The OPEC Monthly Oil Market Report is just out with OPEC crude only production numbers for February 2014. OPEC Crude production was up 258.6 kb/d in February on the strength of a big jump from Iraq. Iraqi crude oil production was up 400 kb/d to 3,397 kb/d. OPEC crude only production, less Iraq, was down 141.4 kb/d.
Iraq was the only big gainer this month.
Saudi Arabia was down 102 kb/d but that was after January production had been revised up by 99 kb/d.
Saudi admitted, early that their old giant fields were in steep decline. Ravensworth.org published the following quote about eight years ago however their web site has since been taken down:
One challenge for the Saudis in achieving this objective is that their existing fields sustain 5 percent-12 percent annual “decline rates,” (according to Aramco Senior Vice President Abdullah Saif, as reported in Petroleum Intelligence Weekly and the International Oil Daily) meaning that the country needs around 500,000-1 million bbl/d in new capacity each year just to compensate.
That quote by Abdullah Saif was widely circulated. and in 2007 International Business Publications published this on page 144:
One challenge for Saudi in achieving their strategic vision to add production capacity is thattheir existing fields sustain, on average, 6 to 8 percent annual “decline rates”(as reported by Platts Oilgram) in their existing fields, meaning that the country needs around 700,000 bbl/d in additional capacity each year just to compensate for natural decline.
However in 2006 Saudi Arabia’s Center for Strategic and International Studies claims they have gotten this decline rate down to almost 2%.
Without “maintain potential” drilling to make up for production, Saudi oil fields would have a natural decline rate of a hypothetical 8%. As Saudi Aramco has an extensive drilling program with a budget running in the billions of dollars, this decline is mitigated to a number close to 2%.
The drilling program they are talking about is those horizontal wells placed at the very top of the reservoir. Now imagine, that with all those brand new horizontal wells sucking the oil right off the top of the reservoir, they still had a decline rate of over 2%! Of course that was in 2006. It is likely that the water has already hit many of those horizontal wells and their decline rate is now well over 2%. More likely it is a lot higher than that.
But they have brought on Khurais and Manifa since then with a combined production capacity of 2 mb/d. That has enabled them to keep their production levels up… for now. Saudi may, just may, be able to produce half a million barrels per day more than they are right now but I doubt it.
Okay then is OPEC producing flat out? There is absolutely no doubt that, with the possible exception of Saudi Arabia, they are. Eight OPEC nations have serious declining production since 2005. Even to suggest that these eight nations are not producing flat out is to deny reality. To believe that they would deliberately cut production while four countries, Iraq, Saudi Arabia, Kuwait and UAE, are increasing production is delusional.
What about the other four? Iraq makes no bones that they are producing every barrel possible and hope to produce more. And I have discussed Saudi Arabia but what about Kuwait and UAE?
Kuwait and the UAE were later than Saudi Arabia in getting their infill drilling program going. They both started their infill drilling program around 2007, delayed it during the drastic OPEC cuts from late 208 until early 2011, but have since gone full steam with that program. They reached their peak about a year ago. I expect them to hold at this level for two or three years before they start a not too slow decline.
Yes, it is my sincear opinion that OPEC is now producing every barrel they possibly can. OPEC production may increase slightly as Iran dlowly increases their production as sanctions are lifted. And there is even a slight chance that peace may break out in Libya and their production increases, but not likely.
My point is there is OPEC has no spare capacity. If anyone seriously doubts my opinion on this subject then please post your reasons, and name the countries you believe are not producing flat out, in the comments section below.
Updated charts of all 12 OPEC countries can be found here: OPEC Charts
Energy & Capital is a web site that pushes energy stock. They are usually bullish, very bullish on shale oil and usually deny peak oil. That is why it was so surprising to get their latest edition in my email box. However this is just one writer for Energy & Capital. I am sure most others have a different opinion.
Over the past few months, I’ve been sharing my concerns about shale oil.
Namely, that it’s more comparable to a Ponzi scheme than any sort of boom.
I’ve articulated the reasons for my thesis, including fast decline rates, the amount of new rigs and wells needed, and a cost of production that’s been higher than the price of sale for some time now.
And further down he says:
Predictions are tough, especially with a still-struggling economy. If I had to say, prices at least need to rise to the marginal cost of production at $115ish. Trouble with that is anything over $110 for a sustained time causes recession, which of course would send prices lower making projects unviable once more.
It’s classic peak oil. It never went away, we’ve just been able to paper over it with free money for the past half decade.
Seems like the majors realize the gig is up. They’re selling unconventional assets in a big way, wanting to mitigate risk and capex by getting back to conventional. Still, conventional peaked in 2005 and that strategy seems like a last-ditch effort.
Note: I send out an email notification to about 110 people when I have published a new post. If you would like to be added to that list, or your name removed from it, please notify me at: DarwinianOne at Gmail.com