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Guest Post: Iraqi Oil Output to Rival Saudis, But Can Iraq Escape the Resource Curse?
BAGHDAD - What was once considered a pipe-dream could become reality: after decades of dictatorship, war and international sanctions, Iraq's massive oil reserves are set to be tapped proper and the country once known for two overflowing rivers could be crowned oil king.
If the seven oil projects awarded to foreign oil companies this weekend, and the three from an auction earlier this year, develop as planned, within eight years, Iraq will see its oil production capacity leap to more than 12 million barrels per day (bpd).
"We think it is a big victory for Iraq to be able to be a leader in the world," Iraqi Oil Minister, Hussain al-Shahristani, said after the auction.
Saudi Arabia, the world's largest producer at 8.18 million bpd, has a capacity of just over 11 million bpd today, after slower demand growth halted plans to expand to 12.5 million bpd by the end of this year.
Iraq - behind Saudi Arabia and Iran - has the world's third largest proven oil reserves, with potentially more remaining to be found. Currently, however, its 115 billion barrels below ground pump at just 2.4 million bpd, with production hampered by political, structural and security problems that could moot the enthusiasm from this weekend's auction.
Out of the 10 oil projects on offer during the two-day auction, seven were awarded to a dozen companies. Three fields up for grabs in a June 30 auction were awarded, with one deal already finalized. And there are more than 60 fields discovered but not yet developed. These include two that the ministry is negotiating directly with foreign companies outside of an auction process.
Currently, Iraq relies on oil revenue for 95 percent of its revenue. This will increase if the fields develop as planned. Only after, however, Iraq reimburses companies for their investment and pays them a relatively small fee per barrel of increased output.
But this is Iraq, where, aside from this weekend's bidding round, it seems nothing goes according to schedule.
Since late 2006, a new oil law to replace current oil governance - an often vague and conflicting mix of the 2005 Constitution and laws left from previous eras - has been delayed by political squabbles. Laws reestablishing the national oil company, reorganizing the oil ministry and formalizing revenue redistribution, are also languishing.
Iraq's Kurds, who favor heavy decentralization, and nationalist Arabs, who want strong state control, have both questioned Shahristani's oil deals. Some have called them illegal.
In press conferences and speeches before the auction, both Prime Minister Nouri al-Maliki and Oil Minister Shahristani, reiterated the government's pledge that the deals would remain valid - no matter what happens in the March 7 national election.
Legal cover has been as much of a concern to foreign oil companies as physical security. Three days before the first field was put on the block, five bombs killed more than 120 people. Iraq's northern export pipeline was offline for a week, during both October and November, due to sabotage.
"The contract specifies very clearly the responsibilities of the companies and the security for the fields is the responsibility of the Iraqi government but if the oil companies require specific security for their personnel or their activities, that is their responsibility," said Shahristani.
"We will make necessary precautions to deal with it," said Torgeir Kydland, the senior vice president for Iraq at Statoil, the Norwegian firm which partnered with Russia's Lukoil to increase production at the West Qurna-Phase 2 project from nearly nothing now to 1.8 million bpd.
That additional crude, however, now needs somewhere to go. And throughout the value chain, there are missing links. Iraq needs to upgrade refineries, build more storage units, and create a larger capacity transport infrastructure. Following wars and sanctions, everything needs repair and modern technology.
Iraq cannot export much more than it does already; depending on which segment of the pipeline system, either repairs have not been made or an increase in oil flow risks all-out rupture.
"The amount of work required for the infrastructure to handle such a massive production and to transport it and to export it is huge," said Shahristani. He said a pipeline and export master plan will be completed soon after assessing the needs of the fields awarded for development.
"There will be another port there and also a network of pipelines extended from the north of Iraq to the south and from the east to the west of Iraq to export oil from different areas," he said. Such a move will diversify recipients, increase delivery to those already served, and allow it to separate the different qualities of crude instead of selling it as a concoction of one.
And when it makes significant gains in production, it will have to find its place within OPEC's quota system, which Iraq - a founding member - has been excused from because capacity was cut by wars and sanctions. Shahristani said the 12 million bpd target will merely be Iraq's capacity, and that actual output will be based on market demands and aligned with OPEC. There is language in the contracts that compensates foreign companies if production is reduced, he said.
Iraq is considered by Transparency International as one of the most corrupt countries in the world. And the influx of potentially hundreds of billion dollars of foreign investment into an as yet unproven government of struggling institutions is a volatile concoction producing in other developing yet resource-rich nations what has come to be known as the "resource curse."
That is, when oil revenues aren't used to benefit the citizens of the producing country but, rather, the elite. Investor companies are often enablers if not complicit, and their home nations approving.
The result is a populace lacking basic services and a polluted environment that soon turns into violence, destabilizing both oil operations and government. The resource curse in Iraq, however, is not inevitable. And although history is a bad indicator, in Iraq and in most oil producers, such a trend can be slowed and reversed.
"That's why we're glad it's not coming on line all in one day," said a senior U.S. official. The ministry's Inspector General's office is considered to be both progressive and aggressive.
The companies are expected to reach an initial agreement with the ministry by the end of the year.
"They will give us a work plan about the numbers of the fields to be developed, the expected costs, the invested money, and the number of the workers," said Shahristani.
This is then followed by Cabinet approval and the final signing. Thirty days later the companies must pay the signature bonus, which is no less than $100 million, depending on the field. And it's non-recoverable, as opposed to the first round where the much larger signing bonus was given as a loan.
This article was written by By Ben Lando for OilPrice.com who focus on Fossil Fuels, Alternative Energy, Metals, Oil Prices and Geopolitics. To find out more visit their website at: http://www.oilprice.com
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Another post today on potential economic prosperity of Iraq down the road.. http://20smoney.com/2009/12/28/is-iraq-next-major-emerging-market-iraq-e...
Whenever I see a post about Iraq's oil I can't help but think that it signals another opportunity to invest in oil because prices are going to skyrocket.
Also, this article doesn't mention how that new oil law is universally opposed by the Iraqi people, and was pushed through by America.
I was in Kuwait from 2005 ? 2007 and during that time there was construction of a pipeline from the Iraqi border to the Gulf running down Eighth Ring Road. This pipeline was huge.
I hope Iraq starts pumping significant amounts of oil so that they can improve their economy and get back on their feet. As I'm holding large amounts of their currency, I wish them the best of luck.
Who said the war wasn't worth it?
Iraqi's will soon be rich like the Nigerians.
"within eight years, Iraq will see its oil production capacity leap to more than 12 million barrels per day (bpd)."
That's a long, long time away. As for the resource curse, yeah, probably. If we can't keep massive, endemic fraud out of our banking system, I have no hopes that a fledgling nation state that was cobbled together from different ethnic groups and various tribes will be able to operate cohesively and manage its natural resources for the benefit of the public.
Thanks for the reality check.
I am Chumbawamba.
I wonder who has gone through these replies and marked anything written by or agreeing with Trav77 as 'junk'.
seriously? What a fucking asshole...
Why are you making that comment in reply to me?
12mbpd: believe when seen.
at the rate existing fields are depleting, even dropping that full amount onto the market will not establish a new production high
Trav, you are all over these oil threads. I have a gut feeling that new Iraqi production and the move to alternative fuels may just be enough to avert another supply crunch in the next 3 years. Is there any word from guys like Matt Simmons about this new Iraqi production? This cerainly wasnt on the table a few years back when he was saying there would be $200 oil by 2011. Maybe the playing field has changed.
all-liquids is declining since July 2008, C&C since 2005. Alt.fuels are EROI suckass.
The production data on C&C is better because we have over 4 years of it now since the production peak in 2005.
Matt Simmons knew about Iraq's reserves estimates.
12mbpd is at current a pipe dream.
Again, I say that at the rate existing fields are depleting, even dumping the FULL 12mbpd onto the supply on the timeframe they claim, we will still not make a new production high.
I dunno about the nominal price of oil, $200 or whatever...against a declining dollar, this is possible.
The complete destruction of several large and formerly prosperous economies around the world will more than offset any usage increases from emerging economies. There will be no energy crisis, unless someone manufactures it.
I am Chumbawamba.
listen bumblestumble, you've missed the point.
The destruction IS THE ENERGY CRISIS.
The deleveraging we must see is the inevitable point of recognition that the debt pyramid has reached the ceiling.
It needn't matter whether oil is in supply deficit or not; it really need only stop GROWING.
trav - most people can't grasp that the markets and monetary system are an abstraction that is reliant on EROEI. An economy relies on greater energy outputs and lesser energy inputs. That's how economies attain complexity and growth. When an economy experiences a diminishing rate of return on energy invested, it goes through a period of decomplexification. And no amount of monetary engineering can save it. Not long term anyway. And a fiat monetary system is only as good as the real world tangible results of energy outputs.
I have tried for years to get them to grasp exactly that.
I have phrased it dozens of ways. I went over and over this on TF for the better part of a year only to get the paper bulls shouting it down as religion.
Energy availability and static EROI are economic ASSUMPTIONS. There is no discussion whatsoever of the mutability of these within macroeconomic texts which tend to always revolve around monetary and interest rate regimes.
I tie this all together with a postulate that interest rates cannot rise because to do so would require increasing ROI of economic activity when the opposite is the case. Energy is the base of this pyramid we call economics as there is not ONE THING ON THIS EARTH that gets done or in this UNIVERSE for that matter without energy.
The profitability of energy production as expressed by EROI is declining, therefore all activities based on it are also declining. This is often expressed roughly as a cost-of-energy or entropy. We are sliding toward a situation where there is far less pure profitability to drilling up oil, consequently, there is less net available and all activities based upon use of energy are inherently less profitable. As profit ratios decline, interest rates that represent "market" lending against them must also decline. If activity cannot satisfy the growth needs of the coupon, the loan isn't made, and due to supply and demand laws for credit, the coupon must fall. The banker cannot extract more return than the venture will produce.
This also explains why we see increasing leverage ratios. Profitability is so near-zero in so many things that the only way to achieve "returns" is to scale leverage to infinity. Hell, there are so many factories and industrial facilities in China for example that are of negative profitability. They will NEVER be able to repay even principal, much less interest demands of the originating loans.
Yes, this seems to imply that negative real rates are coming. Interest rates do not CONTROL economies, it is the other way around; this is what the economists in their pseudoscience failed to understand.
A rational outcome of debtmoney against a contractive climate would be deflation, but the dollars snuffed out would be matched by the real production snuffed out, although the currency's value in real terms should rise.
As economists DO NOT GRASP the fundamental truth of economics, I expect a fiat or paper collapse. Who would lend a terminal cancer patient money against his future wages? Lending into a future of contraction is precisely that...a rational expectation is that at best you may get your principal returned in real terms, but not your interest because your interest requires growth. So, going forward, paper claims against the future, which is what bonds and debtmoney are, must be discounted in light of reality.
They will never grasp it. They will hate you for it. See how some of your posts on this thread have been flagged as junk? They fear what we say. You know why? Because it makes sense and as Upton Sinclair once said:
"It is difficult to get a man to understand something when his salary depends upon his not understanding it."
To which I would add, if they do understand - even for a fleeting moment, then they get angry at you or intellectually shut down.
The reality is too harsh for most to accept.
When I read this article several months back, thought it did a good job of discussing/introducing EROI, and inspired me to do more digging and research. http://www.financialsense.com/fsu/editorials/stangelo/2009/0820.html
There may be better starter docs out there, but you could do worse for a layperson.
Good article, thanks for sharing.
In a nutshell. Oil is in everything and everything is in oil. 90 % of the economic, political, military, and environmental fraud including cap and trade seems no more than a cover for EROEI coming to a standstill. Just wait till it starts moving backwards.
EROI is "everything," but not quite.
Again, I must resort to differential calculus.
POWER is what matters, not energy.
The difference in the steam engine versus gasoline is power. The gasoline engine can do work faster.
Derivative of work with respect to unit time - power.
The EROI of coal is higher than that of oil...it returns more net energy per unit invested. But coal cannot deliver the power of oil. Really, nothing can. Oil is freaking liquid power.
Despite higher net energy return, coal does not deliver that energy at a rate as high as oil delivers its.
The rate of change of society and technology has matched the rate of power input to it.
Agreed. This is handy:
http://www.eroei.com/eroei/evaluations/net-energy-list/
I view the concept of ERoEI more as a necessary condition for civilizations to prosper away from 'the basics'. It may or may not be sufficient condition based on sources in consideration.
Ok, point taken. But I wasn't responding to you.
Iraq's phantom oil need not actually materialize for the ramifications of reduced energy ouput to be diminished. Equilibrium, as always, will fix things.
I am Chumbawamba.
no...it will not "fix" anything.
It's very important to understand what declining aggregate energy supply means, and even more critical to understand what declining EROI means.
Notice EVERY SINGLE economics discussion revolves around the word "growth." That is your first clue. A failure to grow represents a departure from 300 years or more of western economic trends. Growth as a principle predates even Adam Smith. Every single economics "theory" hashed out since Gutenberg has taken place against a backdrop of assumed ability to grow.
Also, those who expect interest rates to rise...how are they going to rise? There isn't much OUT THERE right now that is profitable at a 5% or higher. If you have an activity that cannot turn a profit if you have to pay a coupon on the loan to build it that exceeds your profit margin, you CANNOT do the activity.
Raising short rates to a point where they exceed economic return will crush economies. The world economy is so overleveraged (see previous posts about leverage) and so overcapacitied against an energy supply inflection, that the yields simply aren't there to support higher rates or debtmoney demand.
I don't know why you keep blasting these comments at me as if I'm somehow clueless just because you've devoted your life to one narrow topic.
What YOU seem to be FAILING to GRASP is that DEMAND DESTRUCTION will ALLEVIATE any looming energy crisis and PUSH THE PROBLEM OUT several decades.
THIS IS WHAT I'M SAYING.
What YOU are saying is NOT BRAIN SCIENCE.
YES, I U-N-D-E-R-S-T-A-N-D. I am making an ALTERNATE POINT entirely DIVORCED from your PREFERRED TOPOGRAPHY OF DISCUSSION.
I am CHUMBAWAMBA.
Sigh...this is one of my most significant personal issues, my inability to deal patiently with lesser intellects.
No, you do NOT understand.
What is happening now IS THE ENERGY CRISIS. Get it? This, right now, right here, IS the problem.
There is nothing to be "pushed out" decades, gdit, ok?
Demand destruction is CAUSED BY SUPPLY DESTRUCTION. It simply MUST be that way because you cannot consume MORE than you can produce!
The theme you are pounding is a derivative of what LATOC pushes, and this is WRONG. When I first began writing on Peak Oil back in 2003, I forecast "sustained global recession." That is it. There is not going to BE a sudden binary crisis point. The collapse of money based upon expectations of future growth may occur, surely, as will ANY faith system requiring growth where growth cannot be had.
The situation is analogized thusly: world growth (GROWTH) is like a car driving down the road whose speed MUST increase continually. The problem is NOT when the needle in the tank hits E, it is when you cannot increase the rate at which you supply gasoline to the engine. THAT is when you hit your growth ceiling. Your car can still move, it just will not move FASTER.
And I don't give a shit who you are.
Yes, it must be so hard dealing with lesser intellects when you're standing on the first rung of the ladder, because everyone below you is ABJECTLY STUPID, while you are merely stupid.
See what I said above? This is not brain science. I.E. YOU ARE NOT A GENIUS, NO MATTER HOW MANY WORDS YOU TYPE IN ALL CAPITAL LETTERS.
I understand this issue inherently because I've been preparing for it all my life. I'm glad you've finally caught up with the program. You aren't telling me anything I don't already know. You should just retire to your cave and burn the last few ounces of whale blubber you have while you furiously write the last paragraphs of your brilliant treatise on energy scarcity that nobody will read.
I am Chumbawamba.
News flash, sport: YOU are the lesser intellect
Cut the bullshit, chumpabubba
Sorry, what was that? You're too far down the Stupid Ladder for me to hear you. If you'll make the effort climb up a few rungs I might be interested in what you have to say. Because it's all just pops & buzzes from my lofty elevation.
Then again, you might be just another one of the primitive heathens that are indigenous to ZH comments, in which case I won't be able to understand your grunts and snorts anyway.
I am Chumbawamba.
trav777: "at the rate existing fields are depleting, even dropping that full amount onto the market will not establish a new production high"
I read one of the most informative books on Saudi oil production and depletion by oil investment banker Matthew Simmons:
"Twilight in the Desert"
Simmons did a pretty exhaustive study of oil geology technical articles published by Saudi engineers to asses Saudi capacity, production capabilities and what the technical publications indicate about their reserves and production problems.
I learned a ton from this book... excellent.
Matthew Simmons, another non Kool-Aid drinker who was ignored, chastised, ostracized, attacked and demonized for his efforts.
I'm always amazed this man still finds the personal courage to speak the truth in the face of such fierce attacks. I seriously doubt I would be so brave.
M. King Hubbert, who originated the peak curve named for him, was also ignored, chastised, ostracized, attacked, and demonized.
The most important thing to take from Twilight is not the Saudis' production fantasies, it is the shape of the production curves from wells discovered after the 1970s. This is the issue that most seriously impacts the future, iow, the decline rate post-peak for the world and was the central theme of Simmons' book.
As I have said many times, if the world experiences a decline rate similar to what the 70s-vintage fields have undergone, we are in serious, serious, serious fucking trouble. Our best case is a prolonged plateau followed by a 4% YoY decline, consistent with for example West Texas or LA Basin production profiles. A nice bell curve. Unfortunately, fields like the North Slope, North Sea, Cantarell, and the other post 70s fields have seen decline rates several times that.
I used to be an investor in BPT and then I ran their 10k figures against their projections stated therein and found a serious disconnect between estimates and reality. Estimates were for the 5-7% range, reality was more like 13-15. For our sake, I hope that the forecasters have not made similarly overoptimistic projections regarding all the other fields in the world (har har)
I agree. What no one wants to ask is how do the new and extremely more efficient extraction techniques effect depletion and decline rates. You spoke of that above. It seems to me that if you suck even harder on the straw, you simply drain the glass that much quicker.
While I understand previously abandoned fields and "pockets" are now considered at least partially recoverable (meaning that older fields have more recoverable oil than previously thought) the fact remains that this is merely a few more drops in some extra buckets. They're removing oil much quicker from existing fields than they projected just 10 years ago. I suspect that deep down in the bowels of the oil companies and in the white house/CIA/NSA etc they have run the numbers and it's down right ugly.
But the average Joe is being led to believe the can has been kicked down the road a few more years and possibly decades. That simply isn't the case when you consider world oil production must double by 2050 to keep up with growing third world demand, not to mention China/India etc.
Saudi reserve propoganda
http://www.theoildrum.com/node/3665
World Oil Production Forecast Update 5/09
http://www.theoildrum.com/node/5395
This is precisely what happened.
Extraction technology improvements did not extend field life in terms of fattening the production curve. They just permitted more oil to be gotten out more fast.
This is the curse of exponential growth. The companies maximized profits off of fields...had they not done so, they could not have met the demand needs in the present for all the "development" that everyone is so gaga over.
We pulled oil out faster in order to satisfy suburban buildout, multiple cars per family, increased drivers driving increased cars increased miles, more air travel passenger-miles, more trucks, more ships, more more more of everything, nevermind China and the rest of the "developing" world.
People simply don't grasp exponential math...it's sad, but true. B9K does when he says at this point we need to again add an amount that is equal to all that in the entirety of history.
Everyone would be wise to understand the parable of the indian king and the chessboard. At each successive doubling in a growth curve, you must add an amount to that square that is one unit higher than ALL OF HISTORY COMBINED.
If our national debt GROWS (note i say growth) at a level RATE, the next doubling with be another $12T. Then another $24T. Then another $48T. People are victims of their own psychological flaws that they expect or predict that the growth rate is linear when it is geometric. Their estimates of future scalar values are astoundingly inaccurate to the low side.
And I suppose technology is just going to come to a screaming standstill and the globe will simply implode on itself due to a lack of useable energy?
No worries, your derivative focus on a transient blip in the evolution and progress of mankind will be noted with much amusement by future historians.
I am Chumbawamba.
if you suppose that, you're even stupider than I previously thought.
As I said in my last post, moron, stop imputing the LATOC thesis to me. I don't know how many goddamned ways I have to rephrase it to get morons like you to understand. It seems clearly beyond your comprehension, sadly.
Oh, by the way, it takes the same amount of joules to melt steel this year as it did in the year 1500. Take your brain out of the microwave, moron.
So to paraphrase you:
"...stupid...moron...goddamned...morons...moron."
That is quite the thesis. I can see how people might mistake your curtness for mental retardation, but I see pure genius hidden behind those simple adjectives.
I am Chumbawamba.
Two DVDs on the subject, Oil Smoke and Mirrors By Ronan Doyle..
http://oilsmokeandmirrors.com/
and End of Suberbia By Gregory Greene
http://www.endofsuburbia.com/
I have both DVDs. In fact, I bought extra copies to lend to friends. Unfortunately they usually don't get viewed because the friends have more pressing things to watch, such as "Hangover" or the latest Will Ferrell movie. Such is the testimony of America today.
CD, Your not alone
Thanks for the book rec: $0.47 + shipping at amazon. bought that and a couple of other books on the subject.
The most interesting thing I find in this discussion is the concept of EROI. Based upon the reading, there seems to be a rule of thumb that an an energy source need to achieve a minimum EROI of 3 to be considered a valid energy source. At first glance, it would seem to me that if anyone can demonstrate conditions under which a non-polluting renewable energy source can reach an EROI of 3 (not current conditions, but conditions assuming adequate infrastructure); then we as a society should invest all necessary efforts to implement the use of that energy source.
We shoulder most the war costs and everyone gets most of the benefits...very smart of us.
This is utter crap. There is an Arabic cultural issue here. The word is mubalagha. Google it. It is a not at all derogatory description of Arabic oration -- in which enthusiastic exaggeration is admired rather than ignored. This guy is in this mode and it's a very dangerous thing on this subject, because it also appears in reserves quotes for the whole region.
Here's the more relevant info from Royal Dutch Shell about the big field in Iraq:
"A group led by Royal Dutch Shell, Europe's largest oil company, signed a deal to develop Iraq's Majnoon supergiant oilfield, pledging to spend tens of billions of dollars on the project over the next two decades."
Iraq is not going to pump 13 mbpd (and btw, the original quote from that oil minister said that Iraq would do that by 2013, not in 8 years). It's all crap. They are at 2.4 mbpd now. They won't get to even 4.5 by 2013 and probably not to 6 by 2017. But because an ***OIL MINISTER*** said it, all the prognosticators of the world will consider it credible.
It's not.
"could become reality" and lots and lots of big "IF's" in that pipe dream. "12mbpd: believe when seen." 100% agree
Does anyone still believe the US is in Iraq and Afghanistan because of the War of Terror?
...unexpectedly...
This is a joke & a awful, completely inaccrate post. XOM didn't even apply for oil fields because the output requirements are too onerous, fraught with danger. Joke will be on China, French & BP.
The above piece is marketing hype almost of dot-com quality. It's bullshit, folks. Before you jump on that bandwagon, why not check with some professional geologists about Iraq's actual potential flow rates? 12mbpd is more than Saudi Arabia has ever produced. 12 mbpd is more than Russia has ever produced. That's 10 new projects and current production is 2.4 mbpd so those 10 projects have to average 1mbpd each to reach 12mbpd. Yet there are only about 25 or so fields in the entire world that produce 300,000 bpd or more.
I suggest reading and understanding documents like The Evolution of Giant Oil Field Production Behavior or Giant oil field decline rates and their influence on world oil production or The World's Giant Oil Fields before leaping off into fantasy land. It's bad enough that our banks play fantasy games.
I want each of you to understand that there are four oil fields in the entire world that produce more than 1mbpd. There are only ten oil fields in the entire world that produce more than 500,000bpd. Yet Iraq is going to magically almost triple the number of 1mbpd projects in the entire world? In just 8 years?
Pure, unadulterated horse shit. People need to realize that sales jobs don't just happen with Fed paper. Don't get me wrong. If Iraq can get 250,000 bpd from each of those 10 projects, which would be super compared to the entire rest of the world, that would double their production to about 5 mpbd. If they can get one or two of those projects to go over 500,000 bpd, they would come close to 6 mbpd total production. Iraq is going to be way wealthier than Iran with a fraction of the total population.
But 12 mbpd? Yeah, and the Detroit Lions are going to win the Super Bowl this year too, right?
people also need to understand depletion...any easy way is to compare the number of fields >1mbpd 10 or 20 years ago versus now.
The North Sea, North Slope, Cantarell, etc...all fields that used to produce >1mbpd that are now below 500kbpd. In the case of Cantarell, it went from the 2mbpd+ range to 500kbpd in a matter of a few years. Depletion at that field ALONE subtracted 2% of world oil production.
Wiki has a page on large oil fields which shows depletion rates. Prudhoe, Burgan, etc...double digit YoY decline rates. These are significantly steeper than forecast.
Also, the time-to-peak and decline rates are far worse for more recent discoveries and for deepwater fields irrespective of stated URR.
It's interesting that the Saudis never give accurate figures concerning their fields. I wonder why? None-the-less, they do release enough information to make an educated guess regarding what they have left. It ain't much compared to what they had in the 60's and 70's.
Running the Saudi wells wide open like they did during the so called "oil crisis" of the 70's permanently damaged the Saudi oil fields. I suspect the people/companies running the Iraqi wells will do the same, fearful that Iraq will nationalize the wells once the Iraqi government has some money in the bank and the military is built back up.
So the oil companies who recently won bids for a piece of the Iraqi oil pie have every incentive to run the newly drilled wells too fast too long and take what they can get short term and worry about tomorrow next week.
Agreed about depletion and decline in flow rates. But I didn't feel I needed to even go that far to point out the absurdity of 12 mbpd production from Iraq. It's nothing but hype.
Here is the other thing people don't realize - there are nearly 50,000 active oil fields in the world today. The 507 largest of those provide over 60% of all the oil produced.
Little fields don't mean squat and they don't last more than a few years either. And there have been very very few "giant" fields discovered in recent decades (since the 1970s) so when the current crop of giants begin to wind down, just like Cantarell is, it's going to be game over for oil as a major energy source.
And yet there is very little market reaction to such long term issues even though the data, from Cantarell to Ghawar, is staring them right in the face.
I'll agree big time. I also like this site in terms of peak oil, and for other reasons: http://www.kunstler.com/index.php
I am with you Greyzone, total sales speak BS on 12 mbpd. We will be lucky to see 5 mbpd and that is taking into consideration political stability between three factions who hate each other. We can hope for the best.
The powers that be have known for over 30 years that the Saudi Arabian "reserves" were/are not as healthy as Saudia Arabia and the USA promote them to be. Most people don't understand that Saudi Arabia can't raise current output without getting a 60%-70% water cut on the increase (meaning very expensive to remove the water/impurities) and even then, the longer they open the taps, the worse the water cut becomes. And they haven't found a new "large" field (forget ever finding another "giant" field) in 30 years.
So now we see why the USA had its sights set on controlling Iraq for the past 30 years. First they tried the carrot (weapons including biological and chemical, "foreign aid" etc) then the stick (2 invasions, the last time permanent) in order to control the flow. Remember that the term "control" is elastic and only means pumping under control of a friendly regime.
+1--CD: A person who can analyze and see the big picture.
I drink your milkshake.
From across the room... wearing a handlebar mustache...
http://www.youtube.com/watch?v=rDVzmbtVZ6s
then I beat you to death with my bowling pin
If Iraq has 115 billion barrels below the ground, that ain't much. If you just factor in the US (only), which consumes 20 bpd - do the math, less than 20 years worth. 20 years is a very short period of time.
please, never ever do what you just did. Never ever divide reserves by consumption and project "lifespan" that way.
Oil production doesn't work like that.
Take a look at the size of Ghawar or Burgan and what their flow rates are. Ghawar had let's say 80B barrels and produces 5-6mbpd at peak, but its production has followed a roughly bell-shaped profile. Ghawar has been in production since 1951.
Burgan was a field of similar size in terms of URR (70 Gbbl), but its peak production was in the just sub-2mbpd range, achieved in 2005, even though it began production around the same time as Ghawar.
Extraction profiles in terms of flow rates versus URR are radically different depending upon field location and more importantly when they went into production. Lifespans are shorter for more recent fields due to extraction efficiency improvements.
For example, Prudhoe, Cantarell, North Sea...these were giant fields brought online in the 1970s. They achieved peak production figures in the Burgan neighborhood against radically different URRs. Prudhoe hit about 2mbpd versus 13GBbl but is now in steep decline, having peaked in the late 90s.
For the future, large field discoveries like Tupi, containing as much as 8Gbbl URR, are expected to produce no more than 500kbpd worth of production.
IOW, an 8Gbbl find does NOT "power the US for over a year" (assuming 18mbpd consumption), it powers the US for roughly 40 minutes per day (500kbpd/18mbpd).
Never count your crudes until they're barreled.
This might buy the USA 5 or 10 more years of cheap gasoline? Everyone will forget $4 gal and buy a large SUV.
Great comments. I like the clarity and exuberance of trav777 especially. So nice to come across someone that really gets it.
As for Iraq as the new Saudi... We did not build the largest embassy compound in the world in Baghdad cause we like the view. Our crib is there to stay.
I have no idea why someone junked your comment for it's obvious we built the embassy we did because we expect to be there for a long time. The average Joe has no idea the huge size of the embassy in Iraq.
In fact calling it an "embassy" insults military bases that are much smaller in size. Of particular note is the fact that the embassy also contains the middle east regional headquarters for the 4 branches of the military CIA, NSA etc and every major cabinet level department. This is a small city, not a building.
somebody is junking me and anyone who agrees with me.
Probably somebody I called an idiot or else one of Douchinger's acolytes.
I have a pretty thorough knowledge of PO. I wouldn't have agreed with you if I didn't think you knew what you were talking about. Sorry ZH, but for a member to be able to junk a post simply because the author happens to agree with someone else is a failure of the rating system. IMHO.
Your comments DO make sense, so never mind those thumbs down.
trav777 definitely gets it.
Oil- It's worth going to war for.
OIL is the only thing worth going to war for.
The thought that Iraq can produce 12 million BOPD is a pipe dream. Reserve calculations for producing wells in the Persian Gulf are pure fiction. Undeveloped reserve calculations should be on the shelf next to Ali Baba and the 40 Thieves. Saudi Arabia has found little oil in their western desert, Iraq probably won't either. I'm not an expert on Iraq production, but without a civil war, I don't see Iraq increasing production very much.
But the chances of Iraq not having a prolonged civil war are remote. After WW1, the western countries went into the Persian Gulf region and set up puppet central governments because there was constant warfare among the local warlords. Stable governments are a requirement to develop oil because oil people don't like being shot at when they are trying to work. Iraq had a strong central government with Saddam Hussein. The US destabilized Iraq when Saddam Hussein was whacked and the weak democratic government was installed. Since then, the US has armed and equipped three rival armies, Sheite, Sunni, and Kurd. The chances of the three of them not falling into civil war the minute the US leaves is remote.
CEO of the SOFA
Writing from the Republic of Yemen
Hey CEO, click on this Youtube video link. Ron Paul talking about war drums beating at the gates of Yemen. It should be of particular concern to you.
http://www.youtube.com/watch?v=rBNG1F77eoI
Timely, I just watched Crude Awakening on Netflix. I dont think people have any idea how serious this is.
Here's an example of the degree to which reserve reports in the Persian Gulf are exaggerated. In the '70's when the US oil companies were kicked out of Saudi Arabia, they listed proven reserves of about 260 billion bbl. Since then they have produced about 100 billion bbls. The Saudies still report the same reserves, despite not having any significant discoveries since the 1960's.
The giant Ghawar field produces 60% of Saudi oil. This field has been producing with no decline for 50 years. The oil production rate doesn't decline because reservoir pressure is maintained by a natural aquifer. When the aquifer level reaches the wells, the wells "water out" and production declines at excellerated rates. The Ghawar aquifer reached the wells in the early '90's. The original vertical wells had to be abandoned and were replaced with horizontal wells which were completed at a high elevation in the reservoir. Many people estimate that the aquifer will reach these horizontal wells in 2-3 years. At that point, the Ghawar production will decline by 20-30% per year.
When this happens, it will be a severe blow to Saudi Arabia. The country was nearly insolvent in 2003 because oil prices were depressed since 1986. The Kingdom is a welfare state supported by oil revenue. 5000 palaces have to be supported. Higher oil prices are their only hope.
A simple and effective thing would be a noticeable tax on imported oil. Both "conservatives" & Libs would be against a common sense approach like this. It would certainly be better for the US than letting Goldman sell carbon credits. It would hurt the God instilled right to waste energy to "conservatives" It would hurt the UAW to Libs.
The real problem here is a lack of complete information about existing reserves. It seems every country in OPEC has exaggerated their reserves so as to be granted larger production allowances. When this is combined with the water injection technology they use to prolong field life, we don't know when they are going to decline until production starts cliff diving.
don't take this the wrong way, but I've said this in many oil-related discussions - reserves DO NOT MATTER.
All that matters is flow rates.
Ex: Prudhoe. 13GBbl, 2mbpd peak in 1998, went into production a little under 30 years prior. Now, the thing ain't even 40 years old and its production is plunging. But they got 2mbpd out of a 13GBbl find. Similar fields are basically dead, exhausted.
Cross that with Burgan, which has 70GBbl and achieved a peak a few years ago at a number right at Prudhoe's. It went into production 60 years ago. Much longer lifespan but if the world needs higher production, its SOL.
Tupi is a perhaps 8GBbl find...will it achieve production near Prudhoe's? No...not even remotely close despite being in a similar class in terms of size. It may make 500kbpd.
Peak RATES of flow versus URR are *declining*.
There is no reason to believe they will act any differently from their neighbors. The "Oil Curse" will exist just as it exists in any other such country.
On the plus side, with all the oil-related infrastructure needs, there will at least be ONE industry looking to increase employment there (besides the military which sure won't shrink in the foreseeable future given their neighbors).
At the end of the day, they'll have an industry...complete with massive corruption, bribery, favoritism and everything else that goes hand in hand with these third world countries sitting on large natural resource deposits.
What ever happened to that idiot exile-Iraqi that the US airlifted in with his band of cohorts so he could "run the country"??? He's bound to be over there scheming his way into this mess.
Wouldn't be surprising to see the whole place degenerate into a Lebanon style civil war (after we leave) with the various factions fighting over and trying to protect the fields in their respective geographic locales (Sunnis-Western oil fields/Shia-Southern oil fields/Kurds-Northern oil fields).
From what I have heard there is plenty of oil in Western (Sunni) Iraq...an area once thought to be devoid of anything useful (unless you count sand and Sunnis as useful). Maybe the place splits into 3 regions with semi-autonomous peaceful control by each ethnic group.
THEY COULD, periodically, meet in the middle of the country (maybe once a year) at some neutral area, and lob RPGs, mortar rounds, and AK47 rounds at each other just to blow off whatever steam has built up b/n them over the year....think of it as the Annual Iraqi Olympics...waiting 4 years b/n meets might not work considering their disposition and prediliction for shooting at each other.
Just imagine, the company that essentially became XOM, then a fully globalized company, used to deliver its products to ports around the world in sail-powered tankers, and distributed it inland in horse-drawn wagons.
If you have an hour to kill, I highly suggest watching this presentation by Stanford University's Roland Horne. He criticizes Simmons, but I chalk it to politics. His data, nonetheless, is very thorough. I would say the most worrisome fact is the Baker-Hughes rig count data showing Saudi Arabia increasing production efforts, even though production has remained flat. Haliburton has recently entered into agreements with Saudi Arabia. I believe all is not well with ageing Ghawar.
http://www.youtube.com/watch?v=KTsYjRqPmNA
Okay. EROI is declining which means production will decline because a lack of return.
Ageing fields are seeing huge declines in output
The economy deflates because the EROEI is dropping creating a negative feedback loop(maybe?)
The economy deflating causes declines in consumption.
Have I got this right sofar.
India and China are growing economies and their consumption will increase regardless as it is some of the lowest per capita consumption in the world. It has only one place to go but up.
So currently production exceeds supply but if all of the above is true won't production meet consumption somewhere below and the price and EROI increase because of percieved or real shortages setting off some inflation.
Production is declining.
Therefore consumption must decline.
As all things that everything everywhere DO require energy as an input, that means less doing. That means sustained recession.
Forget "growing economies" and the rest of this shit.
Supply/demand fundamentals with oil do not cause inflation. Inflation causes the apparent price of oil to rise due to excess creditmoney chasing finite barrels. Same as everything else.
Saudi is drilling Haradh and Hawiya, lower 2/3 section of the Ghawar field. Northern section only (AinDar and Shedgum) are the sections that are watering out. Saudi are also developing Khurais which has 27 billion barrels of reserves.
That is why Baker Hughes reports rig counts have increased.
It makes no sense that Saudi reserves have remained constant while 100 billion barrels have been extracted - except when you consider how reserves are reported. 1P reserves are reserves that "can be extracted economically with current technology". 2P reserves are "probable" and 3P reserves are "possible". When projected recoveries increase say from 10% to 20%, then 1P reserves also increase. Ie., 2P reserves become 1P reserves. Same thing if the price of oil increases, as more can be "economically extracted".
Tupi is only one field in the Santos and Campos basins. I have read estimates that up to 30 billion barrels will ultimately be available from that area. However, that needs to be put into perspective. At 85 million barrels / day worldwide use, 30 billion barrels would last a little more than one year.
Other sources of oil include offshore Ghana (Jubilee), offshore China (Bohai), and unconventional (oil sands). Oil sands alone have 2.2 trillion barrels OOIP, but with a 10% recovery, that is only 220 billion barrels 1P reserves.
Eventually, transportation and heating will need to convert from oil to another source of energy. I am optimistic that it will happen.
GFD, you cannot divide reserves by consumption like that! What, Campos is going to be an 82mbpd field? That's insanity to even phrase it that way.
The largest find in the Campos basin, Carioca, has a total of ZERO barrels currently recoverable. The oil is in-place, sure, maybe, but the technology does not exist to extract it.
Oil that far down under miles of ocean, rock, and salt, is not going to come up to the surface at the same rate as a 30Gbbl strike in the Saudi desert! The EROI will necessarily be far lower.
Oilsands require massive energy to mobilize the bitumen - go to cos-trust.com and tell me what you see a picture of - and even assuming they pollute every freshwater source west of the Rockies, this resource base is at most a 4-5mbpd producer in its entirety.
All reserves are NOT created equally.
A typical 30Gbbl find these days will NOT power the earth for a year. It will power it for probably an hour a day at most at peak production. Even Ghawar, the King of Kings of oilfields, manages to power the earth only for 90 minutes per day. There is no way to increase that flow rate to suck out 82mbpd instead of 5. Ghawar could only supply 1/4 of the US's consumption. It'd give us 6 hrs/day of production.
I divide reserves by world consumption in order to impress on people the need for conservation. When people tell me that a new giant oil field has been discovered, their perspective changes quickly when they learn how many days of additional supply it represents. One year is not much.
Of course, you cannot produce fields as fast as that; production is limited by rock permeability, fractures, API, and well spacing to list a few factors.
Wrt Carioca, estimates from Repsol are 765 million barrels of "recoverable" reserves. I assume that means 1P reserves - what can be done today at today's prices. Guara has 2 billion in "recoverable" reserves and is slated to start producing in 2013.
I did not mean to give the impression of being sanguine. I am not. I am well aware of the excellent reports at theoildrum.com, as well as auto production plans for China and India. I would encourage readers to take conservation seriously.
People *don't* get the message, though! That's the problem.
Every time I've been in a PO discussion with deniers of fact, they continually bring up these new deepwater finds of 30Gbbl or 8Gbbl and say, look, we just added a whole 'nuther YEAR of production. That'll get us through next year and we'll certainly find another year and another, ergo there is no problem with the oil peak.
The oil peak has NOTHING to do with reserves, and I cannot emphasize that strongly enough. Hubbert's original theory found a relationship on THOSE reserves bases between URR and the point at which a field peaked, but he was operating in a climate of primary extraction until pressure depletion, then secondary extraction, then tertiary and so forth. He did not anticipate things like "tarsands," nor was he around when we started putting secondary and even tertiary extraction techniques in the primary phase! The production curves of 70s wells look NOTHING at all like a bell curve.
When you say tarsands have 250Gbbl, people believe there IS NO PROBLEM. Because that divided by 82mbpd lasts so long that everyone assumes we will simply find another 250Gbbl, as "we always have."
Nevermind that tarsands will produce less than a surface field 1/3 of its size in the most optimistic case on an output-to-output basis. The 30Gbbl finds we make now CANNOT be exploited at the same efficiencies and flowrates as the older 30Gbbl finds. People do not understand that the tarsands reserves cannot produce anywhere NEAR the same RATE of the KSA oil reserves, which are around the same size. The same is true with the Bakken shale oil and all the rest of the CTL stuff too. I constantly here about 1Tbbl reserves in shale and people stupidly assume we can exploit these reserves at a rate similar to what historical reserves bases of that size have supported when this is not even remotely CLOSE to true.
You are only shooting your entire argument in the foot with PO deniers when you divide URR against consumption. People do not understand what PO means and its implications. They focus on reserves instead of its derivative and cannot grasp that the problem is a failure to grow rather than being close to "empty."
http://www.theoildrum.com/story/2006/8/2/114144/2387
good overview of EROEI from the oildrum