 The NYTimes has an interesting report (anticipated by this blog) on Saudi oil fields:
Energy forecasts call for Saudi Arabia to almost double its output in the next decade and after. Oil executives and government officials in the United States and Saudi Arabia, however, say capacity will probably stall near current levels, potentially creating a significant gap in the global energy supply.
This is in line with Hubbert's peak -- an analytical technique that has proven to be extremely accurate at predicting the peak of oil production. The analysis predicted the peak of US oil production in 1972 and the peak of global production in 2003.
The idea behind the analysis is that while vast new resevoirs of oil have been found, that oil is very expensive to extract. Additionally, the easy to extract oil, that is being pumped at the current price, is depleting at at ever increasing rate:
The average decline rate in Saudi Aramco's mature fields — Ghawar and a few others — "is in the range of 8 percent per year," without additional remediation, according to the company's statement. This means several hundred thousand barrels of daily oil production would have to be added every year just to make up for the diminished output.
As the price of oil increases, it makes the newly discovered fields economical. However, the amount of new oil production at a higher price will not make up for the loss of production at mature fields. The result in aggregate is a fall in production. The US hit this peak in 1972 and its oil production has fallen every year since. The world hit it in 2003. Here's an example of this dynamic:
To offset its declines, Saudi Aramco is bringing back into production one idle field, Qatif, and is enhancing production at a nearby offshore field, Abu Safah. The company says that with expert management, these fields will produce about 800,000 barrels a day. But current and former Saudi Aramco executives question those expectations, contending that the goal of 500,000 barrels a day for Qatif is unrealistic and that development costs are higher than anticipated. Qatif poses real difficulties. It is near housing for Saudi Arabia's minority Shiite population and contains high concentrations of hydrogen sulfide, a highly toxic gas. Its development is "particularly challenging," according to a technical paper by Saudi Aramco engineers presented last year in Bahrain, which said that 45 percent of potential drilling sites "were rejected due to safety concerns."
The problem we all face is that global demand for oil is climbing at an accelerated clip (with new requirements coming from rapid development in China and India) at the very point that global oil production is starting its inexorable decline. The economic and social problems this will cause are going to require some of the best diplomacy we have ever seen.
Some more:
This decline in production, and the higher prices that result, will create increasing demand for alternative energy sources. For exampe: Bill Gross is on the right track.
It does point to an alternative reason to take Iraq: to eliminate the political impediments to full Iraqi oil production.
Developing countries like China are incredibly inefficient in their use of oil, so the impact of this crunch will be felt faster there.
7:54:25 AM 
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