Over pulling sour crude

This is an extra note about reality versus what the Saudis say they will do to calm world oil markets. In Finance ministers deeply rattled by oil situation, I quote Matthew Simmons at length concerning the Saudi Qatif oil field that was promoted by the Saudi oil minister in news stories last week, including this AP release, "Oil official: Saudi Arabia to raise oil production capacity to 11 million barrels a day" (Tuesday Sep.28.2004).

Simmons spoke of the very high "H2S cut", meaning high sulphur content, in oil from the Qatif field, casting strong doubts on the ability of this field to solve world supply problems, and implying an alarming notion that this is the best "new" oil that the Saudis have coming on line.

Here is another item from Gulf Daily News that explains more fully the problem with Qatif oil -- it's sour:

The world's oil refiners are unimpressed by Saudi Arabia's boost to production capacity that would only swell supplies of sour, high sulphur crude while they hanker for sweet oil....The new oil from Saudi Arabia's Qatif field will be blended into Arab Light, while that from Abu Safah is Arab Medium....They would not make up for any major outage from Nigeria where unrest in the oil-rich Delta region is threatening to shut production of light sweet high quality crude.

Also please see a very interesting discussion under "Oil's Well That Ends Well" from Billmon's Whiskey Bar, back when he used to take comments. Among many very interesting, educated comments about oil there, this one struck me:

Some points to ponder: About 80% plus of global oil comes from less than two dozen large fields. Oil in most major fields sits on top of water in sandy formations. When a well is established, one of the first tasks of the reservoir engineers and managers is to determine the max production rate which will not over pull the well.

Over pulling happens when you basically pump too hard and suck water through the oil/sand. Once this happens, that well is ruined, and if done in just a few wells in a large field, the entire reservior can be compromised, forever, or at least on human time scales. Understand this -- the field will never give the performance it was capable of once it's been over pulled.

Note -- the two main fields in Iraq, Rumulia and Kirkuk appear to have been ravaged in this manner. Saddam, likely desperate for cash, short of expertise and hardware, over pulled those fields and now they're essentially ruined. They can still produce some oil, but they will never produce the quantity promised by the Bush admin to pay for the invasion and reconstruction. (You'd think an ex CEO of Haliburton and a multi-generational millionaire power family that ran Dresser Industry's would know that huh? And of course, they did, they simply lied about Iraqi oil producing capacity.)

Stop here for a Deep Blade note: The pernicious mismanagement of Iraq's oil fields during the Saddam era continues under American control. Please see this post in Deep Blade Journal and this Houston Chronicle story (note how far off price predictions were in this February 2004 story).

Continuing with the post from Billmon:

[In Saudi Arabia] The largest field in operation is Ghawar. It produces about 6% of world oil production. I believe the next largest is Awaz in Iran. Both fields are being poorly managed, partly because terrorist concerns have chased out much of the western expertise required for proper management. My understanding is the 'water cut' in Ghawar is 30%, meaning 30% of the fluid coming up is water.

This is a bad sign, it means the field is watering out and could be over pulled already. Ghawar is already pretty old. It will likely cease significant production within a decade. Same for Awaz, that's almost 10% of global production. We currently have only a 3% slack built in. Loosing 10% would leave a deficit of 7% which could be catastrophic. Although this would happen over a period of several years, so there might be time to bring other smaller fields online.

Now on top of watering out and perhaps being over pulled already, the Saudi's plan to increase production to help Bush out. They will do this by...over pulling existing wells. BAD idea.

This will result in a short term production increase and reduce price pressure, short term meaning over the next 6 months ... but down the road, it means major shortfalls and an earlier end to the largest most productive oil fields on earth. It also means that at some point down the road, a large oil infrastructure production contractor will have to come in and try to salvage the field.

Combine this with the fact that global production is growing more slowly than consumption, and that these two lines will cross in the next ~10 years, and you have a recipe for absolute disaster. Worse than the 70s.

The uniformed will tell you we have 4 trillion barrels of proven reserves in the Oronico Belt. And they'd be right, except that most of that reserve is road tar too viscuos to pump up a pipe and too deep to mine. It can produce at most 250,000 bbl/day.

(Thank you to ~DS~ for this full quote.)

Is this what will happen here? Temporary "over pulling" of the oil fields for Bush's political benefit? It's not working too well, with oil staying near $50 yesterday and heating oil skyrocketing, going up over 20 cents in the last couple of weeks here in Maine. We fully expect to be paying over $2 per gallon all season, with our annual cost doubling over what we paid in 2002-03. Under Bush mismanagement the future crisis could be all the worse.