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Bank says Saudi's top field in decline


By Adam Porter in Perpignan, France

Tuesday 12 April 2005, 13:52 Makka Time, 10:52 GMT

Speculation over the actual size of Saudi Arabia's oil reserves is reaching fever pitch as a major bank says the kingdom's - and the world's - biggest field, Gharwar, is in irreversible decline.

The Bank of Montreal's analyst Don Coxe, working from their Chicago office, is the first mainstream number-cruncher to say that Gharwar's days are fated.

Coxe uses the phrase "Hubbert's Peak" to describe the situation. This refers to the seminal geologist M King Hubbert, who predicted the unavoidable decline of oilfields back in the 1950s.

"The combination of the news that there's no new Saudi Light coming on stream for the next seven years plus the 27% projected decline from existing fields means Hubbert's Peak has arrived in Saudi Arabia," says Coxe, referring to data compiled by the International Energy Association's (IEA) August 2004 monthly report.

Problematic effects

The Canadian bank is the latest in a line of oil opinion-makers to speak out about.

Others, notably banker Matt Simmons and the head of the Association for the study of Peak Oil (Aspo), Colin Campbell, have called into question the validity of its stated reserves, supposedly 258 billion barrels.

If Gharwar, the world's biggest field, is seen to be in decline, as Coxe says, the effects could be problematic. Markets could panic, forcing prices up, creating shortages and profoundly affecting the world economy.

"The kingdom's decline rate will be among the world's fastest as this decade wanes," predicts Coxe. "Most importantly, Hubbert's Peak must have arrived for Gharwar, the world's biggest oilfield."

Coxe dismisses Saudi claims that the country can produce extra capacity to satisfy surging demand. He notes that Saudi promises to increase production last year failed to materialise. Aramco had pledged an extra 500,000 barrels of oil immediately and an extra 5 million bpd by 2012.

He says the markets had "assumed this first flow would be a half million barrels daily of the benchmark Saudi Light, the high-end product that any oil refinery can process. Instead ... the new oil was heavy, sulphurous oil that only a few refineries had the spare capacity to use".

Continuing, he asks: "What about those 5mbpd of new production by 2012? It turned out that only 2.5 million barrels would be net additions to Saudi output: Declines from existing fields will slash production by 2.5 million bpd."

Saudi response

Saudi Aramco's chief executive officer Abd Allah Jumaa denies anything of the sort is happening.

"We have ambitious expansion plans to boost our capacity to 12 million bpd and also have a long-term crude development scenario that would raise our production capacity to 15 million barrels a day. We are confident that we can maintain these production rates for about half a century," he says.

However, Campbell noted that in 1990 Saudi Arabia, along with other Opec producing countries, notably Kuwait, revised their reserve estimates overnight.

This was in order to pump more oil as part of Opec's quota arrangement. The more reserves you claimed to have, the more money you made.

Same reserves

Saudi Arabia announced "a massive increase from 170 to 258gb in 1990. It had evidently decided to follow Kuwait's practice of reporting original, not remaining reserves," Campbell says.

Since that time, despite pumping around 9mbpd, Saudi Aramco says the size of its reserves have not only remained the same but increased slightly from 258gb to 259gb thanks to better extraction techniques.

However, Simmons believes Gharwar, responsible for about 5mbpd of Saudi output, may have been damaged by poor management.

Pumping large amounts of oil at the maximum rate can damage the geological structure of the field, usually referred to as "rate sensitivity". Basically the hole falls in on itself, making large amounts of oil within it un-extractable.

Lack of transparency

The rising speculation among analysts may ultimately be the fault of the Saudis. The lack of outside independent scrutiny has created space for sceptics such as Coxe to question their facts and figures.

In 2005 alone, the OECD, the G7, the IEA and the IMF have all openly called for increased transparency over oil reserve calculations, mainly from Middle Eastern states.

The market cannot hope to understand its current position without knowing how much oil lies in reserve. This is at the heart of much of the current oil market's problems.

But Coxe's figures may even be on the sympathetic side. According to Saudi Aramco's own statistics, existing Saudi fields deplete by 600,000 to 800,000bpd each year. If such levels are maintained until 2012, Saudi depletion will have reached a minimum of 4.2mbpd.

Water injection

In other words - by their own admission - Saudi Arabia will have added only 800,000bpd of supply in the next seven years. That is the best-case scenario.

To put these rates into context, the IEA predicts a year-on-year rise of 1.6mbpd by the fourth quarter of 2005.

One factor contributing to the scrutiny the Gharwar field faces is the huge amount of water injection used. Water is pumped into an ageing oilfield in order to maintain high pressure inside.

This allows the oil to be pumped out at the original constant rate. Eventually, however, the water reaches the well-head, and the field effectively dies.

Coxe goes on to ask why new Saudi fields, not just ageing ones, are also water injected.

"As if that weren't bad enough news, the Saudis claim they need at least $32 a barrel to justify new production, because ... new production ... requires water flooding. Water flooding on newborn Saudi wells? Isn't water flooding [the] Viagra of ageing wells?"

Abd Allah on the other hand states that it is modern techniques, not water injection, that will let Aramco meet any future demand.

"We are confident that we can extend [our] success well into the future given continued advances in exploration and production technologies and the fact that vast relatively unexplored areas exist in the kingdom with potential hydrocarbons to be discovered."

Canada oil link

While the Bank of Montreal weighing in on the prospects of Gharwar depletion is noteworthy, it should be pointed out that the bank is financially involved with the Albertan oil sand deposits.

The Albertan "sands" are deposits of sticky oil and sand, traditionally too costly to extract, which are now receiving great attention as conventional oil prices rise.

Coxe is extremely bullish on prospects of companies working in Alberta.

"The Alberta oil sands companies aren't like other oil companies," he says.

These companies are, of course, potential alternatives to Saudi oil. But Coxe ends up painting a bleak picture.

"With Opec's excess capacity ... tapped out, oil consumers have lost their security blanket against petro-chills. Free markets ... can be messy and unpredictable, little people can get hurt."

As debate over Gharwar intensifies, pressure on Saudi Arabia to independently reveal its actual size will come from many sources.

Now, for the first time, a major bank has joined that chorus. The arguments over the world's biggest oilfield are set to stay.
 

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Ride Solo
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No worries. I'm sure the Saudi royal family is putting aside lots of $$ for the day when the oil runs out so that they can help their countrymen. I'm sure they won't sail off into the sunset on their 400ft yachts.
 
S

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heisenberg9 said:
Who's going to use the the phrase "get out the tin hats" first?
it was gettin old. obviously he likes tin hats so why bother him?
 

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I just saw a Shell commerical today regarding the extraction from sand and how long they've been working on a solution.

I'd be extremely interseted in seeing what develops here, theirs an opportunity to make a lot of money off a Canadian company or two here.
 

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While the field was in the decline since it was tapped, i doubt it has crossed the extraction curve, maybe in 20 years maybe in 100 not now.

It is in terrorist .. err .. excuse me, Saudi interest to keep the prices up. Ripping off the whitey and the (more eastern) asians. Them oil producers is a bunch of dirty stinking bastards after a poor mans dollar.

Any bad news keeps the price going up, so you got lots of it lately, eventually we will aclimatize and price increase will stop, for a while...
 

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oil wells

They don't just 'flood' old oil wells to upkeep production.
'well fracturing', the method of injecting various fluids and sand at high
pressure into a well head is a proven method of increasing the capacity
of old and new wells alike.
 

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Vindicated
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Since when have you believed something from a CORPORATION and a bank no less?
 

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Mortgage Pimp
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I just don't see the point of this crap... I mean, even if we believed the shit he posts, what are a bunch of sportbike riders supposed to do? You guys gonna start running hemp juice in your rides or what?
 

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contradiction incarnate
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J_Scott said:
...You guys gonna start running hemp juice in your rides or what?
what kind of octane on that stuff?
power gains?

hmmm?

HMMMM?




:evilgrin
 

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J_Scott said:
I just don't see the point of this crap... I mean, even if we believed the shit he posts, what are a bunch of sportbike riders supposed to do? You guys gonna start running hemp juice in your rides or what?
Convert to Natural Gas or Propane.
 

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Discussion Starter #16
adamantium said:
I'd be extremely interseted in seeing what develops here, theirs an opportunity to make a lot of money off a Canadian company or two here.
yes, people will make "money", but the net gain in ENERGY will be lesser than that gained from conventional oil, this is the problem.

if we are increasing the amount of input energy for the same amount of output then it stands to reason that net energy is in decline.

the alberta tarsands are projected to produce 2 million barrels per day by 2020, a drop in the bucket.

no matter how "efficient" we become at utilizing coal, tarsands etc, they will always yield less energy than what is so easily gained from oil.

for every 1 cal of food we produce we use 7-10 in hydrocarbon energy. of that energy roughly 30% is actually in the form of converting natural gas into nitrogen fertilizers. this is a chemical reaction, it will be difficult for us to in any way make this reaction more "efficient". at the end of the balanced chemical equation, the atoms that comprised the gas are now used as fertilizer and byproducts, unless we can figure out how to make matter, such as nitrogen atoms, we are fucked...


.
 

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Discussion Starter #17
Saint Nick said:
They don't just 'flood' old oil wells to upkeep production.
'well fracturing', the method of injecting various fluids and sand at high
pressure into a well head is a proven method of increasing the capacity
of old and new wells alike.
it is also is the hallmark of a well, and likely the field to follow, in decline...
 

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Discussion Starter #18
Vili said:
While the field was in the decline since it was tapped, i doubt it has crossed the extraction curve, maybe in 20 years maybe in 100 not now.
he's talking about production decline, not decline in overall deposit.

that field has been goin since 1951, 100yrs of life left is laughable, 20yrs maybe, but not at 5mbpd.
 

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Discussion Starter #19
J_Scott said:
I just don't see the point of this crap... I mean, even if we believed the shit he posts, what are a bunch of sportbike riders supposed to do? You guys gonna start running hemp juice in your rides or what?
i post this shit here cause this is my little corner of the universe. some care to read it, others don't. if you don't like what i post then simply don't read it.

what are you gonna do? i dunno, that's for you to decide, i'm not your mom, i'm simply a messenger. think for yourself but also think for those around you who are still ignorant of the facts. when the shit hits the fan they'll likely need your help. do what you need to do.

if i actually had any real suggestions as to "what to do" i'd suggest simply arming yourself with knowledge, it is our most valuable tool. peace.
 

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Discussion Starter #20
Saudi Aramco boosts drilling efforts to offset declining fields

by Glen Carey
Platts
Dubai, United Arab Emirates
Tuesday, April, 11, 2006

Saudi Aramco's mature crude oil fields are expected to decline at a gross
average rate of 8%/year without additional maintenance and drilling, a Saudi
Aramco spokesman said Tuesday.
But Saudi Aramco has taken a number of measures to offset a decline in
output from the country's aging oil fields, the spokesman added.
"A variety of remedial activities are always being taken in oil fields
influencing their effective decline rates," the spokesman said. "The drilling
of additional development wells in the producing fields is Saudi Aramco's
standard practice to offset normal declines of older wells."
This is particularly important when oil fields are progressively depleted
under a well thought out strategy of maximizing the sweep and displacement
efficiencies, leading to high ultimate oil recovery, the spokesman said.
"This maintain potential drilling in mature fields combined with a
multitude of remedial actions and the development of new fields, with long
plateau lives, lowers the composite decline rate of producing fields to around
2%," the spokesman said.
Underscoring these efforts, Saudi Aramco signed two contracts with J. Ray
McDermott Middle East and McDermott Arabia Company Ltd, subsidiaries of J. Ray
McDermott, to detail design, procure, fabricate, transport and install
offshore facilities for the Maintain Potential and Khursaniyah Upstream
Pipeline programs, Saudi Aramco said April 6.
The first contract includes two drilling support structures in Zuluf
field to be installed in December 2006 and one new wellhead production
platform in the Central Safaniya oil field to support onstream start-up in May
2007, Saudi Aramco said.
Three additional wellhead platforms will be installed in the Central
Safaniya and Zuluf fields by December 2007. New associated flowlines will
connect these platforms to existing offshore tie-in (manifold) platforms.
To support increasing production in the Central Safaniya field, a new
tie-in platform (Safaniya TP-18) will also be engineered, procured, fabricated
and installed by December 2007, along with a 24-inch trunkline between it and
a subsea connection on the new 42-inch trunkline flowing to the onshore
Safaniya GOSP-1, installed under a separate contract.
The second contract is associated with the subsea portion, some 22 km (14
miles) long, of the 30-inch gas pipeline from Abu Ali Island to an onshore
site at Khursaniyah to be installed by May 2007.
This subsea portion is part of the new 66 km BKTG-1 pipeline that will
transport 220 million cubic feet/day of gas from Abu Ali Plant to Khursaniyah
Gas Plant.
 
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