Richard Heinberg: Saudi Oil Supply May be Crashing

oil_protocol.jpgRichard Heinberg, whose latest book "The Oil Depletion Protocol" aims to help citizens and municipalities deal with the increasing likelihood of global energy supply disruptions, publishes an excellent monthly newsletter called "Muse Letter." The latest issue focuses mainly on the recent Israeli-Hezbollah conflict — not exactly within Streetsblog’s purview — but it also contains a potentially critical piece of news about global oil supply.

If it is true that Saudi oil supplies are beginning to crash, as Heinberg claims below, it is yet another major reason for New York City to begin helping its own people and people throughout the region get themselves out of automobiles and into other more efficient modes of transportation. Or, as Streetsblogger Aaron Donovan wrote last week, "We need a public relations campaign to encourage people to accept mass transit, walking and cycling first as American, and once that’s done, as patriotic."

Even worse news, potentially, comes from Saudi Arabia, where oil flows have shrunk by some 400,000 barrels per day over the past few months, despite astronomic prices. No one knows for sure what is going on. The Saudis themselves say the production cuts are due to lack of demand, but this hardly seems plausible, unless the kingdom is only able to deliver unwanted heavy, sour crude to market, but even in that case, one would expect flows to increase, with a price discount factored in for resource quality.

At the same time, the Saudis are hiring just about every spare drilling rig in the world, resulting in a dramatically falling rig count in the Gulf of Mexico, a place that would otherwise be seeing an increasing count, given the fact that Mexico’s giant Cantarell field is in now in steep decline, with dire implications for the nation’s economy.

Matthew Simmons (Twilight in the Desert) has been insisting for the past few years that Saudi production is close to peak and that Ghawar, the world’s biggest field, may be in decline. Now many others are speculating that this is the real reason for the falling production figures.

What happens next? It depends on the real condition of Ghawar. Perhaps a heroic drilling campaign could result in a temporary bloom in production, lasting perhaps three years, followed by a swift, terminal collapse. On the other hand, it is possible that the field has been so thoroughly exploited already that we are seeing the irreversible, rapid decline. At the ASPO conference a well-connected industry insider who wishes not to be directly quoted told me that his own sources inside Saudi Arabia insist that production from Ghawar is now down to less than three million barrels per day, and that the Saudis are maintaining total production at only slowly dwindling levels by producing other fields at maximum rates. This, if true, would be a bombshell: most estimates give production from Ghawar at 5.5 Mb/d.

  • Why hype this “peak oil” stuff? If it happens, simple supply and demand will promote all the transit, walking, new fuels etc. you could hope for.

    If it doesn’t, you look like the latest in a long line of nutty futurists.

    In any case, it’s a big distraction from the task of building a liveable, less car dependent city and region because it’s the right thing to do from a great many points of view.

  • Well, you’ve got a point. But if you’re not a Peak Oil nut then you are an Environmental Nut, a Bike Nut or, get this, I once heard someone call us Public Space Nuts.

  • One point that should be made is this…if oil peaks before you even start preparing for a post oil world – your society is toast.

    One needs to get ahead of the issue, or else your option will severly limited when it actually happens.

  • Kurt

    #1:

    Because if peak oil is happening, it’ll happen rather quickly and crash our economy, which is almost entirely predicated on the availability of cheap energy. A sinking economy will struggle with the enormous task of rearranging our way of life without serious hardship.

  • “Simple supply and demand” is a whitewash for a whole host of bad things. People starving because their oil-fueled food supply is cut off. People dying because oil-dependent medical supplies and techniques are suddenly too expensive. People starving and dying or at least massive rolls of people entering poverty ast he economy shudders under the energy shift.

    “Simple supply and demand” will solve it in the sense that, yes, some people will be left standing after the suffering. People always use “supply and demand” to paper over real human problems. Yes, the market is a wonderful thing, but it has no morals or ethics. People do.

  • Orcutt – Currently automobiles are not just the preferred mode of transportation for most people, but the only mode available and in some place the lack of density would even preclude any mass transit options. And automobiles currently only have one primary fuel – oil based liquids.

    In order for a market to have price elasticity it needs viable substitutes in fuel, in modes and that requires a more proactive approach than simply sitting back and waiting for supply and demand work themselves out. It’s not the only reason to implement ped/bike friendly and mass transit oriented ideas, but another practical reason for creating automobile alternatives.

  • I think the scenario of the oil pipes going dry one day is significantly overblown and has been since the 1970s. Supply and demand are already at work in this regard if you look at travel behavior in our region and at public spending trends on transportation across the country. Obviously the latter could be improved a lot but the shifts have been significant.

    However, at the level of “message,” which is what my original comment was aimed at, people are still more responsive to other, more immediate arguments about convenience and quality of life than they are to big world-disaster scenarios and probably always will be.

  • AD

    There are a whole host of reasons why it is important to try to reduce auto dependency and traffic congestion, regardless of whether or not an energy crisis is looming. (After reading Matt Simmons, I happen to think there is.)

    As for the question of why hype that up: I don’t look at it as a distraction. I think if people come to understand the fragility and impermanence of the transportation system as it stands now, they may opt to take actions to minimize their own risk against a potential problem. In other words, it might make people buy a house near transit, boosting land values there and hence TOD prospects, or it might make people not buy that SUV. It might make people start to look at rail funding less as a “subsidy” and more as an “investment.”

  • AD

    To expand on that: People are influenced to change their behavior (perhaps first and foremost) by economics and questions of money. But that’s not the only thing we are influenced by. We are also influenced by ideas. The idea that the automobile is an energy guzzler is, I think, a powerful motivator.

  • I come from Austrian school of economics. I am all for complete laissez faire. But as far as peak oil goes, we will be going into a shrinking economy, if you want to know why, you can check my website theviewfromthepeak.net Socialism will not solve the problem either. No protocols and human intervention can solve it.

ALSO ON STREETSBLOG

Bill Clinton’s Reading List: Richard Heinberg

|
This week’s New Yorker has a lengthy profile of Bill Clinton by David Remnick. The article is not available online but this Q&A with Remnick is. Check out what Clinton was reading around the time of the World Cup this summer: [Clinton’s] taste in fiction, although I don’t think it’s limited to this, seems to […]

Why Is Saudi Arabia’s Oil Production Down?

|
We still have three years and nine and a half months to learn who will win the bet between energy investment banker Matthew R. Simmons and New York Times columnist John Tierney over whether oil prices would be above or below $200 a barrel in 2010. Tierney bet "below" because he believes that over the long term, the prices […]

Conference: The Economics of Oil Demand

|
The sixth annual international conference of the Association for the Study of Peak Oil & Gas (ASPO) comes at a time of increasing concern over the security of our oil supplies with the fear that after a century and a half of growth the industry is facing what is known as ‘peak oil’, the point […]

Jim Kunstler on the Bail Out and What’s Next

|
Jim Kunstler, author of The Long Emergency, has been predicting today’s financial catastrophe for a few years now so it’s no surprise that his blog is loading slowly this morning. The people want to know: What’s going to happen next? What the mainstream is truly missing here en masse is that another tsunami is building […]
STREETSBLOG USA

How Cutting Back on Driving Helps the Economy

|
Cross-posted from City Observatory As Americans drive less and spend less on fuel, they have about $150 billion annually to spend in other ways. There are two kinds of economics: macroeconomics, which deals in big national and global quantities, like gross domestic product, and microeconomics, which focuses on a smaller scale, like how the prices […]