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Kenneth D. Worth
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Author of the book, Peak Oil and the Second Great Depression (2010-2030), A Survival Guide for Investors and Savers After Peak Oil. The book presents a fairly conservative strategy for growing savings in an world of declining conventional crude oil supply. We entered that world in 2005. Despite... More
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Peak Oil and the Second Great Depression (2010-2030)
  • OPEC Minister In Essence Declares “Peak Oil” Is Here 0 comments
    Apr 20, 2011 4:33 PM | about stocks: UGA, USO, OIL, BNO, XOP, OIH, XLE

    In what can only be interpreted as a subtle but frank admission that Peak Oil is here, Saudi Arabia inadvertantly announcedthis weekend that its production capacity is falling rapidly.  Saudi oil production for March 2011 was 8.3 million bpd, or 800,000 bpd lower than the prior month of 9.1 mbpd.  Thus, despite the loss of 900,000 bpd of Libyan production in February 2011, due to civil war, Saudi Arabia was not only unable to provide the replacement barrels desired by global consumers, it actually cut production by 800,000 bpd citing “poor demand.” The combined loss in production was 1.7 million bpd. 

    Global economic growth would typically require an additional 200,000 bpd of capacity each month as developing economies expand and as developed economies recover from the recent recession and Japanese earthquake.  In response to these dramatic production declines, refiners worldwide have had to draw down their inventories in hopes of a quick end to the fighting in Libya or a resumption of Saudi production at former levels of around 9 million bpd, or preferably both.

    On April 20, 2011, however, it has been announced (or perhaps inadvertantly leaked, is the more appropriate term) that Saudi Arabia intends to maintain production (if it can, of course) at current levels of 8.2 million bpd and then gradually increase production to 8.7 million bpd by the year 2015, if possible.

    According to a research paper presented to the Arab Energy Club by Majed Al Moneef, Saudi Arabia’s OPEC governor, Saudi output averaged 8.2 million bpd in 2010.  If current trends continue,

    "[T]he kingdom's crude oil output in 2015 and 2030 could rise to 8.7 million b/d and 10.8 million b/d respectively, compared with an average 8.2 million b/d in 2010."

    This means that during the next five years, the kingdom's crude oil production will not rise but will start to increase after 2015 at an annual rate of around 1.5 percent to 2030.

    Taking this statement at face value, Saudi Arabia has no intention of raising production significantly above current levels of 8.2 million bpd until 2015 at the earliest. 

    Gone, apparently, are the valiant proclamations of the past that the Kingdom could produce 12, and then 15 million, barrels per day to supply global oil markets in the future when called upon to do so.

    Rather, under the current view, production “could rise” to 10.8 million bpd by 2030.  More likely, of course, Saudi production will continue to decline from current levels, at what we can only hope will be a gradual pace.

    These statements are the closest thing we have yet had of an admission by an OPEC official that Peak Oil has in fact arrived.  All mainstream predictions (e.g. IEA, EIA, et al.) of increased global oil production (or even of a plateau of global production) rely heavily on dramatic increases in OPEC production over the coming decades.  Now even OPEC admits that these will not be forthcoming.

    The result can only be a significant decline in global oil production in the future.   Peak Oil is becoming more and more clearly visible in history’s rear view mirror.

    Al Moneef also discussed the issue of net exports and acknowledged that given the rapid increase of domestic consumption (around 5% per anum) within Saudi Arabia, less and less oil will be available for export in the years ahead.

    "If this rate of growth [5%] continues in line with economic and population growth as well as demand for power generation, water and transport, then a larger proportion of production will be directed gradually toward meeting domestic demand, which is rising at a higher rate than expected average output growth, which will reduce the volume available for export.

    This means that the value of exports [and revenues] will depend primarily on global oil prices and not on the volume of production and exports. This is not a new development but will become clearer over the next two decades."

    In other words, the oil importing nations will be faced with ever diminishing exports from OPEC in the years ahead (not to mention prices that continue to rocket ever higher.)  This subject has been discussed frequently on The Oil Drum, in numerous excellent articles by Jeffrey Brown (via his Net Export Land Model.)

    A decisive turning point appears to have been reached in the Peak Oil debate.  Now even OPEC seems to agree that it has arrived.

    Disclosure: I am long UGA, BNO, XLE, OIH, XOP.
    Themes: Energy Stocks: UGA, USO, OIL, BNO, XOP, OIH, XLE
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