Bloomberg reports that Matt Simmons may have been right after all - according to data released by Saudi Aramco the Ghawar field appears to have substantial production declines in recent years - The Biggest Saudi Oil Field Is Fading Faster Than Anyone Guessed.

When Saudi Aramco on Monday published its first ever profit figures since its nationalization nearly 40 years ago, it also lifted the veil of secrecy around its mega oil fields. The company’s bond prospectus revealed that Ghawar is able to pump a maximum of 3.8 million barrels a day -- well below the more than 5 million that had become conventional wisdom in the market.

The Energy Information Administration, a U.S. government body that provides statistical information and often is used as a benchmark by the oil market, listed Ghawar’s production capacity at 5.8 million barrels a day in 2017. Aramco, in a presentation in Washington in 2004 when it tried to debunk the “peak oil” supply theories of the late U.S. oil banker Matt Simmons, also said the field was pumping more than 5 million barrels a day, and had been doing so since at least the previous decade.

In his book “Twilight in the Desert,” Simmons argued that Saudi Arabia would struggle to boost production due to the imminent depletion of Ghawar, among other factors. “Field-by-field production reports disappeared behind a wall of secrecy over two decades ago,” he wrote in his book in reference to Aramco’s nationalization.

The new details about Ghawar prove one of Simmons’s points but he missed other changes in technology that allowed Saudi Arabia -- and, more importantly, U.S. shale producers -- to boost output significantly, with global oil production yet to peak.

The prospectus offered no information about why Ghawar can produce today a quarter less than 15 years ago -- a significant reduction for any oil field. The report also didn’t say whether capacity would continue to decline at a similar rate in the future.

Julian Lee at Bloomberg has alook at Saudi oil production strategy in light of "peak oil demand" - OPEC Math Misses the Point.

The roots of this trace back to Nov. 2014, when the Kingdom refused to cut its output to support prices and subsidize high-cost rivals, rejecting the role of the world's swing producer.

This change of heart was inspired in part by the surge in U.S. shale oil production -- which was rising by 1 million barrels per day each year at the time -- in part by the growth in Iraqi output and in part by a re-evaluation of the long-term future of oil.

Saudi concerns over peak oil demand have changed its calculation of the long-term value of reserves in the ground. For most of the last 50 years they were seen as appreciating assets, whose value could only rise in the face of future scarcity. More recently a fear has surfaced that they could be wasting assets, falling in value as oil demand peaks and then wanes, while competing supplies vie for a dwindling market.

As I wrote in May, Saudi Arabia has finally heeded the warning issued in 2000 by former oil minister Sheikh Zaki Yamani, that the Stone Age did not end because of a lack of stones, and the oil age will not end for a lack of oil.

Bloomberg has an article on the volume of oil money that Saudi Arabia has recycled into US treasuries - The Untold Story Behind Saudi Arabia’s 41-Year U.S. Debt Secret.

This flow of money has historically been known as petrodollar recycling (a system put in place by Henry Kissinger in the early 1970s).

Saudi Arabian holdings of US assets have been of interest lately due to threats they will be sold off if the US allows the country to be to be held liable in court for the September 11 2001 terrorist attacks on the World Trade Centre.

TomDispatch has a new article from Michael Klare on what he calls "The Collapse of the Old Oil Order " - Michael Klare, The Coming World of "Peak Oil Demand," Not "Peak Oil".

Klare views the discord amongst oil producers (evident at the failed talks aimed restraining supply in Doha) as another sign of weak demand for oil in the coming years and a fight between suppliers for market share. He also notes Saudi Arabia is claiming it will raise production from its current 10.2 million barrels per day to 11.5 million barrels and could add another million barrels in the next six to nine months.

At the beginning of this century, many energy analysts were convinced that we were at the edge of the arrival of “peak oil”; a peak, that is, in the output of petroleum in which planetary reserves would be exhausted long before the demand for oil disappeared, triggering a global economic crisis. As a result of advances in drilling technology, however, the supply of oil has continued to grow, while demand has unexpectedly begun to stall. This can be traced both to slowing economic growth globally and to an accelerating “green revolution” in which the planet will be transitioning to non-carbon fuel sources. With most nations now committed to measures aimed at reducing emissions of greenhouse gases under the just-signed Paris climate accord, the demand for oil is likely to experience significant declines in the years ahead. In other words, global oil demand will peak long before supplies begin to run low, creating a monumental challenge for the oil-producing countries.

This is no theoretical construct. It’s reality itself. Net consumption of oil in the advanced industrialized nations has already dropped from 50 million barrels per day in 2005 to 45 million barrels in 2014. Further declines are in store as strict fuel efficiency standards for the production of new vehicles and other climate-related measures take effect, the price of solar and wind power continues to fall, and other alternative energy sources come on line. While the demand for oil does continue to rise in the developing world, even there it’s not climbing at rates previously taken for granted.

Julian Lee at Bloomberg has a look at Saudi Arabia's rapidly growing drilling program and their efforts to grab back market share - Saudi Oil Gambit Moves to Phase Two.

10 years on for the great surge of peak oil speculation, it has been interesting to see that Saudi Arabia and Russia have both managed to maintain (and expand) production of conventional oil. The US managed to attain its own peak of production once again off the back of unconventional oil extraction but the article notes even that is falling off again (by around 600,000 barrels per day so far) now new drilling has almost stopped in the shale regions.

The article notes that Saudi Arabia is expanding the Shaybah field by 250,000 barrels a day and Khurais by 300,000 barrels as part of an effort to build production capacity of more than 12 million barrels per day - 2 million barrels above its current rate. Kuwait also plans to raise production capacity to 4 million barrels by 2020 and Abu Dhabi to up production capacity to 3.5 million barrels a day by 2017.

In a slightly older article, Bloomberg also made some comments about speculation that Saudi Arabia may float part of Aramco - "don’t forget the warnings given by Saudi Arabia’s petroleum minister just over a year ago that global oil demand growth may face a "black swan" in the next few decades. Viewed through that lens, the policy of pumping more barrels out now looks like not merely a strategy to maintain market share but also to simply monetize reserves that might otherwise be left to mire underground" - Saudi Aramco's Fire Sale.

James McIntosh at FT Alphaville has a look at all the theories that could be applied to Saudi oil production strategy, including their belief in (or otherwise) peak oil - Saudi oil: Peak conspiracy. Options listed include:

• an attack on US shale
• a secret deal with the US to hurt Russia
• a “political plot” against regional rival Iran
• trying to pressure the Russians to cut off Bashar al-Assad in Syria
• a change in the Saudi view on peak oil

Stuart at Early Warning has an update on Saudi oil production - Saudi Arabian Oil Production.

The above graph shows Saudi production of crude and condensate (ie oil) from 1995 through July. There are several data sources, but the black line is the average. The red curve is the number of oil rigs working in the country, and is a rough proxy for the level of effort being made to maintain or increase production. ...

It is unclear how much further Saudi Arabia could increase production - they never provide sufficient detail to verify claims as to spare capacity. The conservative view is that they can only increase to previously demonstrated levels - in this case, that is only a few hundred kbd above the present level. If that were the case, a fairly modest disruption in oil supply anywhere on the planet would be enough to trigger sharp price increases (much as the Arab Spring did).

Gal Luft has an interesting article in Foreign policy (back in May) on Saudi oil production (though the final paragraphs seem to ignore the implications of the quote from wikileaks) - To Drill or Not to Drill.

According to Riyadh-based Jadwa Investment, one of the world's most important knowledge bases on Saudi Arabia's economy, by 2020 the breakeven price will reach $118 per barrel. At this point, the Saudi Arabia Monetary Agency's cash reserves will begin to drain rapidly and the breakeven price will soar to $175 a barrel by 2025 and to over $300 by 2030. And this cuts to the heart of the dilemma: In order to balance its budget in the future, Saudi Arabia will need to either drill more barrels and sell them for lower prices or drill fewer barrels -- actively reducing global supply -- and sell each at a higher price.

This is the crux of the Turki-Naimi debate. Both officials understand the centrality of oil revenues to the survival of the House of Saud, but they differ on how best to come up with the money. Turki believes that Saudi Arabia should grow its production capacity in sync with the growth of the global economy. But Naimi, the person who will actually be charged with meeting this goal, prefers to keep capacity as it is and, if needed, even let it slide. If history is our guide, Naimi's way will prevail. Since 1980, as the world economy grew by leaps and bounds, oil prices more than quadrupled in real terms. Yet Saudi Arabia, which sits atop of one fifth of the world's economically recoverable reserves, has barely increased its production capacity.

Another potential explanation for Naimi's reluctance to grow capacity is that he knows what Sadad al-Husseini, the former head of exploration at Saudi Aramco, allegedly told the U.S. consul general in Riyadh in 2007. According to a leaked cable published by WikiLeaks, Husseini said that Saudi Arabia may have overstated its oil reserves by as much as 40 percent, meaning that production at current levels is unsustainable.

If Husseini's claim is true, it means there is only one way for the kingdom to make ends meet: Keep prices high by stalling the development of new capacity while adjusting the production of oil downward to offset any growth in supply emanating from the American oil boom. It also means, contrary to popular belief, that the current rise in U.S. domestic production will have minimal impact on global crude prices, and hence on the price we pay for gasoline at the pump. Oil is a fungible commodity and its prices are determined in the global market. If the United States drills more, Saudi Arabia will simply drill less, keeping the supply/demand relationship tight and prices high.

The Turki-Naimi dispute is not an academic one but one with potentially serious implications for the future of the world economy. Whether or not Saudi Arabia likes it -- and it almost certainly does not -- the global energy market is about to get more competitive. In a competitive market, oil should be supplied by all producers roughly in accordance with their geological reserves and marginal costs. There is something profoundly wrong when the United States, which sits atop barely two percent of global conventional oil reserves, produces more barrels per day than Saudi Arabia, a country with reserves ten times bigger.

Saudi Arabia presents itself as a responsible producer sensitive to the needs of consuming countries. These needs are surely growing. It would only be appropriate for the kingdom to grow its capacity in kind by making additional investments. Should Saudi Arabia decide not to do so, the United States should use its vast reserves of cheap natural gas as a trump card. Once cars and trucks sold in the United States are capable of running on fuels made from natural gas and its products -- whether compressed natural gas itself, liquid fuels such as methanol, or natural-gas derived electricity -- the price of transportation fuel will be determined by free and diversified commodity markets, not decisions made in Riyadh.

A system in which oil consumers are forced to pay a rising "reasonable price" per barrel in order to fund Saudi Arabia's ever-growing fiscal obligations is unsustainable, especially in a time when most cash-strapped countries are looking for ways to reduce their own fiscal obligations. As the world moves gradually toward more reasonably priced methods of powering vehicles, the kingdom would do well to drill into the brains of its people -- and that includes women -- as vigorously as it drills into the ground.

Business Week has an article quoting a Citibank analysis of Saudi Arabian oil export capacity - Saudi Arabia May Become Oil Importer by 2030, Citigroup Says.

Saudi Arabia, the world’s biggest crude exporter, risks becoming an oil importer in the next 20 years, according to Citigroup Inc.

Oil and its derivatives are used for about half of the kingdom’s electricity production, which at peak rates is growing at about 8 percent a year, the bank said today in a an e-mailed report. A quarter of the country’s fuel production is used domestically, more per capita than other industrialized nations, as the cost is subsidized, according to the note.

“If Saudi Arabian oil consumption grows in line with peak power demand, the country could be a net oil importer by 2030,” Heidy Rehman, an analyst at the bank, wrote. The country already consumes all its natural-gas production and plans to develop nuclear power, which pose execution risk amid a lack of available experts, safety issues and cost overruns, Rehman said.

Saudi Arabia, which depends on oil for 86 percent of its annual revenue, is accelerating exploration for gas and is planning to develop solar and nuclear power to preserve more of its valuable crude for export. The kingdom has refused to import gas, unlike neighboring producers such as Kuwait, and the United Arab Emirates that also lack fuel for power generation.

Stuart at Early Warning has an update on Saudi oil production - Saudi Oil Production Declining.

Saudi oil production has been declining modestly for the last 2-3 months (depending on your preferred data source) while the oil rig count in country has continued to increase. See above graph (the black line is the average of five sources of production information on the left scale, while the red curve in the lower part of the graph is the Baker Hughes rig count on the right scale).

For readers that don't follow every twist and turn of Saudi oil statistics let me sketch the back story since 2005. In about 2005 when global oil supply appeared to plateau, Saudi Arabia also had appeared to plateau at around 9.5mbd. At that time the rig count, having been stable for years, began to rise as Saudi Arabia launched a series of large megaprojects to expand production capacity (or replace oilfields that were in decline depending on your point of view). Then in 2006, production began to mysteriously decline despite high oil prices (provoking a great deal of debate in the energy blogosphere as to whether this was a voluntary move to further increase prices, or an involuntary one due to underinvestment and/or declines in some of their fields). Regardless, in mid 2007, production began to gradually increase again until by mid 2008 it had reached the previous plateau level of 9.5mbd.

With the financial crisis of 2008, oil prices dropped below $40/barrel and the Saudis, in co-ordination with other OPEC countries, made a moderate but sharp cut in production down to about 8mbd to protect prices. Then in 2009 and more so in 2010 they began to gradually increase production as the global economy improved and prices got higher. This culminated in a brief hiatus just below 9mbd around January 2011.

Indeed as the world lost Libyan production in January/February of this year, Saudia Arabia initially did nothing. However, a few months later there was an agreement with the IEA such that the OECD countries would release oil from government strategic reserves for 30 days while the Saudis ramped up to a level of 10mbd. Saudi Arabia did then increase oil production sharply in June to a peak of around 9.7 mbd or 9.8mbd - not quite achieving the promised 10mbd.

They have not then gone on either to increase up to 10mbd or to maintain production at the peak level, but rather have eased back to about 9.5mbd.

So are we any the wiser as to the great question of whether Saudi Arabia has significant spare capacity and could increase production to 12mbd or more if only they chose? Only slightly I fear. I interpret the fact that the Saudi's couldn't quite meet the 10mbd promise and almost immediately backed off that, despite amply high prices, as consistent with the story that the recent Saudi production expansions have only gone to offset declines elsewhere (perhaps especially in north Ghawar). The increasing rig count also suggests a lack of comfort with the amount of spare capacity presently available.

However, I can see that someone who thought the Saudis were able to produce more but are profit maximizers who intend to keep prices as high as possible consistent with not actually throwing the world economy into recession might also be able to tell a story about how the Saudis did the bare minimum to moderate prices after it became clear that the Libya price spike was causing global economic harm but then began gradually lowering production as prices slowly began to fall following the price spike, keeping the world in a state of slow growth, but some growth, while maximizing the Saudi take for its oil. The one weak point in this story is that it offers no explanation for the rising rig count.

The FT reports that the Saudis are claiming the market is well supplied and they don't need to expand production - Saudi Arabia halts $100bn oil expansion programme.

Saudi Arabia has halted the $100bn expansion of its oil production capacity after reaching a target of 12m barrels a day as the kingdom believes that new oil sources will meet raising demand. Khalid al-Falih, chief executive of state-owned Saudi Aramco, said on Monday that pressure on Riyadh to raise its output capacity had “substantially reduced”, the clearest indication yet that the world’s top oil producer is not pushing ahead with an assumed expansion plan to 15m b/d by the end of 2020.

Reuters has an article on Saudi Arabia’s water troubles and the increasing percentage of oil production going towards running desalination plants - Oil and water - Saudi Arabia's Resource Puzzle

Water use in the desert kingdom is already almost double the per capita global average and increasing at an ever faster rate with the rapid expansion of Saudi Arabia's population and industrial development.

Riyadh in 2008 abandoned what was in retrospect clearly a flawed plan to achieve self-sufficiency in wheat and aims to be 100 percent reliant on imports by 2016. "The decision to import is to preserve water," said Saudi Deputy Minister of Agriculture for Research and Development Abdullah al-Obaid. "It's not a matter of cost. The government buys wheat at prices higher than in the local market."
…

Agriculture is the single biggest user [of water], absorbing 85-90 percent of the kingdom's supplies, according to Saudi's deputy minister of agriculture for research and development. Of that, almost 80-85 percent came from underground aquifers.

With average annual rainfall around 100 mm (4 inches), Saudi's ancient underground aquifers are its lifeblood.

But just as peak oil theorists believe the world's conventional oil supplies are at or near their peak, proponents of the peak water view have said the resource has been irreversibly drained.

Booz and Company has said some of the region's aquifers -- also referred to as "fossil water" as they contain rain that fell thousands of years ago -- have become too salty to drink.

Injecting water into oilfields has also had an impact, although sea water is now generally used to maintain reservoir pressure.

The alternative to desalination -- the energy-intensive process of converting salt water to fresh water -- robs Saudi Arabia of its other precious resource, oil, by eating up both fuel and fuel revenues.

Saudi Arabia's Saline Water Conversion Corp (SWCC) produces 3.36 million cubic meters of desalinated water per day, a daily cost of 8.6 million riyals based on the SWCC's 2009 figures -- the latest available -- when the cost of producing one cubic meter of desalinated water was 2.57 riyals. Transporting it added an extra 1.12 riyals per cubic meter.

Analysts and industry leaders say the authorities need to pass on more of the costs to the end-user to curb demand and reduce waste -- an argument that holds true for power and fuel but which requires very careful handling in the case of water.

"It is necessary to raise water tariffs," Isao Takekoh, a director at the U.S.-based International Desalination Association, said. "But it should be conducted very carefully and step-by-step because water is, needless to say, indispensable for human life."

By burning up energy, desalination reduces the amount of crude available for lucrative export markets. Takekoh estimated energy represented between 45 and 55 percent of unit production costs.

The International Energy Agency and analysts at HSBC bank estimated Saudi Arabia's rate of direct crude burning more than doubled from 2008 to 2010 because of a rapid rise in power demand and a shortage of natural gas. How much of that went to desalination is not known but experts believe it is significant.

Staurt at Early Warning has an update on Saudi oil production - New High for Saudi Oil Production .

According to OPEC, Saudi Arabian production increased to 9.75mbd in July. This is a modern record (though they produced more back in the 1980-1981 timeframe). However, they didn't achieve the 10mbd that press reports were suggesting back in June. Whether because the press had the target wrong, or because they couldn't quite manage the goal, we are left to speculate.

It will be very interesting to see if they can maintain or further increase this level. However, if they can't, the current stock market chaos and drop in oil prices will provide them the perfect cover to reduce production on claims of lower demand.

The increase from May to July is about 800 or 900kbd - still some way short of making up for the loss of Libyan production.

Mish at Global Economic Trend Analysis has a look at a Saudi report that rising oil consumption for power generation may lead to their oil running out by 2030 - Head of Saudi Electric Company Says "Oil Runs Out in 2030 if Current Consumption Maintained".

In light of Saudi Arabia wanting to step up production only to be rebuffed by the rest of OPEC, this story from elEconomista.es is rather interesting.

Courtesy of Google Translate please consider Saudi Arabia fears that the oil runs out in 2030 if current consumption is maintained

Note: I am rewording some awkward translations so they read better.

The electricity company of Saudi Arabia warns that oil in this country could be depleted by 2030 if left unchecked domestic consumption. According to a report of Saudi Electric, domestic consumption is estimated to be between 2.5 and 3.4 million barrels a day.

The report, published in the magazine Al Mashka says that the increase in domestic consumption of oil is one of the main challenges facing the country, mainly because oil accounts for 80% of national income.

Abdel Salam al-Yamani, head of the Saudi Electricity Company also warned of the consequences for citizens to ignore the calls to save electricity and water, and has advised that they depend more on solar energy.

Stuart at Early Warning has a jaundiced look at the recent Saudi announcement that they can (and want to) increase oil production to - Saudi Arabia to Produce 10mbd in July? .

At the end of April, I noted this WSJ quote:

Saudi Oil Minister Ali Al-Naimi said Sunday that oil production from the kingdom was 8.292 million barrels per day in March, down about 800,000 barrels a day from 9.125 million barrels per day in February. Most estimates, including the monthly report of OPEC—which relies on external databases—had seen a rising or stable production at about nine million barrels a day in March.

Ok. So here we have the Wall St Journal - premier business newspaper in the world - quoting the Oil Minister of Saudi Arabia, as to the level of Saudi oil production. With three decimal places, four significant figures, no less.

You ought to be able to rely on that, right? Mr al-Naimi must know how much oil his fully nationalized oil industry produces. And the Wall St Journal surely wouldn't make an error in reporting his words. And even if you didn't believe the Murdoch-owned conservative WSJ, you have the left-leaning SF Chronicle reporting the same thing. And clearly, if they are giving three decimal places, it's not some off-the-cuff remark. He must have spoken with some precision from notes, or given a printed handout or the like, to mention both months with four significant figures each. So it must be true, right? ...

So, the Kingdom of Saudi Arabia reported to the Joint Oil Data Initiative that it produced 9.020mb/d in February, and 8.655mb/d in March, a fall of 365kb/d. This is in sharp contrast to Mr al-Naimi's statement that the Kingdom's production dropped by 833kb/d between February and March.

So what is one to conclude? When the Saudi oil minister speaks to the world's business reporters, one cannot rely that his words will later match the kingdom's official reports to international statistical agencies. Whether through sloppiness or otherwise, at least one of Mr al-Naimi's statement and the Saudi report were in error to the tune of almost half a million barrels a day -- more than five percent of production -- at a time when oil markets are critically seeking signals of Saudi intentions and capabilities. ...

If the plain words of the oil minister cannot be relied on, are anonymous sources quoted in the Saudi press to be relied on a-fortiori? And when did Saudi Arabia pay much attention to its quota? And if it was willing and able to increase production to 10mbd, why not do it in March, when Libya went off line? I note that there is rather a history of what appear to be Saudi public relations exercises that get repeated by gullible journalists. By the time the statistics come out a month or two later, they will have forgotten all about it and will never correct the record. Just like they never corrected the record for what Mr al-Naimi said about March production, and before that, very few corrected the earlier press reports that Saudi Arabia had increased oil production to compensate for Libyan losses.

So I guess I'll reserve judgement on that 10mbd until we have all the international agencies publishing numbers that say it really happened.

Stuart at Early Warning has a post looking at the implications of various oil production data points coming out of Saudi Arabia - Disquieting Saudi Oil Indicators and the Next Oil Shock.

There are a growing number of indicators of concern in Saudi Arabian oil production:

1) According to the Wall St Journal, production sharply declined in March

Saudi Oil Minister Ali Al-Naimi said Sunday that oil production from the kingdom was 8.292 million barrels per day in March, down about 800,000 barrels a day from 9.125 million barrels per day in February. Most estimates, including the monthly report of OPEC—which relies on external databases—had seen a rising or stable production at about nine million barrels a day in March.

If I treat this like an early JODI report, the overall production graph would look as above. Obviously, it's strange that Saudi Arabia is cutting production at the same time that the world has lost Libyan output.

2) There was a sudden sharp increase in the count of oil rigs in Saudi Arabia in February and March. Further increases are expected:

Two Saudi officials told Reuters on Tuesday that the extra rig activity would maintain rather than increase the kingdom's oil capacity. It completed a multi-year expansion in 2009 meant to boost spare capacity by more than 3 million barrels per day.

"It's not to expand capacity. It's to sustain current capacity on new fields and old fields that have been bottled up," one of the officials said.

After a long period of declining rig count (indicating Saudi Aramco was not concerned about its ability to maintain desired production levels), the flow of events has turned in the opposite direction. Similarly,

3) Saudi Arabia has just restarted work on the Manifa project that was put on hold in the aftermath of the great recession:

Halliburton (HAL) reported March 28 that Saudi Aramco, Saudi Arabia's national oil firm, planned to restart its $11 billion Manifa offshore project, delayed since 2009.

Aramco puts the field's reserves at more than 10 billion barrels. It plans 31 artificial drilling islands and 13 offshore platforms. Halliburton is currently contracted for services on 93 wells.

Notwithstanding the additional 950kbd of crude and condensate from Manifa,

4) There are reports of a new paper by a senior Saudi oil official that oil production will not rise in the next five years:

Saudi Arabia expects its oil production to hold steady at an average 8.7 million b/d to 2015, rising to 10.8 million b/d by 2030 and leaving the kingdom with 1.5 million b/d of spare production capacity, a senior Saudi oil official said in a research paper released Wednesday.

Majed Al Moneef, Saudi Arabia's OPEC governor, said in the paper published on the Arab Energy Club website that Saudi output averaged 8.2 million b/d in 2010.

(I can't find an English version of this paper at present). I note that the previous maximum of Saudi production was 9.5mbd (see graph above), and now Mr al Moneef is saying that they won't even achieve that over the next five years?

All of this evidence points in the direction of Saudi Arabia being unable to raise production much if at all in the near term. Given a global economic recovery, rapidly growing demand in China and other developing nations, and little hope of a quick resolution in Libya, that raises the odds of a major oil shock a lot. Some of us have been warning for several years that as soon as the global economy recovered sufficiently, there would be another oil shock. I started wondering as long ago as December of last year, whether 2011 could be the year?

Stuart also has a look at the latest oil production statistics from Iraq - Latest Iraq Oil Production.

[Below] shows the latest public data from the main energy information agencies for Iraqi oil production. As you can see, the sharp rise in January has been sustained, and even increased slightly in March. That last data point is based on a single source (OPEC) so far, so it may shift. Still, at any rate, it's not going down much.

Stuart at Early Warning has a post on global oil production in the wake of the Libyan crisis (see the original for lots more graphs) - Saudi Arabia did not make up for Libyan Oil.

The OPEC MOMR came out late yesterday, but it adds to the picture from the IEA report mentioned yesterday morning. In particular, I can now present revised graphs for total liquid fuel production. Here's the last three year view (not zero scaled):

Note that the rise that's been going in since last fall has now been abruptly interrupted by the Libyan situation, and total oil production has fallen by about 0.5mbd. This is about 0.6% of global production, but given that the world economy has been growing rapidly and needing about another 0.5mbd/month, the shortfall over what would have happened in a counterfactual world with no Middle Eastern unrest is more like 1.2% of global production.

In terms of the price production picture, this has put us much more into territory akin to the 2005-2008 oil shock:

We can put the situation almost entirely down to two things: the fact that Libyan production has plummeted, and that Saudi Arabia has made no significant move to compensate. In fact, Saudi Arabia slowed down production increases that it had been making in prior months. First, here's all the Libyan data currently available:

So the world has abruptly lost something like 1.3mbd of oil production between mid February and March. Now there were a lot of news reports in the business press at the time this was first happening that Saudi Arabia was going to make up the difference. ...

Now that the stats are out, we can see that this was total bull. Will that fact be all over the business press? My bet is you'll have to read some obscure blog called Early Warning to find out what really happened. First off, here's all the Saudi production data I have (not zero scaled to better show changes):

Indeed Saudi production has increased to around 9mbd, but the timing makes it clear this has nothing to do with Libya. For better comparison, I have put both the Libyan and Saudi averages on the same graph (only since 2005), with the scales adjusted to allow easy comparison. In particular, note that the size of the units on both scales is the same, so similar vertical moves in both curves mean the same amount of oil, but the Saudi scale (left hand scale) has been shifted to put the Saudi curve next to the Libyan one (right scale):

I have circled the March data in each case. You can see what was going on. The Saudis were slowly increasing their production from last fall through February, presumably in response to growing global demand and rising prices. But then, in March, when Libyan production went into freefall, they put on the brakes and did almost nothing to make up for the shortage.

The burning question is: why? Back in 2006, when their production started to gradually decline from 9.5mbd even as global oil prices were in the worst spike since the 1970s, I was an advocate of the view that the decline was largely involuntary: they'd never produced more than 9.5mbd, they'd underinvested for decades, and some of their big fields were getting very tired (particular northern Ghawar and Abqaiq) and they were starting a big rash of new projects and ramping up their rig counts at the same time.

I see current events differently. The reduction in late 2008 was clearly voluntary to support prices in the face of the great recession. There's no new projects announced, and the rig count hasn't taken off. So my take is that the failure to increase production to compensate for Libya is deliberate. We can only speculate, but my guess is that, having watched how the west has helped to ease Mubarak and Ben-Ali out of power and is intervening in Libya to the same end, the Saudi regime is in no mood to care about our desire for more oil. Instead, they are very much in the mood to build as large a war chest as possible with which to appease their own population, strengthen their defense measures, etc.

So, instead of Saudi production increasing to compensate for Libya, total world production decreased, and oil prices went up sharply to enforce the necessary conservation on the world's oil consumers. ...

So, here's the latest data on the discount of the three Saudi grades of oil, to Brent (with a seven week moving average applied to reduce noise):

You can see that these discounts have actually fallen sharply in recent weeks to levels usually seen only in the depths of recessions when the Saudis are trying to raise prices. So rather than trying to flood the market with their oil to help supplies post Libya, the Saudis are ramping back and extracting every dollar they can get.

Arabian Business News has a report on the spiralling consumption of oil in Saudi Arabia for power generation - Saudi to boost crude burn for power generation in 2011 .

Saudi Arabia, the world's top oil exporter, will step up its use of crude for power generation in 2011, Saleh Alawaji, the country's junior electricity minister, said on Thursday, as the nation balances use of a new oilfield against obligations to oil cartel OPEC.

Saudi oil industry figures showed the kingdom estimated direct use of fuel for power generation to rise to 540,000 bpd this year from 403,000 bpd last year.

"Our main sources are crude oil and natural gas, and the new expansion of power plants this year will use more crude oil," Alawaji told reporters on the sidelines of an industry conference in Singapore.

Using more crude to generate electricity allows the kingdom to utilise fresh output from a major new oilfield while holding firm to its OPEC commitments to curb exports. ...

CRUDE BURN: Saudi Arabia, the world's top oil exporter, will step up its use of crude for power generation in 2011 (Getty Images)

CRUDE BURN: Saudi Arabia, the world's top oil exporter, will step up its use of crude for power generation in 2011 (Getty Images)

Saudi Arabia, the world's top oil exporter, will step up its use of crude for power generation in 2011, Saleh Alawaji, the country's junior electricity minister, said on Thursday, as the nation balances use of a new oilfield against obligations to oil cartel OPEC.

Saudi oil industry figures showed the kingdom estimated direct use of fuel for power generation to rise to 540,000 bpd this year from 403,000 bpd last year.

"Our main sources are crude oil and natural gas, and the new expansion of power plants this year will use more crude oil," Alawaji told reporters on the sidelines of an industry conference in Singapore.

Using more crude to generate electricity allows the kingdom to utilise fresh output from a major new oilfield while holding firm to its OPEC commitments to curb exports. It also helps the kingdom meet stricter environment rules.

Power generation capacity in the kingdom is likely to grow by about 6 to 10 percent this year, while installed power generation capacity, which now stands at 50 GW, would grow to 77 GW by 2020.

Peak power demand for the summer in 2010 was 45,000 megawatts (MW), he added, versus 41,000 MW in 2009.

Although sitting on the world's biggest oil and gas reserves, Saudi Arabia is struggling to keep pace with rapidly rising power demand as petrodollars have fueled a region-wide economic boom as well as rapid population growth.

Bloomberg has an article quoting an investment bank predicting oil prices may hit $220 a barrel if Libya and Algeria cease exports - Oil May Surge to $220 If Libya, Algeria Halt, Nomura Says. This makes the assumption that the global economy could handle prices at this level before growth (and demand) fall away, bringing prices back with them...

Oil prices may surge to $220 a barrel if political unrest in North Africa halts exports from Libya and Algeria, Nomura Holdings Inc. said.

Crude futures rose to almost $100 in New York today, the highest in more than two years, as violence in Libya threatened to disrupt exports from Africa’s third-biggest supplier. Libyan leader Muammar Qaddafi vowed yesterday to fight a growing rebellion until his “last drop of blood.” Protests in Algeria led to the ending of a 19-year state of emergency.

“If Libya and Algeria were to halt oil production together, prices could peak above $220 a barrel and OPEC spare capacity will be reduced to 2.1 million barrels a day, similar to levels seen during the Gulf war and when prices hit $147 in 2008,” the Tokyo-based bank said in a note today.

The SMH reports that rising oil prices are making Wall Street nervous - Oil price touches $US100 as Libya crisis worsens.

US crude surged to a 28-month high of $US100 a barrel on Wednesday as escalating violence in OPEC producer Libya slashed output there and investors bet the unrest could spread to other oil exporters.

Brent has posted the biggest three-day gain since October 2009, rising to as much as $US111.85 a barrel. That marked its highest since October 2008, shortly after the collapse of US investment bank Lehman Brothers. US crude has shot up more than 15 per cent since Friday.

West Texas Intermediate futures rose 3.7 per cent to $US99 a barrel in New York, paring some earlier gains.

Brent gave up some of its earlier advance to trade up 5.1 per cent at $US111.18. A lethal political standoff between Libyan strongman Muammar Gaddafi and rebel factions now in control of oil-rich eastern Libya has already cut output in the world's No 12 crude exporter by more than 25 per cent, or 400,000 barrels a day, according to Reuters calculations.

The price surge raised concern about the impact of costly fuel on a fragile US economic recovery and dragged US equities lower. A jump in oil to a record $US147 a barrel during 2008 led to demand destruction and contributed to the deepest global economic downturn since World War II.

The FT has a look from some comments by John Roberts about the Libyan revolt implying the Saudis may not be able to prevent a similar occurence by handing out more of their oil income to the people - If Libya revolts, Saudi Arabia could be next.

If you look at Libya right now, something like 56 per cent of per capita income is directly attributable to oil. The government directly controls most household budgets.

It should be able to buy people off in the way that the Kuwaitis have done and the Bahrainis are now seeking to do, by raising incomes and increasing subsidies.

Whatever the Libyans are doing on this front is not working – the people want more. Simply having availability to cash doesn’t bail you out.

If that is the case with Libya, which has a comparible ratio of income to population to Saudi Arabia, one might worry more about the stability of Saudi Arabia, which is of course the big one.

AP reports the Saudis are going to give it a try anyway, announcing a $36 billion handout - Saudi opens its wallet to stave off protests.

As Saudi Arabia's 86-year-old monarch returned home from back surgery, his government tried to get ahead of potential unrest in the oil-rich country Wednesday by announcing an unprecedented economic package that will provide Saudis interest-free home loans, unemployment assistance and sweeping debt forgiveness.

The total cost was estimated at 135 billion Saudi riyals ($36 billion), but this was not largesse. Saudi Arabia clearly wants no part of the revolts and bloodshed sweeping the already unsettled Arab world.

Saudi officials are "pumping in huge amounts of money into areas where it will have an obvious trickle-down by addressing issues like housing shortages," said John Sfakianakis, chief economist for the Riyadh, Saudi Arabia-based Banque Saudi Fransi. "It has, really, a social welfare purpose to it."

The latest Wikileaks energy related revelation (US embassy cables: Saudi oil company oversold ability to increase production, embassy told) has prompted some slightly exaggerated reports about the views of ex-Aramco exploration head Sadad al-Husseini, most of which should have been familiar to peak oil observers for some time - Saudi oil reserves may be overstated by up to 40%, US cables reveal.

The US fears that Saudi Arabia, the world's largest crude oil exporter, may not have enough reserves to prevent oil prices escalating, confidential cables from its embassy in Riyadh show.

The cables, released by WikiLeaks, urge Washington to take seriously a warning from a senior Saudi government oil executive that the kingdom's crude oil reserves may have been overstated by as much as 300 billion barrels - nearly 40 per cent.

The price of oil has soared in recent weeks to more than $US100 a barrel due to global demand and tensions in the Middle East. Many analysts expect the Saudis and others in the Organisation of Petroleum Exporting Countries would pump more oil if rising prices threatened to choke off demand.

However, Sadad al-Husseini, a geologist and former head of exploration at the Saudi oil monopoly Aramco, told the US consul-general in Riyadh in November 2007 that Aramco's 12.5 million barrel-a-day capacity, needed to keep a lid on prices, could not be reached.

According to the cables, which date between 2007 and 2009, Mr Husseini said Saudi Arabia might reach an output of 12 million barrels a day in 10 years but before then, possibly as early as 2012, global oil production would have hit its highest point. This crunch point is known as ''peak oil''.

Mr Husseini said at that point Aramco would not be able to stop the rise of global oil prices because the Saudi energy industry had overstated its recoverable reserves to spur foreign investment. He argued that Aramco had badly underestimated the time needed to bring new oil on tap.

One cable said: ''According to al-Husseini, the crux of the issue is twofold. First, it is possible that Saudi reserves are not as bountiful as sometimes described, and the timeline for their production not as unrestrained as Aramco and energy optimists would like to portray.'' It went on: ''Abdallah al-Saif, current Aramco senior vice-president for exploration, reported that Aramco has 716 billion barrels of total reserves, of which 51 per cent are recoverable, and that in 20 years Aramco will have 900 billion barrels.

''Al-Husseini disagrees with this analysis, believing Aramco's reserves are overstated by as much as 300 billion barrels. In his view once 50 per cent of original proven reserves has been reached … a steady output in decline will ensue and no amount of effort will be able to stop it. He believes that what will result is a plateau in total output that will last approximately 15 years followed by decreasing output.''

Joules Burns at Satellite O'er The Desert thinks the fuss is largely unfounded - Much Ado About Wikileaks.

It seems some Saudi diplomatic missives have turned up in the trove of documents that is Wikileaks, and there are claims that Sadad al-Husseini, a former Vice President of Saudi Aramco, was heard dissing the prospects of his former employer. But if you actually read the relevant wikileak, it becomes clear that the Guardian journalist misinterpreted the wikileaked cable -- which perhaps misquoted Al-Husseini. ...

It's clear to me that he is just disputing the notion that Saudi has 700+ billion barrels of "reserves" claimed by the other SA talking head:

Abdallah al-Saif, current Aramco Senior Vice President for Exploration and Production, reported that Aramco has 716 billion barrels (bbls) of total reserves, of which 51 percent are recoverable.

The only thing of real interest here is that Al-Husseini distanced himself from "peak oil" while seeming to agree with it. But is was only a matter of time before someone would ask al-Husseini to confirm his views on this, and he indeed claims that he was misinterpreted. ...

There is still much to be skeptical about with regards to the proven reserves of Saudi Arabia, and I am one of many who have questioned the claims of Saudi Aramco in light of their actions. For example, they always magically seem to "discover" as much oil as they produce each year such that their reserves never decrease. However, there is no bombshell in this particular wikileak in terms of how much oil they have left.

The NYT has an article on solar powered desalination in Saudi Arabia, somewhat surprisingly using concentrating solar PV (CPV) rather than solar thermal energy - I.B.M. and Saudi Researchers Collaborate on Solar-Powered Desalination Technology.

I.B.M. and a Saudi Arabian research institute are collaborating to develop a desalination plant powered by a new type of solar technology. The goal is to build a desalination project in the Saudi city of Al Khafji capable of producing 7.9 million gallons of water a day that would supply 100,000 people.

Desalination is an energy-intensive process, which has limited the deployment of such plants outside desert regions like the Middle East. But I.B.M. and the Saudi research institute, the King Abdulaziz City for Science and Technology, plan to dramatically reduce the electricity costs by building a 10-megawatt solar farm that deploys ultra-high concentrator photovoltaic arrays.

The technology will concentrate the sun 1,500 times on a solar cell to boost efficiency. That's about three times the solar concentration of most concentrating photovoltaic panels currently in operation.

Sharon Nunes, vice president of I.B.M.'s Big Green Innovations division, said in an interview Tuesday that the key to increasing the solar panels' efficiency was a device called a liquid metal thermal interface. A legacy of Big Blue's mainframe computer work, the liquid metal thermal interface acts as a heat sink to cool the extreme temperatures generated by concentrating photovoltaic systems.

"The solar component is something we've been implementing and that we have done testing on for the past two years," Ms. Nunes said. "We're quite confident with the results.

I.B.M. has not yet revealed the efficiency of such a solar system at
converting sunlight into electricity. But Jenny Hunter, a company
spokeswoman, said it was expected to be a significant increase over
current concentrating photovoltaic technology.

I.B.M. has had discussions with solar developers about using the
technology, Ms. Nunes said.

The researchers are still exploring options to run the plant when the sun is not shining, looking at technologies to store solar electricity as well conventional power sources. To further cut energy costs, the company and Saudi researchers said they had developed a nanomembrane that desalinates water and removes toxins while using less
electricity.

AP reports that the Saudis are concerned about a peaking of demand (which may just be a roundabout way of saying peak oil) and are looking to diversify their economy - Saudi Arabia preparing for oil demand to peak.

A top Saudi energy official expressed serious concern Monday that world oil demand could peak in the next decade and said his country was preparing for that eventuality by diversifying its economic base.

Mohammed al-Sabban, lead climate talks negotiator, said the country with the world's largest proven reserves of conventional crude is working to become the top exporter of energy, including alternative forms such as solar power.

Saudi Arabia was among the most vocal opponents of proposals during the climate change talks in Copenhagen. And al-Sabban criticized what he described as efforts by developed nations to adopt policies biased against oil producers through the imposition of taxes on refined petroleum products while offering huge subsidies for coal — a key industry for the United States.

Al-Sabban said the potential that world oil demand had peaked, or would peak soon, was an "alarm that we need to take more seriously" as Saudi charts a course for greater economic diversification.

"We cannot stay put and say 'well, this is something that will happen anyway," al-Sabban said at the Jeddah Economic Forum. The "world cannot wait for us before we are forced to adapt to the reality of lower and lower oil revenues," he added later.

Some experts have argued that demand for oil, the chief export for Saudi Arabia and the vast majority of other Gulf Arab nations, has already peaked. Others say consumption will plateau soon, particularly in developed nations that are pushing for greater reliance on renewable energy sources.