Saudi Khurais Field: Looks Like Easy Oil May Be Gone from Arabia, Too

Readers may recall Leslie Stahl’s trip-happy-trip to the magic Saudi Kingdom last December, on 60 Minutes. If you missed that bit of Willie Wonka Choclat-ism, you can review my post here: Open Secret: the 60 Minutes Report on Saudi Oil.

In addition, I just checked the CBS website and you can still watch the piece just as it aired on TV. My central observation about the 60 minutes coverage was as follows: given the massive size of this field’s infrastructure and the fact that millions of gallons of seawater will be needed to extract its oil, we can now conclude that even in Saudi Arabia, the easy oil is gone.

Look at the size of the complex, in the above photo. The scale is comparable to an oil sands project in Northern Alberta, with its years of pipes and preparation before a drop of oil begins to flow. This is no simple straw in the sand. Khurais is a true mega-project.

Whether Khurais is currently on schedule or is seriously delayed is not quite clear. The Saudis have become masters of obfuscation over the years, using a wide-dispersion method of disclosure. Essentially, they get lots of different people to give a range of timelines and projections on the future plans of Saudi Aramco. We do know that Khurais will have cost at least 10 billion by the time it starts to pump. And presently, the Saudis are insisting that Khurais will start up this June. We shall see.

What amazes, however, is the amount of seawater needed to loosen the oil from this “new” field. While Khurais was indeed discovered 50 years ago and developed a little, the formation behaves more like a dying giant than a new provider. From over 100 miles away, two million gallons of seawater will have to travel each day by pipeline to extract Khurai’s oil. There is simply not enough natural pressure.

The most recent data from EIA Washington shows Saudi crude oil production is now down (on voluntary OPEC cuts) from the July 2008 high of 9.70 Mb/day, to 8.127 Mb/day in January. Even if Khurais does come on stream this summer, one wonders how Saudi will handle this extra production at a time when they have already cut one and half million bbls a day from current supply.

Of course, if you believe Saudi Arabia’s productive capacity is in decline, and that Ghawar is getting ready to pull a Cantarell, then you won’t see current supply cuts as voluntary and will assume Saudi needs all the oil they can produce. I will only offer my view that such a position, while not easily supported, is not unjustified.

Comments

[Young Min Nam:]

Your patience will pay off big time for the long term for oil. I am very confident about this. I am buying whenever it dips.

Apr 18 11:11 AM

[Dirk McCoy:]

Mega projects will only continue, and get even bigger, as mankind finds energy for ongoing progress. As low hanging fruit (burning trees) is replaced by higher hanging fruit (oil wells, deep sea wells, oil sands) the size increases. But this also makes larger sources of energy available - solar will be huge scale, but nearly unlimited source.

And talk about a balancing act- the constraints on oil production (remember- "in the long run, we're all dead") vs. the plethora of alternatives to $80/barrel oil like coal, solar, and conservation; the hype and government machinations over climate change and carbon limits and conservation vs. the evidence that manmade CO2 is not forcing global warming and global consumer demand; the case for oil panic on the upside vs. the case for oil panic on the downside (we've seen it fall as fast as it's risen many times in the past).

I agree that short term the price could fall given all the inventory and slow recovery, but long term it will rise to about $80/barrel (with perhaps some overshoot). Playing this isn't so easy, though- I don't like the fixed costs of the ETFs that rob you when the price doesn't move nor the math- a 10% up day and then a 10% down day means you're in the hole.

But I like the established oil service companies- because either the economy recovers and they boom, or the economy and stocks continue their slide while the established oil service companies hold on.

Apr 18 11:38 AM

[Old Trader:]

One thing that I didn't see mentioned in either the article, or comments to it, is the fact that the bulk of any Saudi "excess" production is in heavy, sour crude which sells at a substantial discount to the commonly quoted "benchmarks", Brent, and WTI. Conversely, the Nigerian fields that Shell is developing pump light "sweet" crude, which is preferred for processing into gasoline.

Disclosure: long oil producers, non US.

Apr 18 11:38 AM

[SouthLouisi...:]

EOR techniques are not employed to "suck the oil out faster". By far, the main reason an oil company would invest in EOR is to increase ultimate recovery. A typical Gulf of Mexico water flood might increase ultimate recovery from 20-30 percent of original oil in place (OOIP), to 50-60 percent. If natural drive mechanisms result in high recovery, say 50-60 percent OOIP, most oil companies will not consider EOR investments.


On Apr 17 03:34 PM Freya wrote:

> Enhanced Recovery techniques do one very bad thing, they suck the
> oil out faster. You may get more out but the depletion accelerates.
>
>
> Another problem, no one really knows if the Cartel's reserves are
> really there. We take their word for it.
>
> HUH!

Apr 18 12:32 PM

[wturner145:]

Obumba's hot air can extract the oil with solar and wind power. He can tell the earth that's change you can believe in! At the same time tax and eliminate the oil companies presence in the USA and take us back to the fire place and going to bed at sundown. I like that change.

Apr 18 01:02 PM

[Jimbo:]

I don't know where "Greatest Rip Off" gets his information but everything I have been able to find is that there are VERY severe technical, logistical, and economic problems for all alternative fuels.The BTU or Wattage yield of Solar, Tidal, Wind, etc. are very costly to develop and deliver to end users in quantities that are economically feasible. I am quite interested in Biofuels because they are liquid and can be used to offset carbon release but every source I can access seems to describe enormous acreages similar to solar. I fear we are 20 to 30 years from being free of most oil and gas.

Apr 18 01:02 PM

[Alamo:]

Leave the Saudis, the rest of the OPEC producers and the integrated oil giants to chase ever declining crude reserves at ever rising finding and development costs. That's their business and if they choose to hunt for a rapidly diminishing treasure, wish them well.

But one of these days though, the collective wisdom of the coporate giants' share holders will as rapidly begin to wake up and ask, "Why such a program"? Especially at a time that they have found the "fruit" of their chase--both the low hanging as well at that higher up in the tree. With the enormous profits realized over the past 100 years its past time to turn their attention toward a longer term solution to the world's energy problems. So far their "solution" has been to manipulate supplies, prices and propaganda as the situation requires.

While crude oil reserves continue to decline which translates into ultimate higher consumer costs those profits mentioned above should be used to develop new solutions to the world's absolute need for reliable, clean and affordable energy. Cut the obsfucation and get to the task of providing that energy. Wind, solar and natural gas are ready solutions for both the short and long term.

Apr 18 04:23 PM

[notsosmart:]

this program also said the saudis are building a huge solar plant.to somewhat quote one of their ministers" where is there more sun than in the desert?".

Apr 18 04:29 PM

[wineo:]

Looking at the picture, it seems like a good time to buy steel and infrastructure companies.

Apr 18 05:34 PM

[Gedankonomist:]

And I'm sure you're just the man to lead us into this nirvana. Please, tickle my ears some more with your sweet song.

On Apr 18 10:32 AM The Greatest Rip Off of our Time wrote:

> Oil needs to go the way of the dinosaur, it is a relic fossil of
> the past. New alternative fuels and energy sources are becoming more
> readily and affordable everyday and will replace oil as our energy
> source if we are smart as a species.

Apr 18 05:53 PM

[E Nuff Sed:]

Good article. Makes me wonder how our life will change when sooner than later cheap oil will be a memory. Suburbia and exurbia will collapse. Downtown real estate will explode in relative value. Mass transit will increase exponentially. Railways stocks will be very valuable. Trucking will decline. Our diets will change as mass transportation will become more expensive. Food will get expensive.

Time to start positioning our portfolios.

Apr 18 06:35 PM

[battman:]

If you're positioning your portfolio this far in advance of your Mad Max scenario, I think you should keep your day job.


On Apr 18 06:35 PM E Nuff Sed wrote:

> Good article. Makes me wonder how our life will change when sooner
> than later cheap oil will be a memory. Suburbia and exurbia will
> collapse. Downtown real estate will explode in relative value. Mass
> transit will increase exponentially. Railways stocks will be very
> valuable. Trucking will decline. Our diets will change as mass transportation
> will become more expensive. Food will get expensive.
>
> Time to start positioning our portfolios.

Apr 18 07:34 PM

[Jonathan Ch...:]

Hi E Nuff: Batman is right - it's a bit too soon to re-position away from oil into alternatives. The energy infrastructure needs time to re-align. As long as government is involved in the process, expect a lot of mis-steps. Look at Grain-based ethanol: We now have several billion gallons per year of production that loses money at current oil prices, and raises the cost of food at the same time. Many of these guys will go out of business.
Oil at $50 per barrel is CHEAP. That translates to gas, including taxes, of only about $2.50 per gallon. In real dollars, that is cheaper than gas was in 1963 (In 1963 I could buy 3 gallons of gas for one silver dollar, I can buy the same amount today for that same one oz of silver).

But there are some interesting alternatives. About 20% of today's electricity is used for lighting. If we switch to high efficiency lighting (Compact florescent, LED, and hi-efficiency plasma), we can cut that bill by 75%. The new "excess capacity" will be great for re-charging purely electric vehicles.

Apr 18 10:24 PM

[WACG:]

I truly wish there was a way to block people like you. Empty headed "chatty cathies" who have an idiotic "mission" to accumulate comment numbers. Why don't you go collect stamps or create a giant ball of string instead of make insipid vacuous comments? Are you really that simple-minded? Good Grief! Get a life AIRHEAD!


On Apr 18 05:54 AM Steven Hansen wrote:

> i am glad we have several commentors who know what they are talking
> about. to emphasis, injecting seawater is not an indicator of how
> good or bad a field is - it is simply a method used to extract the
> crude which enhances your ability to empty a field.

Apr 19 11:16 AM

[Fighting Yoda:]

Using pressured water etc is normal- neither expensie, nor complicated - simply depends on the nature of the field.
Cheap oil, peak oil etc debates are on hold at this moment. At this point we need to simply worry about this Great Recession - with declining oil demand.

Apr 19 07:14 PM

[KLR:]

Here's a great article on this field: The Oil Drum | Khurais Me A River. The author has done extensive research on the technicalities of the project, and also provides a lot of analysis of what can be seen from above using Google Earth and other satellite imaging services.

I'm primarily interested in whether the Saudis can get Khurais (and their other megaprojects) to perform as promised. They claim 1.2 mb/d will be delivered; according to Matt Simmons it maxed out at 144 kb/d in 1981. All that pipe and brine better deliver the goods! Saudi Aramco are quite an amazing company, it should be noted. We shall see. As the IEA has observed, about half a Saudi Arabia in production is lost to declines every year.

Apr 19 10:13 PM

[Larry Belle...:]

The other problem that they are seeing (sorry if someone else brought it up) is that they are now seeing issues with Water cuts (don't know the technical term). Basically, the level of water being pumped out is increasing.

Check out Matt Simmons book, "Twilight in the Desert". It makes for scary bedtime reading.

Apr 21 10:52 AM

[Mark Anthony:]

The solution to the world's Peak Oil crisis, is Cold Fusion, which is becoming hot again. Read this and follow the link to watch CBS 60 Minutes' program on this past Sunday:
stockology.blogspot.co...
Now is probably a good time to add to positions of USO and UNG.

Apr 21 10:52 AM

[Quaker:]

I also worked in saudi for a number of years. Thanx for the input. Most of these posters are clueless.

To add to what you said, IMO, one of the reasons for spending so much money on Kurais is that it's highly likely that when Ghawar starts dropping,It'll drop very quickly. You could see drops, in fact you will see drops, like those in Canterell. Ghawar is already on secondary production.

Also, no fault to Aramco, but I monitored the wells on the periphery for years. The flood front (at least in the late 80's) was not what they thought it was. It was very erratic.

I agree about Saudi Aramco. It was run by Exxon when I was there. It's the best oil company in the world.





On Apr 17 06:45 PM happycajun wrote:

> Khurais was discovered way back in the '50s, when Aramco was trying
> to get a handle on just what they had potential-wise in the consession
> area. They were obligated to cede back to the government acreage
> over time, and so they were actively trying to determine where there
> wasn't oil so to speak. Khurais, and later Shaybah, were examples
> of fields that were high potential, but just too far from the core
> areas to justify putting in the infrastructure to fully develop when
> there was so much productive capacity to be produced at a lower marginal
> cost. Khurais was initially developed on a very limited basis solely
> to supply crude oil to the government's Riyadh refinery - Khurais
> being the closest field to that facility. In 1983, I remember when
> we tapped the 48" crude line that delivered oil to Yanbu on the Red
> Sea coast for feed to the refineries there, and for export via the
> Red Sea and Su-med pipeline in Egypt. The economics of using the
> Pipeline and tankers from Yanbu for export were inferior to using
> tankers from Ras Tanura, so there was much extra capacity (the Yanbu
> line was always justified on feeding local development on the west
> coast of Saudi and on security).
>
> The Yanbu line then was used to feed crude to Riyadh by way of the
> goverment's pipelines that previously carried Khurais production,
> and Khurais was "mothballed" for future development. It is only
> relatively recently that Khurais was properly delineated, and full
> field development undertaken. As I understand it, the formation
> oil pay is not as thick nor uniform as originally thought based on
> extrapolation from Ghawar. Ghawar has been on seawater injection
> for at least the last 25 years - my memory is a little hazy that
> far back - it is just the nature of those giant fields, you want
> to use water injection for pressure maintenance to maximize ultimate
> recovery - producing without such a mechanism with the the light
> oil in place would damage the reservoirs early on.
>
> Long story short - I don't think Saudi would be developing Khurais
> unless it needed incremental capacity to maintain max output in the
> 10 to 12 million barrel range. Ghawar has been extended by horizontal
> drilling and improved control. Khurais is by all means a giant oil
> field, but not as rich as earlier thought to be.
>
> Regards, HC

Apr 21 11:02 AM

[Whippet:]

xcellent article- the takeaway from all of this is confirmation from the world's largest producer that we are on the downslope of the oil production bellcurve. Right now is an opportunity to get long or add to existing positions and ride it out. Worldwide recessions don't last forever; in addition, a supply hiccup due to terrorism, natural disaster, etc. could eliminate the current supply glut in a matter of days or weeks, recovery or not.

> Long story short - I don't think Saudi would be developing Khurais
> unless it needed incremental capacity to maintain max output in the
> 10 to 12 million barrel range. Ghawar has been extended by horizontal
> drilling and improved control. Khurais is by all means a giant oil
> field, but not as rich as earlier thought to be.

Apr 21 11:21 AM