Analysis:
Saudi King Abdullah Drops Quiet Bombshell;
U.S. Media Sleep Through It
STEVE ANDREWS & RANDY UDALL / ASPO-USA
21apr2008
On April 13, Reuters reported [below]
the following from Riyadh:
Saudi Arabia's King Abdullah said he had ordered some new oil discoveries left
untapped to preserve oil wealth in the world's top exporter for future
generations…
"When there were some new finds, I told them, 'no, leave it in the
ground, with grace from god, our children need it'," King Abdullah
said…
Saudi production capacity stands at around 11.3 million bpd, and is scheduled
to rise to 12.5 million bpd next year.
The King’s remarks seem to confirm a statement made last year by Saudi oil
minister Ali al-Naimi who, when asked “How high can your production go?”
replied, “We’ll get to 12.5 million barrels a day and then we’ll see.”
If the Saudi announcement was a bombshell, American nearly newspapers ignored
it. We decided to canvass experts we respect to see what they thought. Excerpts
follow:
Tom Petrie, vice president, Merrill Lynch:
“King Abdullah’s quote speaks to the fast-emerging reality of what I call
‘practical peak oil.’ The Saudis and other exporters are placing a new
emphasis on elongating the petroleum exploitation and depletion cycle. This
stems from a growing awareness of the challenges of conventional resource
maturity, as well as rising resource nationalism. This is likely to result in an
earlier occurrence of global peak oil output than many consumers yet
recognize.”
Charles T. Maxwell, senior energy analyst, Weeden & Co:
“If Saudi Arabia’s oil reserves are not going to be made available to the
world in future years, beyond the expansion they have already signaled (to 12.5
million barrels/day), then the geologic oil supply constraints that we are
feeling in many other parts of the world are going to close in on us earlier and
more severely than we previously thought. It’s a major change in policy.
It’s a powerful message. It makes the geologic message that much more
decisive.”
Chris Skrebowski, editor of Petroleum Review:
“King Abdullah’s statement represents the final seal of approval on an
emerging Saudi policy of restricting output to save oil for future generations.
In recent years the Saudis have been managing expectations of future capacity
steadily downwards. No one now talks of their reaching 15mn b/d. If they reach
12.5mn b/d, while maintaining 1-2mn b/d of ‘spare’ capacity, we should plan
for Saudi production to be 9-11mn b/d for the foreseeable future.
“High oil prices and bulging treasuries are giving producing countries the
option of maximizing plateau production. We may never know if these decisions
are being dictated by geology or driven by a political imperative of ‘saving
oil for later generations.’ I suspect it’s a mixture of the two.
“In any case, there is now a broad-based move by energy exporters, including
Russia, Angola, Azerbaijan, and Norway, to restrict expansion to maximize
plateau flows. If this takes hold, then global supplies will reach a peak rather
earlier than analysis of future projects would indicate.”
Matt Simmons, chairman of Simmons & Co. International:
“This statement by the Supreme Ruler of Saudi Arabia has far-reaching
implications. That King Addullah would now instruct his servants to conserve the
oil they pump and save some for the kids and grandkids of today's Saudi citizens
is most profound.
“King Abdullah has exhibited a sense of wisdom not seen since his brother,
King Faisal ruled the Kingdom until his tragic assassination. Assuming his
health continues, he might lead Saudi Arabia successfully into a post-peak world
and create sustainable middle class wealth for the 90% of Saudi Arabia who had
accidentally been left behind.
“The world should bless this intelligent pronouncement. It is a reflection
that Twilight set in on the oilfields of Arabia a few years ago.”
Richard Nehring, president of Nerhingdatabase.com:
“This development is part of what I’ve called the ‘Prudential Plateau.’
Some key countries with large reserves and resources have decided to maintain
production at current levels—but not increase it. This is a two-edged sword:
you can no longer count on these countries for increases, but you can count on
them for the base. The United Arab Emirates and Qatar will probably join in this
shift.”
Jeffrey Rubin, chief economist, CIBC World markets:
“A far more plausible explanation for faltering growth in Saudi production and
exports is that they are rapidly approaching maximum production. Given soaring
rates of internal consumption for oil, they will soon be exporting less not more
crude to world oil markets.
“Russian Natural Resource Minister Yuri Trutnev’s has said that Russian
production and exports will fall this year, for the first time in a decade. We
forecast that exports from OPEC, Russia and Mexico will actually decline by 2.5
million barrels per day between now and 2012. It’s far from obvious who is
going to fill this supply gap, let alone meet the need of future global crude
demand growth.”
Jeremy Gilbert, BP’s retired chief petroleum engineer:
“I have no idea whether there was a real choice for the Saudis to make.
Perhaps it's all 'spin'; perhaps there were discoveries, but there was some
property of the reservoirs which made them very difficult to develop, and it
made sense to delay development until improved technology or much higher prices
arrived; perhaps it's the plain basic truth - a very rare commodity.
“What I do know is that several countries in the Gulf have long chosen to
operate their fields with depletion rates far below those that a Western company
would consider optimal, or even sensible. Depletion rates of between 1 and 2%/
per year are not uncommon in the United Arab Emirates. Local leaders have
repeatedly said that they feel an obligation to preserve some of their natural
resources. These feelings must be intensified when their recent production has
been sold for US dollars which have depreciated by 25% or more against other
strong world currencies over the last four years.
“The countries around the Gulf, which would once have come to the aid of a
faltering U.S., now are either delighted about the U.S. plight or just don't
care. They are not going to do anything to reduce world oil prices. Instead,
they are going to maximize their economic take while minimizing depletion of
their sole natural resource.”
Herman Franssen, president of International Energy Associates:
“King Abdullah's remarks reflect the new thinking in the Middle East, where
the Kuwaiti parliament has also expressed a need to stabilize oil exports.
Higher oil prices enable producers to focus more on domestic investments than on
increasing exports. All Gulf countries have seen huge growth in domestic demand
for power and fuel. By 2015, Iran may consume as much of its crude oil as they
export. The King’s remarks mean that we in the industrialized countries better
start looking for other solutions.”
Steve Andrews and Randy Udall are two of the five co-founders of ASPO-USA.
source:
23apr2008
Saudi Arabia's King
Abdullah to
Leave Some Oil Finds for Future Generations
Reuters 13apr2008
Saudi Arabia's King Abdullah said he had ordered some new oil discoveries
left untapped to preserve oil wealth in the world's top exporter for future
generations, the official Saudi Press Agency (SPA) reported.
"I keep no secret from you that when there were some new finds, I told
them, 'no, leave it in the ground, with grace from god, our children need
it'," King Abdullah said in remarks made late on Saturday.
US President George W Bush in January urged the Saudi King to help tame
soaring prices by encouraging Opec to pump more oil. On separate trips to Saudi
Arabia this year, the US Energy Secretary also asked for more oil, while the
Vice-President discussed high prices with the king.
The kingdom has spent billions on building over 2 million bpd of spare crude
capacity and is the only country in the world able to bring online large volumes
of crude supply quickly to deal with unexpected supply shortages.
Opec held production steady at meetings in February and March despite calls
for more oil from the US and other consumers. Opec officials blame the high
price on factors beyond the group's control such as the weak dollar, investment
flows into commodities and speculation. Saudi Oil Minister Ali Al Naimi said
last week that global oil markets were well supplied and there was no need to
put more oil on the market, despite prices hitting a record of over $112 a
barrel last week.
Saudi Arabia has trimmed its output to around 9 million bpd to reflect lower
customer demand, a Saudi oil source said on Friday. The kingdom had in previous
months pumped around 9.2 million bpd. Crude demand traditionally dips at this
time of year after the end of winter as refiners carry out maintenance and
prepare to meet summer demand.
Saudi production capacity stands at around 11.3 million bpd, and is scheduled
to rise to 12. 5 million bpd next year.
source:
23apr2008