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PostRE: The future of oil supplies (Randy Black) (John Eipper, USA, 12/14/05 2:17 pm)
John Heelan wrote: Perhaps we could seek Randy Black's specialist knowledge of the oil industry to comment on the following: The recent book, Twilight in the Desert,? by Houston-based Matthew R. Simmons** (2005), based on 200-plus "independently produced reports about Saudi petroleum and production operations", suggests that? Saudi oil reserves are considerably less than those being published
Randy writes: I am happy to respond to John Heelan?s question about the Simmons book, which Mr. Simmons wrote and published for personal profit and which includes many personal opinions of his that are based on the speculation of many others regarding the Saudi oil reservoirs. Even Mr. Simmons admits in his book that his thesis is speculation. Before I paste Mr. Simmons? admissions (near the end of my diatribe), here are a few of my thoughts:
To begin with, the comment that the Saudi oil fields are in decline is sort of a ho-hum, pardon me while I yawn, statement. ALL oil fields are in decline. It?s not even news. That?s the nature of a diminishing return asset which is exactly what an oil or gas field is. Oil fields are like automobiles to a degree: The day you bring a field on line, or buy a car, the investment is worth a little less each day forward due to the fact that it has been used. Even the most inexperienced investor knows that all oil fields are in decline from the first barrel of oil or gas production.
The Matt Simmons claim that the Saudis may not have the capability to increase their output (as much as they claim) is also old news to many industry professional, albeit it is really only speculation that has been around the investment side of the energy business for more than a few years.
I recall writing in this venue about two years ago that I had been in the company of oil experts (in Houston) who were suspicious that the Saudis didn?t have the capacity to increase production to the level they claimed to have back then. That would have been about January-February 2004.
However, before Mr. Heelan jumps to the conclusion that some investment banking Harvard MBA living in Houston is the sole provider of the truth on these matters, here?s what the Saudis have to say (briefly):
(Mar. 2004) In a speech before the Center for Strategic and International Studies in Washington DC, Nansen G. Saleri, a manager of reservoir management for Saudi Aramco said Saudi Arabia can maintain production capacity at the current rate of 10 mbd for the rest of this decade and if needed they could increase maximum output by 20-50% within a decade. His colleague Mahmoud Abdul-Baqi, Saudi Aramco's vice president for exploration also expressed optimism about the future of their industry. "We have a lot of area to explore and find a lot of oil and gas. Our track record shows we delivered for the past 70 years and we will continue to deliver in the next 70 years and beyond." Saudi Aramco says that with more investments it can expand its capacity to 12 mbd or more. But according to the New York Times, privately, Saudi oil officials are less self-assured, cautioning that production beyond 12 mbd would damage the oil fields. Even if their prediction is wrong, the road to the 19.5 million barrels a day by 2020 projected by the EIA is very far.
Additionally, some economists who reviewed Simmons' work rejected it on the basis that if oil prices rise high enough, advanced recovery techniques will be applied, averting supply problems. It?s well-recognized that the low hanging fruits have been picked which is why we have deep water operations that didn?t exist forty years ago, along with production in the far reaches of Canada, Alaska, Russia and off Viet Nam that we do have today.
Finally, although I greatly trust the Society of Petroleum Engineers, whose HQ is located within about 15 minutes of my home, the statement attributed to them in the Simmons book, based on 200-plus "independently produced reports about Saudi petroleum and production operations", suggests that? Saudi oil reserves are considerably less than those being published and used for forward planning does not appear to take into account that the Saudis have not allowed an audit of their fields in more than twenty years. Reading on a bit more into Mr. Heelan?s post, I find the words he takes from the book to include a lot of appears to, may be, might be and may haves before the otherwise declarative statements within the text. In other words: The book is highly speculative which Simmons admits again and again, then and today.
My personal views include the fact that while current fields are in declines, new fields are coming on line as we discuss this matter, and will continue to do so for decades to come. Companies across the world continue to explore and continue to produce from new discoveries. Then there?s the matter of conservation and new technology. New technology and new economics enable firms to produce from fields that may have been uneconomical in the past. At $20 per barrel, firms were hesitant to expend the funds to explore and produce from the apples that are higher on the tree. Today, oil is in the high $50 range. In my opinion and in the opinion of people who knew their stuff to a much higher degree, it?s likely to settle a bit but will likely remain in the $35-$45 range in the future. That?s what I?m hearing.
It?s the same with natural gas which is in the $15 plus range today but will likely settle to about $12 in the coming year. But both numbers are high enough to encourage exploration and production in locales that were not economically feasible at the lower prices of a year ago. Don?t forget that the price you read about in the papers is for the top quality, easiest to obtain crude. There is still a bunch of oil out there that is priced far lower.
And then there? the matter of new technology in automobiles and energy production. I recently traveled through west Texas where for nearly 200 miles, as far on both sides of the Interstate, as far as I could see, there were energy generating wind turbines. Currently, one firm is exploring putting thousands of turbines in the Gulf of Mexico off the Texas coast. All major auto manufacturers are gearing up to produce more and more hybrid autos. It?s very evident that American drivers have finally hit the economic wall tha has caused them to begin rethinking their automobile needs and to adjust their driving habits. The wall appear to have been reached at the $2 per gallon of auto gas level which is what we have today, after earlier going to $3. It appears that gas will eventually settle a bit more; most are predicting that it will never fall below about $1.50 in the US again. New homes are being built with legislatively mandated energy efficient energy systems right down to toilets that use less water but that has been the case for at least 5-8 years. I?ve got three of those toilets in the home we built in 2001, and I don?t like them much but we?ve learned to live with them.
But I don?t expect John Heelan to trust my opinion. Since he based his post on Matt Simmons, let?s review Simmons? conclusions, from the book. Here?s what Simmons says:
I happen to think the world can make the transition into what we might call the post-Saudi oil era in some very rational ways that will limit economic disruption. As a perpetual optimist, I believe the world still works beyond Peak Oil. While oil prices in this new world will obviously rise, this rise can be a blessing, not a curse. Far higher oil prices make all other forms of energy more competitive and spur on energy research programs that might discover some real long-term fixes.
Higher oil prices will also trigger a massive influx of money to all oil-exporting nations, even as their reserves and daily outputs shrink. With proper guidance, and based on the grim reality that this great flow of fluids for these oil countries is essentially a "last call" instead of just another boom that will be followed by another bust, oil-producing countries can make the most of the revenues that higher oil prices create.
It is imperative for countries like Saudi Arabia and the Middle East producers in general to wisely invest their pending windfall profits toward creating modern societies that work beyond oil. If such plans are enacted, their unforeseen benefits could turn into a surprising global miracle. The time for using high oil prices for guns, palaces, and Swiss bank accounts is over. This money now needs to be used to create the basis for more abundant life in these countries after Peak Oil.
Do the math to understand how powerful this spending boom could be. OPEC, as a group of countries, now has about 600 million people. By 2025 or 2030, the OPEC population could easily exceed one billion people. If future oil prices were to remain as low for the next 20 years as they have been over the last 10 years, it would almost ensure an ever-increasing gap between vast wealth for the ruling elites in these important countries and increasing poverty for the masses. Such a model is unsustainable. Social chaos, increasingly violent terrorism, and political or military revolutions would ultimately become "normal events" throughout all OPEC countries.
If the process is managed in a rational manner, an era of high oil prices can create the necessary revenue to begin building a genuine middle class in most OPEC nations. This process would, in turn, unleash a buying spree for OECD goods and services. The growth in demand for such goods that this new middle-class OPEC society would want might make even the economic miracle unleashed when the Marshall Plan rebuilt Europe appear modest in comparison. It would certainly overwhelm the economic miracle of the 1980s and 1990s when the Asian tigers finally rose to prominence.
The following are some interesting US domestic oil prices for crude (average quality) dating from the early 1970s to today, that I find interesting. You may also.
1973, average for the year - $3.89 per barrel
1980, $21.59; 1990, $20.03; 2000, $26.72
2001, $21.84; 2002, $22.51; 2003, $27.56;2004, $36.77
2005, approximately, $48 per barrel over the entire year give or take a half buck.
Imported oil is a tiny bit more.
RH: There is the general question of energy and oil supplies, which Randy discusses-? Nut the precise topic under discussion is Saudi oil reserves, which has important political implications for our relations with the Arab world. I gather that Simmons'view is shared by many specialists, but being an ignoramus in these matters, I personally have no opinion.
John Heelan wrote: Perhaps we could seek Randy Black's specialist knowledge of the oil industry to comment on the following: The recent book, Twilight in the Desert, by Houston-based Matthew R. Simmons (2005), based on 200-plus "independently produced reports about Saudi petroleum and production operations", suggests that Saudi oil reserves are considerably less than those being published. At the end of Randy's long reply, I said: I gather that Simmons'view is shared by many specialists, but being an ignoramus in these matters, I personally have no opinion. Randy comments: From your Dec. 14 post, if you are an ignoramus, then I am the Pope.
John Heelan appears to being looking for reasons to support his thesis that the end of the world is near and no one appears to be addressing the pending disaster. Matt Simmons states that he is an optimist, as I am, regarding these matters. This entire issue of energy sourcing, exploration and production, coupled with the related economic issues is important to discuss and to try to understand. In a tiny way, however, it reminds me of my former uncle-in-law, Scotty Moore, a retired British Airways pilot from Scotland, a WWII hero, who once told me, Great Britain invents everything worthwhile, the Japanese make it and the Americans market it. (in the 1970s). My point is that the entire matter of whether or not the Saudis can and will produce to the
who were suspicious that the Saudis didn't have the capacity to increase production to the level they claimed to have back then. That would have been about January-February 2004.
My point is that the entire matter of whether or not the Saudis can and will produce to the degree that they promise is interesting but moot. There are other apples on the tree. As for me, if I had a spare farthing, I would invest it in the firms such as BP, Exxon Mobil, ChevronTexaco, Caltex, ConocoPhilips, about 20 European firms in addition t BP, and about 50 other small and large firm. For several months last year, Russian production exceeded Saudi production. Where does Russian oil and gas end up? Source: http://www.eia.doe.gov/emeu/cabs/russia.html. RH: I regret that the charts Randy sent came out as black patches.
Randy Black writes; Darul DeBell said on December 15, A couple of years ago even President Bush commented favorably on the process (fuels from carbon based waste) and indicated that it would be investigated, but since then?.Mr. DeBell may have missed the CNN, ABC, New York Times and a zillion other media outlets that have reported on the advancements in these matters and other alternative fuels. Thousands of Japanese cars in the US have run on such fuels for 7-8 years during the subsequent studies. In Texas, biofuel powers thousands of cross country diesel freight haulers. Even Willy Nelson?s Mercedes runs on biofuel made from reclaimed vegetable oil. Willy owns the company based in Texas that produces the stuff which smells like popcorn when it comes out of the exhaust pipe. By the way, the technology goes back to 1895. Yes, more than 100 years. As far as turkey leftovers, I would welcome enlightenment. Bottom line: Hundreds of millions are being spent on such research and the development of those products.
As Willy says, Virgin vegetable oil can be harvested from many oil feedstock plants like soybeans, sunflower seeds, rape seeds, palm oil and even some types of algae. Recycled vegetable oil from local restaurants and other used sources are also a useful reservoir of renewable fuel for diesel engines as approximately 4.5 billion gallons per year of used vegetable oil is available in the USA.
From another source: Green Car Congress reports that Archer Daniels Midland Company plans to build a 50-million gallon production facility in Velva, North Dakota. The new plant will be near an existing ADM crushing facility.
ADM is the largest biodiesel producer in Germany and one of the leading producers in Europe. Within Germany, ADM has one biodiesel facility in Hamburg and one in Leer. The Hamburg facility recently announced an expansion in capacity expansion. The company also announced plans to build its third German biodiesel production facility. The plant will have a production capacity of 275,000 metric tons (about 84 million gallons US) per year.
The North Dakota plant will be its first wholly-owned biodiesel production facility in the United States. ADM is also a partner in Mid-America Biofuels, LLC, which has recently announced plans to build a biodiesel production plant in Mexico, Missouri.
The ADM announcement identified canola (rapeseed) as the primary feedstock for the new plant in North Dakota. Looking at a table of vegetable oil yields, we see that canola produces 127 gallons of oil per acre. This is much higher than corn or soybeans, which one sees more often mentioned in regards to American biofuel projects. Yet still much less than coconut or palm.
Randy Black writes: Daryl DeBell took me to task for not responding to his turkey guts into auto fuel initiative, or specifically for not mentioning the Googling of his term turkey guts. I had indeed done so and read a plethora of Web sites on the topic. Net of the effort is that the waste into usable fuel issue is an ongoing operation in many locales. From New York to California and everything in between, people have been trying to perfect the operation of turning wastes into fuel for years. Some with more success than others. There was even a National Geographic documentary about three years ago regarding the conversion process that has been in research for more than 25 years with various levels of success.
Changing World Technologies (CWT), a New York State environmental company, has a plant in Missouri doing just that, turning leftovers into fuel. My point was and remains that, despite many folks who would have us believe that the USA and other nations are not doing enough to explore alternative fuel sources, billions of dollars are being spent by government and private sector entities on exactly that topic and the potential solutions.
From a CWT story: Each day 200 tons of turkey offal ? aka, turkey guts from the nearby Butterball Turkey plant - (are) carted to the first industrial-scale thermal depolymerIzatIon plant, recently completed In an adjacent lot, and be transformed Into various useful products, including 600 barrels of light oil. That's a very light oil. It is essentially the same as a mix of half fuel oil, half gasoline." Private investors, who have chipped in $40 million to develop the process, aren't the only ones who are impressed. The federal government has granted more than $12 million v to push the work along. We will be able to make oil for $8 to $12 a barrel, says Paul Baskis, the inventor of the process. We are going to be able to switch to a carbohydrate economy. Appel (chairman and CEO of Changing World Technologies) has lined up federal grant money to help build demonstration plants to process chicken offal and manure in Alabama and crop residuals and grease in Nevada. Also in the works are plants to process turkey waste and manure in Colorado and pork and cheese waste in Italy. He says the first generation of depolymerization centers will be up and running in 2005. By then it should be clear whether the technology is as miraculous as its backers claim.
Ronald Hilton, 2005