High Oil Prices Will Lead to an Oil Exploration Boom in 2011

Oil is like any other commodity: if price go up, people will produce more of it to sell. Despite the bleatings of peak oil sheep, oil companies are responding to recently elevated oil prices. Many are in fact scrambling to find and produce more oil.

From giants Saudi Aramco and Exxon Mobil Corp. to five-person wildcat outfits, the industry plans to spend nearly a half-trillion dollars next year to find and extract oil and natural gas, according to a new survey by investment bank Barclays Capital.

For the first time in several years, large Western oil companies are leading the industry's charge, increasing their budgets faster than the state-run national oil companies that have dominated spending in recent years.

"This is being driven by the appetite to find more oil, comfort that today's oil prices will be sustained and companies getting out of a hunker-down, recession mode," said James West, an energy analyst with Barclays, who co-authored the survey, which has been produced every year since 1982. _Rigzone

The key question oil executives as themselves is, "Will the high prices of oil stay high?" During the speculative runup in oil prices from 2007-2008, it was clear to most wise analysts that the high prices could not last. And indeed oil prices crashed to relatively low levels in 2009.

Oil has always been a boom and bust industry, with multiple price elevations followed inevitably by price crashes, and so on. That is one reason for the formation of OPEC -- the perceived need to maintain a stable price level for oil.

More on the investing side from Phil McPherson:

With the economy recovering, and as more people feel that the double-dip recession is not going to happen, oil prices are tending to stay stronger. However, it seems to me the tail is wagging the dog right now, with the U.S. dollar going down and the price of bonds being up, and the yield being extremely low. To me, it has more to do with the price of oil than necessarily the pure supply and demand fundamentals, because we still have excess supply of oil via OPEC. If you're bullish on oil or bullish on the economy, then you use those dips as opportunities to gain more exposure.

...But as with any business, when the demand is there and the visibility is there, entrepreneurs rise up to the challenge because they know they can make money. I think you're going to be surprised that in 2011 the likes of Halliburton Co. (NYSE:HAL) and Schlumberger Ltd. (NYSE:SLB), as well as lot of other smaller companies, are going to have more crews out working. There's going to be enough demand there. It's all a function of oil prices, and as long as they are in this relative range, people are going to continue to drill these wells. I don't think margin makes as much of an impact as the NAV that you can grow with these companies via drilling these wells and growing reserves. _IBTimes

The world is floating in hydrocarbons. North American shale gas has barely gotten started, and the technology for repeating that miracle is in high demand worldwide -- from Israel to China to South America.

As long as current oil prices remain above $70 (2010 dollars), exploration and production will continue to accelerate for both oil and wet gas. Higher prices -- above US $80, will spur even greater investment and faster development.

The next time someone tells you there is no flexibility in oil production, and that demand for hydrocarbons absolutely must continue to rise exponentially, you would be wise to bid the person a good day, and seek other companionship.

Link -
http://oilprice.com/Energy/Oil-Prices/High-Oil-Prices-Will-Lead-to-an-Oil-Exploration-Boom-in-2011.html
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What a load of CRAP!

As can be seen from the following chart, the Oil Price had been on the rise since 2002, before Peaking in 2008, diving to a low in early 2009 and it has since been surging upward again.

During all that time, with the massive Pricing incentive, what did Production do?

It hovered around, within a fairly narrow band, it did not keep up with Population or Demand increases and it certainly did nothing in response to the massive Pricing increases since 2002!  

Why has production not given the "Capitalist Response"?

Because most of the older established fields are Peaking and going into permanent decline and the newer, smaller fields coming on-stream are not of sufficient size to offset the depleting older fields.

So Production has now Plateaued, ahead of the inescapable, permanent post Peak downhill slid, of the Hubbert bell curve!

The next time someone tells you, "The world is floating in hydrocarbons", you would be wise to bid the person a good day!

One of the comments following this article -
"If the available amount of net energy is declining, in particular despite increasing extracted volumes of various types of hydrocarbons, then humanity is collectively in trouble..."



From the article -
"I mention this because as 2010 comes to a close, it appears that for the fifth year in a row the peak production year of 2005–in which the world produced oil at an average, annual rate of 73.718 mbpd–will once again not be exceeded. This is truly an astonishing result given that a new pricing era for oil began in 2004 as oil rose above 40.00 dollars a barrel. For over five years national oil companies and publicly traded oil companies have been free to sell oil into an ever-rising price environment. But no increase in global crude oil production has been forthcoming. Moreover, during the five year period from 2006-2010, global crude oil production actually fell in three of those years: 2006, 2007, and 2009. Equally notable is that OPEC–which currently accounts for about 42% of global supply– has been roughly steady in producing 30-32 mbpd each year during the same same period while Non-OPEC, accounting for 58% of world production has struggled with decline. | see: Global Annual Average Crude Oil Production in mbpd 2001-2010."

Link -
http://www.theoildrum.com/node/7349#comments_top=========================
A few observations -
1) The plateau/decline in Production started in 2005, well prior to the late 2007 financial implosion, as did the rise in Oil & general Energy Pricing.
2) The Non-OPEC Production has struggled, despite the Canadian Tar Sands & the large spike in Russian Production.
3) Despite a perfect opportunity to utilise the much vaunted OPEC spare capacity, in a situation of lower than required overall Production & rising Prices, we have actually seen a flat total OPEC production & a decline in Saudi Production.

So, what is the likely outcome to the above highlighted comment ?
(declining)
(in trouble)

Richard Heinberg: Peak Oil and the Globe's Limitations

OPEC poised to dominate global energy markets

The OPEC domination of the global energy markets is set to grow, says BP in its just released BP Energy Outlook, and it made headlines all over the globe, sending shivers through some spines. The outlook underlined that world is entering an era of OPEC dominance over the markets.

BP’s forecast shows that over the next 20 years OPEC will become as powerful as it was in its golden years in the 70’s — in the immediate aftermath of the 1973 Arab oil embargo. BP Energy Outlook 2030 predicts that the OPEC would see its market share rise to 46 per cent from the current 40 percent, over the coming two decades — “a position not seen since 1977.”

With 75 percent of growth in global oil reserves over the next two decades, to come from OPEC nations, Kuwait, Iran, Angola, Libya, Saudi Arabia, Iraq and Nigeria, its market share is bound to go up.

And now, with unrestrained non-OPEC oil-output growth slowing, global inventories are set to slide, making OPEC a much more potent market force than in recent times.

The BP Energy Outlook also confirms that the world will need to explore in remote regions, like the Arctic and deeper water than ever before, if it is to keep pace with a 1.7 percent annual rise in consumption — a 39 percent increase over 20 years, to about 102 million bpd by 2030, an increase of 16.5 million bpd from today’s level.

Saudi Arabia should be able to add another 3 million barrels, and the output addition from Iraq is to be significant too, from the current 2.5 million bpd to 5.5 million bpd.

An additional 2 million bpd of production should come from Canada’s controversial oil sands, while biofuels made from corn or sugar are predicted to provide a huge 5 million bpd.

The BP projections make it clear that oil will probably be the slowest growing source of energy, with huge extra demand for renewable, gas and coal also adding to pressure on the world’s resources. Oil is currently the dominant source of world energy, closely followed by coal, on which China is dependent for much of its industrial fuel.

In the meantime, brushing aside the Peak Oil theorists, Iraq and Venezuela are now claiming to have considerably larger reserves than earlier thought. As per, Iraq’s Oil Ministry’s official spokesman, Assem Jihad, Iraq’s oil reserves have now touched 500 billion barrels. “The size of Iraq’s oil reserves has reached about 500 billion barrels nowadays, whilst the previous oil reserves had reached 143 billion barrels,” Jihad said, adding that the above increase represent the 64 oil fields only.

And Venezuela is also claiming to have overtaken Saudi Arabia as the world leader in oil reserves with certified deposits leaping to 297 billion barrels at the end of 2010, President Hugo Chavez’s government said last week.

Link -
http://arabnews.com/economy/article240174.ece
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All sorts of claims can be made about Reserves & spare capacity and have been previously!

That said, the test of these claims is ACTUAL PRODUCTION and the last 5 years tells a tale, whislt the next 5 years will tell an even bigger tale.

Following are the top producing nations, in Thousands of Barrels per  Day (Total Oil Supply), from 2005 to 2010, as provided by the EIA -
Russia - 9,677; 9,878; 9,794; 9,933; 10,126
Saudi Arabia - 10,665; 10,248 10,783; 9,759; 10,017
United States - 8,330; 8,456; 8,514; 9,155; 9,563
Iran - 4,149; 4,039; 4,179; 4,176; 4,253
China - 3,865; 3,925; 3,986; 3,995; 4,234
Canada - 3,286; 3,433; 3,331; 3,294; 3,311
Mexico - 3,709; 3,500; 3,186; 3,001; 2,992
United Arab Emirates - 2,948; 2,947; 3,046; 2,794; 2,811
Brazil - 2,164; 2,282; 2,439; 2,577; 2,720
Kuwait - 2,662; 2,603; 2,728; 2,496; TBA
Nigeria - 2,442; 2,352; 2,168; 2,211; 2,434
Iraq - 2,009; 2,096; 2,385; 2,400; 2,399
Venezuela - 2,803; 2,666; 2,638; 2,471; 2,354
Norway - 2,786; 2,564; 2,463; 2,350; 2,118
Kazakhstan - 1,387; 1,445; 1,430; 1,540; 1,598
Qatar - 1,138; 1,121; 1,203; 1,212; 1,397
United Kingdom (Offshore) - 1,602; 1,601; 1,502; 1,422; 1,319

Link -
http://tonto.eia.doe.gov/cfapps/ipdbproject/iedindex3.cfm?tid=5&pid=57&aid=1&cid...

The future will see if Reserves or Production tell the real story!

On the Edge with Max Kaiser-Peak oil story-01-27-2011-(Part1)

On the Edge with Max Kaiser-Peak oil story-01-27-2011-(Part2)

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Robert Hirsch interview with Jim Puplava, well worth the time!

WikiLeaks cables: Saudi Arabia cannot pump enough oil to keep a lid on prices

US diplomat convinced by Saudi expert that reserves of world's biggest oil exporter have been overstated by nearly 40%

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 300bn barrels – nearly 40%.

The revelation comes as the oil price has soared in recent weeks to more than $100 a barrel on global demand and tensions in the Middle East. Many analysts expect that the Saudis and their Opec cartel partners 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, met the US consul general in Riyadh in November 2007 and told the US diplomat that Aramco's 12.5m barrel-a-day capacity needed to keep a lid on prices could not be reached.

According to the cables, which date between 2007-09, Husseini said Saudi Arabia might reach an output of 12m 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".

Husseini said that 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: "In a presentation, Abdallah al-Saif, current Aramco senior vice-president for exploration, reported that Aramco has 716bn barrels of total reserves, of which 51% are recoverable, and that in 20 years Aramco will have 900bn barrels of reserves.

"Al-Husseini disagrees with this analysis, believing Aramco's reserves are overstated by as much as 300bn barrels. In his view once 50% 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."

Read the rest of the article at:

http://www.guardian.co.uk/business/2011/feb/08/saudi-oil-reserves-overstated-wikileaks

Saudi Arabia tells us that they have lots of oil, but if we look at graphs of their historical production, there is nothing that looks like an upward trend. In fact, recent production is lower than it was in the late 1970s and early 1980s. This is a graph of Saudi oil production, consumption, and amount of net exports, from Energy Exports Databrowser.



Exports, in green, are down because Saudi Arabia is consuming more and more of its own oil, so there is less available for others. This graph doesn't fit well with what we have been told.

The rest of the Middle East claims huge reserves, too, but looking at the Mideast in total doesn't give a much more favorable picture. While production is a bit higher in total now, exports (in green) are down from the 1970s because of rising consumption.



It is almost certain that the Saudis are overstating their capabilities. The reserves for Saudi Arabia and the rest of the Middle East are not audited, nor are their supposed "spare production capacities." They may have some spare capacity, but not the amount stated. When oil prices spiked to $147 barrel in July 2008, Saudi Arabia and others in the Middle East increased their production a bit, did not really come through with a huge surge in production, the way one would expect from their suppose spare capacity.

World oil supply has been roughly flat since 2005. Many are concerned that oil production will actually begin to fall in the next year or two - what is referred to as "peak oil" in the Wikileaks cable.



Links to other Posts Relating to Overstatement of Saudi Reserves and Production Capability, are provided in the article.

Link -
http://www.theoildrum.com/node/7465
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A couple of observations -
1) Saudi, Middle East & World Production has been pretty well static since 2005.
2) There is a small, but discernable gap opening up, between Consumption & Production and when (not if) this widens further, that is when the Problems rachet up considerably!