduce the increasing amount of oil (now at 3 mbd) being consumed in country, with the hope that this can be replaced by domestic natural gas. But those hopes are being reduced as the shales are found to be less productive than anticipated, and hopes are now switching to the slower production that can, hopefully, be achieved from the tight sands – but at the cost of an increased number of wells, inter alia.

This is the writing on the wall for global oil production, and in the short-term it will be neglected. Increasing the number of rigs will, in that interval, increase the number of wells that will produce, even though the volume from each well will be less, and the overall life of the wells will similarly reduce, as higher production techniques tap into smaller fields.

But we are now on the treadmill in the squirrel cage, or, as Rune would have it, we have wrapped ourselves in the cape and crown of the Red Queen, and must run faster and faster just to stay in place. (There are additional concerns since, as an example, Manifa could not be brought on line until there were refineries built that could process that crude, and so the options for increasing production beyond the capacity of refineries to absorb that increase is a futile exercise).

There will soon come a time when the gain from the overall increase in new wells will not match the decline in production from older wells, particularly if the effort to “run faster” is restricted to only a few players (Russia for example is not yet putting the effort and investment into increased drilling rates in order to sustain their overall levels of production, and given the age of their major fields are likely now in terminal decline).

Ouch!

Tech Talk - Oil Supply, Oil Prices and the Kingdom of Saudi Arabia

From the time that The Oil Drum first began, and through the years up to the Recession of 2008-9 there was an increase in the price of oil, and that resumed following the initial period of that recession, and, in contrast to the price of natural gas, oil has recovered a lot of the price that it lost.

Figure 1. Comparable price of oil from 1946 (Inflation data)

And if one were to draw a straight line on that graph from the low point in 1999 though now there hasn’t been a huge variation away from the slope of that line for long. That, of course, does not stop folk from pointing to the very short, roughly flat, bit at the end and saying that oil prices are going to remain at that level, or are even about to decline.

To address that final point first, I would suggest that those making such a foolish prediction should go away and read the OPEC Monthly Oil Market Reports. Remember that, for just a little while longer, oil is a fungible product. OPEC make no secret of the fact that they continuously examine the global economy and make estimates on how it is going to behave. This month they note that the economies aren’t doing quite as well as expected, and have revised down global growth to 2.9%, though they expect next year to be better, and hold to their estimate of a 3.5% growth rate.

But OPEC go beyond just making that prediction, they use it, and data that they have on consumption and oil supplies around the world, to estimate how much OPEC should produce each month to balance supply against demand, so that the price will remain at a comfortable level for the OPEC economies. And based on those numbers they tailor production.

This month, for example, they note that global oil demand is anticipated to grow by 0.8 mbd this year (and by 1.04 mbd in 2014). They anticipate growth in production of around 1.0 mbd from the non-OPEC nations, with projected increases from Canada, the United States, Brazil, the Sudans and Kazakhstan contributing to an additional 1.1 mbd next year. From these numbers they can project that demand for OPEC oil will be slightly down this year, at 29.9 mbd down 0.4 mbd on last year, with next year seeing an additional fall of 0.3 mbd on average.

Figure 2. Projected oil demand for 2013 (OPEC MOMR )

Thus slight reductions in production from OPEC, and particularly the Kingdom of Saudi Arabia, (KSA) can keep the world supply in balance with demand and more critically for them keep the price up at a level that they are comfortable with. Note that in relation to the overall volumes of oil being traded they are not talking much adjustment in their overall volume (around 1% of the total 30 mbd) in order to sustain prices. The USA produces more, OPEC produces less – not much less because global demand is growing – and the price is sustained.

This has virtually nothing to do with the speculators on Wall Street and the corrections they might impose, this is all about supplying a needed volume to meet a demand and controlling that supply to ensure that the price is sustained.

There are a number of caveats to this simplified explanation, one being the short-term willingness and ability of some producers to keep to their targets. One of the imponderables is the production from Iraq. Although Iraq has been given a waiver through 2014 on the need to limit their production, the increasing violence has led to a drop in production, back below 3 mbd.

Figure 3. OPEC production based on data from secondary sources (OPEC MOMR)

As I have noted in the past, OPEC is sufficiently suspicious of the reported numbers from the countries themselves that they check from secondary sources, and provide both sets of numbers.

Figure 4. OPEC production numbers from the originating countries. (OPEC MOMR August 2013)

Note, for example, that Iran says that it is producing over 1 mbd more than other sources report, and Venezuela is around 400 kbd light. The balancing act is largely the charge of KSA, since it produces the largest amount and can adjust more readily to balance the need.

One of the other caveats is that the internal demand in these countries is rising, and that lowers the amount that can be exported. This will in time require that OPEC produce more, just to sustain the amounts that they export. And the problem here is the biggest caveat of all. Because KSA cannot continue to produce ever increasing amounts of oil.

Just exactly how much the country can produce is the subject of much debate, and has been at The Oil Drum since its inception. But if I can now gently admonish those who think it can keep increasing forever, and that it has vast reserves that can flood the market at need. This fails to recognize that the major fields on which the country has relied are no longer capable of their historic production levels, and that, over the time that TOD has been in existence, production has switched to the new fields that KSA had promised it would, back in time.

But these new fields, including Manifa and Safaniya produce a heavier crude that, for years, KSA struggled, usually in vain, to find a market for internationally. It is only now that it is building its own refineries to process the oil that it can find a global market for the product. Yet those refineries have only a limited capacity. If you can’t ship, refine and market your product in the form that the customer needs, it can’t be sold, regardless of how much, instantaneously, you can pump out of the ground. And so KSA is starting to look harder for other fields. They have increased the number of rigs employed to 170 by the end of the year (in 2005 they had about 20 oil and 10 gas rigs operating), going beyond the 160 estimated earlier, seeking both to raise production from existing fields, but also to find new ones. This is almost double the number that Euan reported at the end of last year. That this is being expedited is not good news! Because new fields will very likely be smaller, and more rapidly exhausted, and may not have the quality of the oil produced from Ghawar and the other old faithfuls.

Realistically, over a couple of years, I would suspect that the oil price line, that I mentioned was rising at the beginning of the piece will continue to rise and we are just going to have to accommodate to it.

To Forbes - A Gentle Cough of Correction at TOD's end

Forbes recently issued a commentary on the closing of The Oil Drum, which deserves some rebuttal, since, as with many stories on the "Peak Oil" topic, it conveys too many incorrect statements and false assumptions.

Just over eight years ago I became irritated by several articles in the Main Stream Media that were clearly technically wrong. (My academic research includes many years of making holes in geological media, an interest that began with my doctoral work in the late 1960’s). I began writing about some of the misconceptions in regard to the approach of Peak Oil in a blog I was writing at the time. Shortly thereafter I agreed to join with Kyle, who was then writing his own blog, under the nom de plume of Prof Goose, to jointly create the website The Oil Drum.

In the beginning, Kyle handled the site management issues (a task he later passed on), and my main contribution has been the intended one of writing on the more technical sides of the situation. This was particularly the case during the events surrounding the Deepwater Horizon disaster, where readership of TOD rose to around 60,000 a day. But writing to a site that began to achieve some technical credibility had its drawbacks. Very early on I got into the habit of referencing almost every fact I cited, given the questions that arose whenever I appeared (at least to my audience, but also, at times, in fact) to misspeak. Working for the site has made me a better writer, but it was clear almost from the start that the two of us could not sustain the interest that the site very quickly drew.

Over the years I felt very fortunate that Kyle went out and found funding, and innocents willing to carry the burden of editing the increasingly large talent of folk that were kind enough to contribute to the large interest that the site engendered. The site was fortunate to attract some really perceptive folk, and if I hesitate to name them it is only from the fear of missing the odd one and causing offence to people that I have acquired great respect for over the years. Many of those now have their own sites, and so TOD acted in some small way as an encouragement for that effort and to broaden and grow the community that is concerned about the coming point where the production of oil, at a reasonable price, will be unable to keep up with demand and the unpleasant consequences that will then arrive.

I was watching the hearing before the UK House of Commons Science and Technology Committee this past Wednesday on the public understanding of climate. In response to a question, Ralph Lee of Factual, Channel 4 and David Jordan, Director of Editorial Policy and Standards for the BBC pointed out the difficulty in sustaining the level of stories on Climate Change, because of the need for these to generate significant new material to justify publication. They noted that repetition of the basic information, beyond a certain point, was counter-productive. So it is with the Peak Oil story. The facts, in neither case, change, but the amount of new information while accumulating (vide the superb work that Leanan has done with Drumbeat over the years) is often repetitive or confirmatory of earlier stories and thus harder to turn into interesting and exciting new material. There are developing stories that justify continued interest in the topic, but the slow pace with which some of the stories unfold make it difficult to sustain interest.

The transition of Egypt to an importing state for example, revealed in the Energy Export Databrowser figure shown a few weeks ago illustrates a growing problem that their new government must address, but it can only be covered a few times before interest wanes.

Figure 1. Change in oil consumption and the need for more imports for Egypt (Energy Export Databrowser)

And this holds true for many of the topics covered in the past years. The perceptive articles written at TOD on Saudi Arabia by Stuart Staniford (who now writes Early Warning), Euan Mearns and with JoulesBurn’s images from the satellites showed how Ghawar was in significant decline. But there are only so many photos of oil rig sites in the desert that can be made interesting. Aramco are switching to the heavier oils offshore. Manifa has just started new production and Safaniya is being expanded. These are needed to offset the permanent declines in production from the older fields, but again, other than chronicling these steps it is hard to sustain interest in an inexorable process that takes years to play out and where the route to Peak Oil is following along many of the predicted lines.

Even drawing back the curtains of hype over the Bakken and Eagle Ford production, which Rune and Art have so ably done, can only be written about at a certain low frequency before folk see it as repetitious.

Much of the story of the future supply will, in my view, come from activity outside the United States. There will always be a need to update activities in and offshore Alaska, and in the US shales and other formations where future production will have to come from, but as we are likely to see by the end of this year, the gilt on that gingerbread is very thin. Thus the posts that I have been writing recently (and which will continue on Bit Tooth Energy – my own home site) will likely focus on the situations abroad, such as the Middle East, where the political upheaval has a much greater potential to disturb overall global supply than the changes in the US. Similarly Japan is moving toward a more militant attitude as China moves to extract fuel from disputed fields in the East China Sea. This however, again, is a potential tragedy unfolding in slow motion.

At the beginning of the year the EIA were predicting that gas prices would fall this year and pundits that suggested that gas prices would stay down after the recession still appear with regularity to quote their lines of optimism, even as gas prices stay stubbornly high and potentially may rise through the rest of the year. Why is that? Well the OPEC nations need a certain level of income and adjust their production each month to help sustain prices – something these optimists seem unwilling to recognize.

The problem, however, is that if global demand rises at (for the sake of discussion) 1 mbd a year, then a point will be reached, fairly soon when increasingly this OPEC supply becomes no longer capable of filling the demand. Prices will then rise again, balancing supply against those able to pay for their demand at that price. Stating that this is not going to happen because "a way will be found" is to remain an ostrich.

No, gentle readers, the closing of TOD is, in my opinion, based on a deliberate but IMHO faulty management decision made in that group a couple of years ago. It was predictable at that time, but it has nothing to do with the coming of Peak Oil, and is not even symptomatic of much of a delay in that arrival.

And with that off my chest I will return to writing about the evolving problems. My hope at the founding of TOD was that it would chronicle the events through the Peak, it got to nearly the Peak, though I don’t anticipate that this will be a pleasant story beyond that point. But, that coverage will now shift to being only at a new location at a time chosen by the TOD editors.

OGPSS - Saudi Arabian production - then and now

The latest OPEC Monthly Oil Market Report (MOMR) foresees that demand for OPEC crude oil will decline over the next year by about 300 kbd. This is largely in anticipation of additional production from elsewhere:

Non-OPEC supply is forecast to increase by 0.7 mb/d in 2012, supported by the anticipated growth from North America, Latin America, and FSU. In 2013, non-OPEC oil supply is expected to grow by 0.9 mb/d. The US, Canada, Brazil, Kazakhstan, and Colombia are expected to be the main contributors to supply growth, while Norway, Mexico, and the UK are seen experiencing the largest declines. OPEC NGLs and non-conventional oils are seen averaging 5.9 mb/d in 2013, indicating an increase of 0.2 mb/d over this year.

Overall OPEC sees demand staying below 90 mbd over the remainder of this year, with total growth in demand lying at 1.01 mbd.

Figure 1. OPEC forecast for global demand for the rest of the year (July MOMR )

Much has happened since the late Matt Simmons and Nansen Saleri got together to debate scenario’s for future oil production in Washington, back in February, 2004. While Matt had developed his research that then led into the publication of “Twilight in the Desert”, this was the meeting where Aramco pushed back to explain that there would not be a global problem, for at least fifty years. As this series of posts on Saudi Arabia comes to a conclusion, and moves on to other countries, it is perhaps of some value to look back on the presentation by Mahmoud Abdul Baqi and Hansen Saleri to remember what was said. Back in those days oil demand was expected to steadily rise, with increasing rate, to reach 100 mbd in 2015.

Figure 2. Aramco estimate of demand from 2000 to 2020 (Baqi and Saleri)

At the time Aramco had no concern over the industry being able to meet this increase in demand, and fully expected that Aramco itself would be able to more than sustain its share of the increased demand. They had 9 seismic crews out surveying the country, and some 48 rigs drilling both to sustain their then current level of production, and also to explore for new resources.

Figure 3. Location of exploration wells in Saudi Arabia in 2004 (Baqi and Saleri)

At the time Aramco reported that with 700 billion barrels of oil initially in place, that had been already discovered in the country, they expected to find another 200 billion barrels. Of that discovered oil they considered 260 billion barrels as their reserve, of which, by 2004, they had 131 billion barrels in development. (Note that they defined the reserve as the total amount of extractable oil, not the amount left to recover, they have done that in later computations also, and the latest annual report uses 259.7 billion barrels as that discovered reserve). The Annual Report notes that they discovered one new field in 2011, the Wedyan-1 well in the Empty Quarter flowed at 2.3 kbd from the Mishraf reservoir, while they drilled 161 exploration and development wells.

Figure 4. Amount of Saudi oil that had been developed by 2004 (Baqi and Saleri)

For a short arithmetic problem consider that 260 less 131 equals 129, and it one adds another 21, as a percentage of the 200 billion barrels to be found, then one gets 150 billion barrels. Divide this by 3 billion barrels a year of rough annual production and you get the 50 years of remaining life, that Saudi Arabia considered, back then, that their oilfields have left.

And this is the interesting plot, for it shows what Aramco define as their depletion rate, which is annual reduction of the initial proved reserve. The relevant term is the annual depletion rate:

Figure 5. Annual depletion rates for Saudi and other reserves (Baqi and Saleri)

This should be read in conjunction with the state of depletion of the different reservoirs in the KSA, as reported for 2004.

Figure 6. State of field depletion in Saudi Arabia as reported in 2004 (Baqi and Saleri)

And remember that this was eight years ago, so there has been that much change in the numbers! Aramco also expects to recover about 75% of the Original Oil in Place (OOIP) in all fields. They have been able to reach around that level with Abqaiq, which also suggests that the days of that field are now very numbered. But whether this will be possible in the other reservoirs is more open to doubt, and if there is less recoverable oil, then the actual depletion rates go higher.

But where the field is just starting, such as the new development of Haradh, if they hold the extraction rate to 1.7% of the anticipated total recovery then they anticipate that the field will continue to yield 300 kbd for decades.

Figure 7. Future production anticipated for Haradh III (Baqi and Saleri)

It was this anticipation of success across their endeavours that led the company to project that they would be able to hold a Maximum Sustainable Capacity of 10 mbd until 2042, with it only then becoming necessary to replace reserves from the probable and possible fields yet to be found and developed).

The last few posts have described how, as declining output has now hit the original fields, Aramco has moved to add production from other fields (Shaybah for example will soon be producing at up to 1 mbd) and is introducing multiphase pumps to Haradh and Shaybah to improve production from marginal wells, and in Safaniya to sustain a maximum production capacity of 1.3 mbd. Production from Manifa is also anticipated to step in to cover declines in other fields, and come on line in 2014, with a capacity of 900 kbd.

But these new additions are required to offset the decline in existing fields, which have been somewhat protected from the severity of declining well production by the switch from vertical to maximum reservoir contact (MRC) wells. Although this conceals the depletion of the oil in the reservoir during normal production it does not, by itself, improve the ultimate production from the field, but rather can shorten field life, since these wells have proved to be more productive in rate. Nansen Saleri now appears to duck questions which ask if KSA can increase production beyond 10 mbd.

Within The Oil Drum (TOD) there has been considerable discussion over the rate at which well production declines, and the remaining reserve in the field depletes. One impact of the shift in wells from old established fields is that production from the average well will decline over time, a subject that Euan has visited in the past.

Figure 8. Individual oil well production values for Aramco (Euan Mearns)

It should be noted that the use of the submersible pumps are reported to have brought wells back to around 3,000 bd. But the move over to horizontal and MRC wells has slowed the impact of other changes in the country.

Nevertheless, after putting all this together, I re-iterate my conclusion from last time in that I doubt that KSA will increase production much above 10 mbd, (in June it was producing 9.888 or 10.103 mbd depending on source, and with the rising internal demands (domestic use in the Middle East is now projected to average 7.7 mbd in 2012) world markets will get tighter in the shorter, rather than the longer term.

OGPSS - Saudi Arabia - production from Safaniya

In recent posts I have been looking at the potential for the historically high producing Saudi oilfields at Abqaiq, Berri and Ghawar to increase, or even sustain current levels of production into the future. This is particularly important when one considers the historic main oilfields in production within that country. And of these the largest not yet covered is the offshore field at Safaniya, today's topic.

 Because of the change in well design, so that long horizontal wells, many with a number of lateral feeds, known collectively as Maximum Reservoir Contact (MRC) wells, located within the top 5 ft of the reservoir are now used, initial declines in production in the major fields have largely stopped. This is partially explained because as a vertical well through an oil reservoir sees the pool getting smaller, the length of well productively exposed to the oil in the reservoir reduces, and so there is a steady reduction in well performance over the years. Where the oil is, however, being pushed up to the horizontal well by an under-flood of injected water (which sustains the differential pressure between the fluid in the rock and the well bore) then the exposed length, and the driving pressure both remain relatively constant, and production is sustained at closer to a constant level until the water flood reaches the well, when the well dies.

 Aramco have changed the design of their MRC wells so that the arrival of water at one location along a lateral is no longer sufficient to kill the well. Installed valves isolate the region of the well where the water enters, and the rest of the well can remain in production. But it will produce at a reduced rate, and is an early warning that the water levels are nearing the well location, and that, before long, the well will no longer be able to sustain the x,000 bd production which has been the characteristic of most Saudi wells for over five decades. This is not to decry the efforts that have been made to recover residual oil left in those fields. As I have noted Aramco have been diligent in seeking to find additional ways to extract the oil that has been left as the waterfloods progressed through their senior fields. But they are also smart enough to know that alternate fields would have to be developed, and brought on line as the limits in the older fields are reached, as they now have been, in some cases for years. There is an interesting feature to the sources of production, back in 1994.
 
Figure 1 Saudi oil production, by field, in1994 (Matt Simmons, “Twilight in the Desert”)
   
Figure 2. Oilfields in Saudi Arabia (from Aramco via energy-pedia 


 The immediately obvious characteristic is that they are, at least to some degree (as with Berri) land-based. (Other less obvious differences are a change in the host rock and the quality of the oil). The most significant of the remaining four is Safaniya which came on line in 1951. But it was not, immediately, produced.

Aramco, in accordance with the terms of its concession, went ahead with the careful development of the field. Between 1951 and 1954, 17 wells were drilled, but they were not produced. . . . . . When it was first put in production in 1957, it flowed 50,000 barrels of crude oil a day from 18 wells. At the beginning of 1962 it possessed the facilities to handle 350,000 barrels a day (almost 128 million barrels a year) from 25 wells.

It was found to be the world’s largest offshore oilfield, and Matt Simmons has conjectured (in Twilight in the Desert) that it is connected to Khafji and through that field into Burgan. When Saudi oil production peaked in 1980/81 he notes that it was producing at over 1.5 mbd. Since then production fell to around 600 kbd, but then has increased back to 900 kbd with plans now afoot to bring it back up to full volume of earlier levels of production, which will require additional forms of artificial lift this being the electrical submersible pumps that have already been introduced into Ghawar. 


 The phase 1 upgrade at Safaniya is anticipated to be completed by next year. The oil is found in sandstone, rather than the carbonates at Ghawar, and in the original development Matt has noted that the weak nature of the sand was causing the wells to collapse as the oil was removed, and that the flow of water into the reservoirs was bypassing a lot of the oil being left in place. As other fields have been developed, they have largely been brought into production fairly quickly. This has not been the case at Safaniya, which as Matt noted:

. . .holds the entire remaining spare daily oil supply of any magnitude . .

In the sense that other fields and opportunities take a little time to bring on line this remains true.

 Manifa, for example, will only start to bring in significant production as the refineries to accept the oil are themselves brought on line in the years ahead. Yet it is still counted as part of the total volume that KSA can bring to the market. Safaniya had, however, been integrated with secondary development of the nearby fields of Marjan and Zuluft into a Northern Area Producing Region (NAPR) back in 1995 and there are enough wells and Gas Oil Separation Plants available, to be able to handle flows of up to 2 mbd. Because, however, the oil produced is Heavy (relative to the Arab Light classification of the production from the land-based reservoirs initially) Aramco also found it sometimes more difficult to market, though that demand also fluctuates. And it has been this marketing problem that sometimes seems to produce the headlines when Aramco sees a world that is increasingly demanding more oil, but has not always been willing to use this heavier supply as an immediate fill-in for existing shortages. (It could not, for example, provide an immediate replacement for Libyan oil last year, even though it was available). As a result the heavier oil is discounted against other Saudi oil. 

 At present the major effort offshore is going toward development of Manifa, which will ultimately bring an additional 900 kbd into production (staged to coincide with refinery construction) but as those wells come on stream (starting next year) so the effort will swing back to Safaniya, Marjan and the related fields of the NAPR. (And as an aside I had mentioned at the beginning of this series of posts there was some talk of bringing Damman back into production, and those talks are apparently still continuing). This additional production capability will, with the further development of some of the other fields in the region (which I will discuss next time) leaves me believing that, of the three largest oil producers, it will be Saudi Arabia that sustains its current levels of production (give or take 500 kbd) much longer than its two rivals. Though I would again stress the difference between production and export volumes.

OGPSS - The production from the Kingdom of Saudi Arabia - part 1

The United States Government has just asked the Kingdom of Saudi Arabia (KSA) to raise the levels of its oil production this summer. Oil production is otherwise anticipated to be at some 9.8 mbd this summer, with fluctuations of around 200 kbd about that number. (There are rumors it has just hit 10 mbd.) It is reported that the KSA could raise production to 12.5 mbd if needed. And the Saudi Oil Minister, Ali al-Naimi has now stated that the KSA is able to meet that commitment.

Since I started writing about peak oil back in 2005, the possible maximum sustainable production achievable from the Kingdom has been one of the recurring issues at The Oil Drum, and there have been a number of very perceptive analyses carried out by folk such as Euan Mearns, Stuart Staniford, and JoulesBurn that I do not intend to try and surpass. I will, however, try and summarize some of their conclusions as I work through a few posts that look at the overall production from the various fields that are found both on and offshore Saudi Arabia.

As an initial point, not all the oil that comes from the country is of the same quality, and this is often one of the initial factors that folk do not appreciate when they look, for example, at the two numbers I gave above, that which the KSA is producing, relative to that which it might be able to achieve. The problem arises with the heavier crudes that make up a part of the surplus, and for which there is not a great market out there, as yet. So let me begin the review with, this week, just simply looking at an overall view of the country, the oilfields that comprise regions of major production and what sort of oil that they are producing.

Back in 2005, production from the different oil fields added up to 9.07 mbd, and at the time I had figures suggesting that the total broke down as follows:

Abqaiq 400 kbd;
Abu Sa'fah 200 kbd;
Berri 300 kbd;
Ghawar 4,500 kbd;
Hawtah 200 kbd;
Hout 300 kbd;
Khurais 300 kbd;
Marjan 270 kbd;
Qatif 800 kbd;
Safaniya 700 kbd;
Shaybah 600 kbd; and
Zuluf 500 kbd.
This adds up methinks to 9.07 mbd.

JoulesBurn has since pointed to me that my initial attributions were incorrect and that, in a paper given in 2006, Mendez et al had reported that the target for Hout was only 50 kbd, while that for Khafji was 300 kbd. I will explore those issues more in later posts on this region. But a hat tip to JB for catching my error.

The major fields in Saudi Arabia (EIA)

Not all these fields have oil of equivalent quality, and this is a point that often fails to be understood when there is a global shortage and the KSA offers more crude to the market. If that crude is sufficiently sour (i.e. too much sulfur) and heavy (low API gravity) then it cannot be refined by some of the refineries that may be hurting the most. Thus the oil might not find a market, even though there is a shortage. What the KSA tries to do is to swap deliveries, but that does not always work as it might.

Different grades of oil supplied by Saudi Arabia.

(For those who have forgotten the API gravity classification in degrees, I explained it in an earlier post. Suffice it to say that the higher the number, as a general rule, the lighter the crude and the better the market. As the share produced from the historic fields changes, so the KSA has offered the heavier crudes to the market, but, as I noted, even with the increase in global demand, those crudes have been less successful in finding a permanent market.)

Way back when the world was more innocent, there were four major fields that produced most of the oil from KSA:
Ghawar (the King), which started producing in 1951. Peak production was at 6.6 mbd. Current production is under 5 mbd. Water inflow percentages are increasing, and overall output is decreasing. It is divided into various regions, Ain Dar oil has an API gravity of 34, and 1.66% sulfur. Shedgum is at an API gravity of 34 and sulfur content of 1.75%. Uthmaniyah has an API of 33, and 1.91% sulfur. Hawiyah is at an API gravity of 32,and 2.13% sulfur, while Haradh oil has an API gravity of 32 and 2.15% sulfur. The levels of sulfur define how “sour” the crude is, and this must be recognized by the refineries, such as the Fujian Refinery in Quanzhou, China which is designed to refine 240 kbd of sour light Arabian crude. The oil from Ghawar flows to the Abqaiq processing plant, this can handle up to 7 mbd of light and extra-light crude., and cleans the crude before sending it on to refineries at Ras Tanura, Jubail, Yanbu and Bapco.

Abqaiq (The Queen) saw peak production in 1973 at 1 mbd, has now fallen to a level of around 200 kbd. It is a field that is “rested” from time to time in order to sustain an even displacement as the water flood progresses. The oil is at API 36.

Safaniya (2nd Queen) started producing at 50 kbd from 8 wells in 1957, peak production was at 1 mbd, and is now down to about 770,000bd. The field lies offshore, and is a producer of some of the heavier crudes, with an API gravity of 26, and a sulfur content of up to 2.96%. It has a current production capacity of 1.2 mbd, but because of the heavier nature of the oil has more trouble in finding a world market, and thus often much of this production is withheld. (In 2008, for example some 700 kbd was being withheld from the market.) The field is currently being further developed with a larger pipeline being installed to allow a higher flow rate from the field onshore. It is also intended that the gas that is now flared will be captured. The upgrade will also involve the installation of submersible pumps and an upgrade to the distribution network, and is scheduled for completion in late 2013, when the capacity will rise to 1.5 mbd.

Berri (the Great Lord) saw peak production at 788,000 bd in 1977 and more recently that fell to around 300,000 bd. This was the fourth of the original set of fields in Saudi Arabia that were responsible for 93% of Saudi production back in 1978. It is slowly watering out and has been occasionally left resting except when additional production is required. The oil has an API gravity of 38, with about 1% sulfur. The field has been reworked so that it now has a capacity of 1.15 mbd though some 300 kbd of this is considered part of the reserve production in case of need, rather than normal production.

Looking back seven years, the plans that the kingdom had, back then, for sustained and increasing production (they recognized that existing wells would decline and thus planned for their replacement) were clearly stated by Abd Allah Al-Saif :

major projects that Saudi Aramco is undertaking to ensure meeting future demand:

The Abu Sa'fah and Qatif projects came on stream in 2004 adding 650,000 bpd.
300,000 bpd of Arabian Light will come on stream in the Haradh field in mid-2006.
500,000 bpd of Arabian Light will be added to capacity through the Khursaniyah development, planned for 2007.
2008 is the target date of approved expansion plans that would add 300,000 bpd of lighter crude at Shaybah and central Arabian fields.
A Khurais increment of 1.2 million bpd of Arabian Light will be commissioned in 2009.
"This is a very aggressive program that will require the mobilization of immense resources, such as rigs, material and manpower, but which we are confident to successfully execute, as we have done for the past 70 years," he said.

Concerns at the time, over the ability of the kingdom to meet these plans focused not only on the quality of the mix, but were more immediately initially aimed on the number of drilling rigs that the KSA had available to drill the required number of wells. Back in 2005 the country did not have a whole lot of rigs at their disposal. This has since been highlighted by Euan Mearns:

Rig Count for the Middle East (Euan Mearns 2011)

Bear in mind that when we started posting we were just coming to the end of the relatively flat section of the Saudi plot, and were, at the time, unable to see how they could continue operations with only 20 odd rigs. Well, with hindsight they could not, and as the plot suggests they rapidly acquired all the spare rigs available at the time and this allowed the increase in the number of wells that afforded the new levels of overall production. Sam Foucher has also posted on the rig count, and his plot agrees more with my memory of the dramatic transition in rigs that the KSA employed back in the 2006-7 timeframe to move them from the placid conditions pre-2005 to the sudden realization that BAU would no longer work.

Various Saudi plots from Sam, though the critical one is the rig count change (Sam Foucher)

The point of the illustration is to indicate that circumstances do change operating conditions, and that folk do respond when they have to. Up, that is, to the limits that they are able to achieve. Some of those limits are imposed by the fact that you cannot suck beer from a conventional pint glass forever, as I discovered when in college, and it is in regard to those issues as well as some more of the above that the discussion will swing toward as the next few weeks unfold.

There have been many other posts on the subject on the Oil Drum over the years, (if one includes Drumbeat there are more than 2,000) here are but a very few
JoulesBurn- Abqaiq
Intro to Satellite sleuthing
Khurais me a river
Happenings in Harmaliyah
Ghawar Numerology

Stuart Staniford
Satellite o’er the desert

Euan Mearns
Saudi Production laid bare

I will add to this list as I move on and start to address some of the concerns that have been raised.


Normandy Inn
Carmel-by-the-Sea

OPEC in disagreement, the Saudi dilemma

OPEC Ministers, meeting in Vienna, have apparently had one of their more divisive discussions of recent times over the question of raising pumped volumes.

Saudi Arabia, Kuwait and the United Arab Emirates wanted an increase to dampen an oil price that has gained 25pc since tensions erupted in the Middle East this spring while Libya, Algeria, Angola, Ecuador, Venezuela, Iraq and Iran wanted to keep production unchanged.

The two camps are reported to be so far apart as to threaten the structure of the organization. While the lack of agreement (for the first time in 20 years) officially means that there will be no increase in the quotas of the different countries, Saudi Arabia may, unilaterally, move to increase production in order to meet growing demand and stop the steady increase in price. In the short term, however, the lack of agreement has had the immediate effect of increasing prices.

The proposed increase in volume was 1.5 mbd, which is roughly in agreement with the OPEC projection made through their Monthly Oil Market Reports, of a 1.4 mbd anticipated growth in demand this year. That estimate of demand growth recognized the 0.5 total drop in demand from Japan, though offsetting this with greater growth from China, and anticipating repair of the Japanese refineries. (The next report won’t be out until Friday). Given that we are now in the summer driving season for the largest customers, where demand has normally risen, the move, proposed by Saudi Arabia, would at first sight seem a rational step to keep prices under control.

But given the lack of agreement, the question remains as to whether Saudi Arabia (KSA) and its allies at the OPEC table will increase production in defiance of the rest. Bear in mind that should they have the increase, and prices fall, then those countries that don’t (or can’t) increase production lose money as the price falls. However, if the price rises too much, then the world could be kicked back into recession, and global demand could fall, making everyone lose money on smaller volume.

One has only to look at the latest gas prices in this week’s “This Week in Petroleum” to anticipate how this question over the available supply of crude may well kick the graph back into an upward trend.

US Gas Prices (TWIP )

Demand for gasoline flickered when the price peaked, but then despite the price, and with vacation time beginning, demand has returned to last year’s numbers and may well continue to increase over the next six weeks, following that curve. That depends on how the price changes. Any indication of more oil may hold it at current levels, but without that, as demand grows globally, then without supply to meet it the price will rise until a new balance is reached.

Demand for Gasoline in the USA (TWIP )

But this brings us back to the question as to how great a price increase the world can stand, and concurrently, whether OPEC could sustain a 1.5 mbd increase in production. This really (in terms of a significant step) throws the ball back into Saudi Arabia’s court, since they are the one nation that could provide the increase in volume. And certainly in the short term there are enough wells and fields that could have production increased to give the extra volume.

Life is, however, not that simple. To bring additional complexity to the discussion Goldman Sachs has been suggesting that OPEC production will top out next year, and then begin to dwindle. Since OPEC are sensibly the only folk capable of increasing production significantly to meet growing market demand, that prediction had already roiled the market a little. Non-OPEC production has risen 0.8 mbd in the first quarter, y-o-y, but the gains from the US may be over, at the moment.

US Production of crude (TWIP)

However Saudi Arabia will not over-produce in the short term to hurt the long term production from their fields, thus gains in production in the out years will have to come from new developments. Manifa is the most immediate answer as to where the additional oil will come from, according to the new (2010) Aramco annual review. But with that oil requiring special refineries to process that aren’t anticipated to be available until 2014 for the first, and the second still not finalized, that only gets the increase to 0.4 mbd. There is some additional production that is anticipated from Safaniya, another heavy crude source, but that is directed towards planned refineries at Yanbu and Jazan, but the former is scheduled for 2014, while the latter won’t be ready until 2017. The four new oil fields (Namlan, AsSayd, Arsan and Qamran) that Aramco announced will also take time to develop. As a result the increased production that will come from Saudi Arabia are unlikely to rise much above that available from the recent development of Khurais and Khursaniya, which totals some 1.7 mbd. Some of that new production will concurrently have to offset some of the declining production in older fields

Overall production will be limited to 12 mbd, acknowledged as the maximum sustainable rate for the country, but that number includes domestic use, which is already at 800 kbd and rising.

Unfortunately the 1.5 mbd proposed for the OPEC increase will likely also include any offsetting increased production to compensate for countries in turmoil in the MENA. So, as none of those countries is looking as though stability has yet been conclusively re-established, the combined picture was not really looking that good before we got the news from Vienna.