The Biggest Saudi Oil Field Is Fading Faster Than Anyone Guessed
bloomberg.com
bloomberg.com
based on what?
If you can read .de-ese: https://www.sueddeutsche.de/wirtschaft/1.4371221
You can add the apples and oranges up and get different results, depending on your judgment. And you get to choose what to assume: You may assume that what happens in California in 2019 definitely won't happen in the rest of the US in the coming years, or that it will. Et cetera.
So I think this story sounds incomplete. I do not think it is mutually exclusive to say that the Bosch burner factory is shutting down and that 95% of all new cars sold worldwide are combustion engine powered. German labor is extremely expensive and German taxes are incredibly high. Welcome to the global economy.
I find it much more likely that much like everything else, the Chinese car market wants cars manufactured in China and that those China factories source from Chinese vendors. It's no different than the electronics industry.
A region in Germany is likely to be badly affected and that gets most of the wording. Don't let that fool you. When the investor guidance says "challenging outlook", it doesn't mean "we'll lay off a few people at HQ but the factories will be fine".
Rising popularity of electric cars, increasing vehicle efficiency in general, potential legislation targeting climate change, etc.
- The increase in efficiency is more than offset by the growth in overall car market
- Potential legislation in China? India? Emerging markets? Sorry but nothing suggests that is happening
That is up from <1% five years ago, in a market where demand spurs demand by increasing availability of charging points etc. Meanwhile the EV market is currently production capacity constrained and multiple companies are expanding production capacity.
I doubt we're going to be at 100% electric cars in ten years but I would not be surprised if it was somewhere in the mid double digits by then. And by that point it becomes a lot easier to target ICE cars with legislation because there is a proven viable alternative.
> The increase in efficiency is more than offset by the growth in overall car market
Any given factor is more than offset by the growth in the overall car market. But you add them all together.
> Potential legislation in China? India? Emerging markets? Sorry but nothing suggests that is happening
China has a slate of domestic electric car companies and it's exactly their style to pass legislation that favors domestic companies over foreign competitors. Climate change provides them a really good justification to do that here.
And carbon taxes generate revenue, which makes it easy to make them revenue neutral. Use the money to lower other taxes or fund a UBI. This knocks out the "harms the poor/developing countries" argument because the cost becomes only the cost difference between fossil fuels and alternatives, which is rapidly approaching zero.
Moreover, most of the current oil demand comes from the US and Europe. If either of them, much less both, passed relevant legislation then not only would their own demand fall off, the increased economies of scale and network effects that would spur in alternatives would also make them more cost effective in countries without any such legislation.
> increasing vehicle efficiency in general There is not much to gain, the vehicles are gaining weight in the last 2 decades (SUVs etc.). Thats eating up the small improvements in efficiency. A real big improvement is not in sight.
> potential legislation targeting climate change We can hope for that, but with Trump in charge and Merkel in Auto-Germany ruling the EU it won't really happen. Hopefully this will change.
Starting from the 2019 the range and price came to the point where they are suddenly viable in EU.
Then there will be a used electric car wave because of the low-power charging infrastructure catching up and making older short range models actually useful.
S-curve, man, S-curve. The experts say that around 2023-25 sales prices of EV's will be down to equal ICE's, and EV sales will take off like a rocket.
VW announced the I.D. and a new e-up! But it is all only announcements, currently the cheapest car, the e-up! isn't even order-able. BMW announced the i2 (cheaper version of the i3) but it will take till 2021 to get one.
I hope you are right, but at least here it does not look like it.
A more realistic assessment from Shell Oil is that oil demand continues to grow over the next 20 years, a view shared by rival BP and energy consultants like Wood Mackenzie. https://www.forbes.com/sites/daneberhart/2018/09/18/forecast...
Long-term oil demand is expected to increase by 15.8 mb/d, rising from 95.4 mb/d in 2016 to 111.1 mb/d in 2040 https://www.opec.org/opec_web/flipbook/WOO2017/WOO2017/asset... (page 101)
In the case of Saudi Arabia, it's the combination of oil production ceiling vs population, that is almost guaranteed to be the Kingdom's undoing. Their population growth is slowly unsettling their stability by debasing the per capita well-being. This has resulted recently in record unemployment and a struggling economy.[1] The record youth unemployment in particular is very concerning in a region where that can lead to severe destabilization and the formation of revolutionary groups (desperate youth seeking change). Their oil reserves in 1990 were similar to today, except now they have twice as many people and oil's outlook is getting more dim by the year. In 1990 they had a mere 16m people, in ~2035 they'll have 48m people dividing even fewer oil resources than in 1990.
Unlike, say, Russia, which has a fixed population (net unchanged in 30 years), Saudi Arabia has rapid population growth and is almost entirely dependent economically on subdividing those oil resources per capita (in one form or another). Their efforts to diversify the economy have failed repeatedly and wealthy developed nations are less interested in doing business with them than at any other time in decades. They've lost 1.5 million expat jobs in just a few years, and haven't been able to replace them with new domestic jobs.[2]
Saudi has to figure out how to produce eight million (or more) jobs in just roughly 15 years, when so far they've demonstrated they can hardly produce any net new jobs at all (for Saudis). And these can't be just any jobs, they need to match the present relatively high expectations for a standard of living that Saudis have. If they fail at that vast job creation requirement, the Kingdom is going to fall into violent revolution in some manner.
[1] https://www.reuters.com/article/saudi-unemployment/saudi-une...
[2] https://www.bloomberg.com/news/articles/2019-04-03/as-expats...
This chart is a few years old already but shows over 3m barrels/day being consumed internally by 2014, must be significantly higher by now:
https://www.theglobaleconomy.com/Saudi-Arabia/oil_consumptio...
Thing is, it was a bell as people switched to other more profitable sources of oil as US' oil was becoming more expensive. I fear the depletion of world's reserve could look a lot more like a cliff.
The absence of alternatives changes a lot the fundamentals of the problem.
An interesting thought experiment is whether or not humans (or some future species) would be able to reproduce the technological advancements that oil enabled given some sort of apocalypse scenario that resets us to year zero.
As far as I am aware a lot of oil is used as raw material in chemical industry, not only as energy source.
I suspect that if you took away all the demand for oil from powering cars, though, there'd be plenty left at reasonable prices for growing food and maybe even flying planes. So you do need some fossil fuel production, but get rid of its use in automobiles, heating, and electricity and the remaining reserves can be allocated much more efficiently.
Here's a quote I found in [1]
"The macronutrients required by plants are N (Nitrogen), K (Potassium) and P (Phosphorus). Oil is hydrocarbon, made from H (Hydrogen) and C (Carbon). There are no plant nutrients in oil.
Nitrogen fertilizer (N) is made from ammonia, which in turn is manufactured from natural gas, not oil"
[1] http://peakoildebunked.blogspot.com/2005/08/28-isnt-fertiliz...
We do, 99% of plastics is made using fossil fuels. Big players are trying to shift to sustainable alternatives though, for example LEGO: https://www.lego.com/en-us/aboutus/news-room/2018/march/pfp
They basically take an existing natural resource from the environment and turn it into another form of resource that human could make use of. But this in turn destroys that very same environment we human also live in, effectively wiping out ourselves in the process.
Those engineering jobs basically only convert one form of resource/energy into another, but they actually didn't create anything new out of thin air themselves.
Sure the price of certain forms of energy (wood fire, oil ...) may go up over time but while that happens cheaper sources appear and ultimately take over.
What's apparent to me is that we live in a unique era where energy is abundant and cheap, which may never be repeated (unless fusion power is developed).
(You can check my math yourself: total world energy consumption = 109,136 TWh [1] / 8760 hours/year = 12.45 TW / 15 W/foot solar panel output [2] = 830B square feet / 27878400 ft^2/mi^2 = 29772 mi^2 = 150x200 mi array.)
Working through his math, I think the problem is that the UK is unique in a.) having a high population density b.) with a large per capita energy consumption and c.) a lot of cloud cover. On his chart, only Japan, South Korea, the Netherlands, and Bahrain had it worse. The U.S. and China both had an order-of-magnitude better energy consumption per unit area; most of the world had two orders of magnitude. That's an argument for why Britain is fucked in the new globally-warmed, fossil-fuel-limited world, but not why the world is fucked. A lot of developing areas could see their energy consumption rise to rival the U.S. and still not bat an eye with solar power.
The EROEI of solar panels is between 8.7 - 34.2; wind is 20-50. [3] As long as this number is > 1 (which it is for nearly every energy source except biofuels) you can keep building production capacity indefinitely; you just invest the energy from previous capacity into building new capacity. Higher numbers of course let you do more other stuff while this is going on and build out faster, but it's just like capitalism. As long as you turn a profit on each panel, you'll have more as time goes on.
[1] https://en.wikipedia.org/wiki/World_energy_consumption
[2] https://www.solarpowerrocks.com/solar-basics/how-much-electr...
[3] https://en.wikipedia.org/wiki/Energy_returned_on_energy_inve...
Yes, the UK does have issues by these metrics, and the US is in the unique position of a huge per capita energy consumption and huge land reserves. Therefore, it is somewhat feasible in the US to just keep building wind and solar farms. However, I wonder how the economics of the non-renewable minerals needed would affect the price. It also doesn't (as far as I know) take into account all the extra infrastructure required to support the fluctuating nature of renewable energy sources.
I thought about the rare-earth issue, but there's a simple solution that bypasses both it and the energy-storage issue: use solar-thermal plants instead of photovoltaics. These require only mirrors and steam turbines, both made out of abundant materials. Efficiency is actually higher than photovoltaics (30% or so), and energy can be stored as heat for up to 5 hours before it's used. (Ironically, they have the same issues relative to photovoltaics that photovoltaics have over fossil fuels; in theory they're simpler and more environmentally friendly, but implementing the theory correctly requires solving a number of engineering problems that together make them cost more and generate more hiccups than photovoltaics have.)
The higher cost isn't actually true anymore, for photovoltaics and wind at least. Solar hit grid parity with fossil fuels in late 2015, and is now actually cheaper than coal power plants. This (rather than subsidies) is why the coal industry is in deep shit: it just doesn't make economic sense anymore, and the electric industry is rapidly switching over to renewables & natural gas.
This is not at all obvious to this casual observer. Earth radiates heat away at a constant rate. We can never produce more energy than the earth radiates away, for obvious reason. With current trajectories we will release more energy than earth radiates away in less than 200 years. I'm not sure how the price of a limited resource can go to zero, but I'm also not very well versed in economics.
In practice, the total energy consumption of the Earth is bounded by the amount of solar energy that falls on the earth, which is about 100,000 times greater than current total world energy consumption. For what civilizations might look like that exceed that, check out the Kardashev scale [2], which classifies civilizations by the size of the astronomical object whose energy they harness. Type 1 civilizations harness a planet, Type 2 harness a star, Type 3 harness a galaxy. We're a lowly Type 0 civilization, which means that we have not yet attained the technology needed to make full use out of all of our planet's resources.
[1] https://en.wikipedia.org/wiki/Black_body#Radiative_cooling
The temperature in the formula is given in Kelvins, so for all practical purposes (300K less than 10°K variation), the 4th power means every degree increase the amount of energy radiated by ~1.3%
Also conventional fuel can be made from pretty much any carbon using https://en.m.wikipedia.org/wiki/Fischer%E2%80%93Tropsch_proc...
Hydrogen would also work vas a fuel.
Much more concerning is that we have to keep ~80% of those 52 years worth of oil in the ground to keep climate change under the 2 degree goal...
Says who?
Where did you get this number from? They are not pumping at their maximum capacity but I understand it's pretty close on average
"Saudi Arabia briefly pumped a record of more than 11 million barrels a day in late 2018."
I always wonder about news like this. Is it wrong to assume that the company knew about this years ago already and made the rational decision not to tell everyone until the last minute? And how long have they known?
The world is not going to run out of Oil ever. The world is more likely to run out of "need for oil" sooner than the oil running our scenario. A particular oil field is fading means really nothing because Saudi has far too many unproven oil fields which it has not even bothered to explore yet. Now that this field might be running out very soon they will explore that oil and soon their production will grow up. The capital investment of discovery would reflect in slightly higher oil prices may be.
Coming back to the CO2 emissions point you raised, even if the Oil in that Oil field goes to zero in 1 year, it wont matter. There will be more supply available soon enough. CO2 emissions will probably go down unrelated to Oil production as developed countries move to electric cars and better power plants fired by nuclear, solar and wind energy.
This is technically true but not really a great way to look at the issue. We will always have oil; it will just get progressively more difficult to extract it. The point where we “run out” is when it is no longer economical to extract it from whatever deposit it’s in.
Or, if history and the Malthusian fallacy is any indication, increasingly advanced technology for cheap oil extraction will always put prices in equilibrium, regardless of the demand for oil and the cost of extraction.
It is actually getting easier and easier to extract oil an not difficult. Fracking is a great example. Earlier you needed thousands of wells working round the clock these days you only need an area as big as a football field to trap into a large reserve.
Your meta-point however is correct, it is not that Oil is going to run out but better options and cheaper options will come into existence. Also this probably will happen as a step change function and not something that can be extrapolated.
Very likely fusion cells, battery cells etc. would become ridiculously cheaper to the extent that many oil fields will stop being profitable and hence will be closed down. That will be the time where "oil runs out" and in general a great day for humanity.
The article states that the Ghawar is "the world’s largest conventional oil field", and "can produce a lot less than almost anyone believed", and is in fact "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 saudi "12 million b/d capacity" was known from before, I assume, so isn't the surprise that other fields make up a larger percentage than "guessed"?
Then how can it be "fading faster than almost anyone believed"?
And, isn't slower fading of their biggest reserve a good thing?
And given a reasonable discount rate of 6% mean oil in 10 years is worth half of oil today and oil in 20 years is worth a quarter.
You also run into efficiency issues. Running a high volume rig much more expensive than running a low volume rig.
This decades-long strategy could have worked brilliantly until the end if it wasn’t for clean energy. Now that it’s clear that clean energy sources will replace fossil fuels sooner than later, all the domestic oil sitting in the ground needs to be extracted and sold as fast as possible before it becomes worthless. Since the US and foreign nations won’t depend on oil in the future, the US won’t need its oil reserve and floods the global market with all they’ve got for that sweet, sweet money.
The US used to be the worlds largest net importer of crude oil since at least the 1950s, and only recently (2016 or 2017) got overtaken by China. The US is by far the largest consumer of oil, using circa 20 million barrels per day, while producing around 12.5 million. Besides China, no other country even uses as much oil as the US imports.
Basically, the main differences were in products counted (CNN's headline includes natural gas and refined petroleum products as "oil exports", categories where the US is a heavy exporter) and in timescale. The production stats you cite are rising very rapidly - for reference, in 2018 alone U.S. production increased by 3 million barrels/day, almost 30% yearly. That's growing faster than the tech industry. So the government predicts that by 2021, the import/export shortfall will be completely erased and we'll be a net exporter of petroleum.
[1] https://www.cnn.com/2019/03/08/business/us-oil-exports-saudi...
[2] https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=W...
EIA publishes crude import and export figures directly, see here: https://www.eia.gov/dnav/pet/pet_sum_snd_d_nus_mbblpd_m_cur....
The second line of the above reference shows crude imports at 7.25 million bbls/d and crude exports at 2.57 million, so net imports of crude oil are circa 4.7 million bbls/day. Even this surpasses India (4.5mmbbls/d) and Japan's (3.9mmbbls/d) total usage, and only China and the US itself use more. And of course the original claim that the US is a net exporter of crude oil is completely wrong.
The rest of the statistics needs to be read with caution - what EIA calls "petroleum products" is an odd bunch, ranging from ethane (gas) to petcoke (solid). Such products are not counted in production numbers of Russia and Saudi Arabia, for example, and are also, pound-for-pound, of much lesser value than crude oil. They have a disproportionate share in the US exports. High value products such as gasoline, diesel and jetfuel are consumed "at home".
It’s possible to come up with examples of this for every country, including the United States. That being said, this is whataboutism.
Oh hello there, a nice example of anti-semitism.
> let’s not pretend that Saudi Arabia is their only shady ally.
Believe it or not, Israel is the only democracy in the area (aside from Kurdish Rojava but that one unfortunately isn't recognized as an independent state).
This is an incredibly stupid thing to say
edit:
This seems to be your only comment ???
On the one hand Saudi Arabia and others want to give the illusion of the wealth lasting for ever.
On the other hand, lower reserves would lead to higher prices, which is something they'd want to maximise.
Also, the house of Saud isn’t playing only that game. They also want to stay in power. They’re not universally popular in the region, so that means listening to their faraway supporters, who want to keep oil prices low.
I'm not saying they should be aiming for $1 million / barrel. But clearly $60 is better than $50, assuming that doesn't lower volume.
We seem to agree on that?
But this is one of the few factors they can make up. You can't fudge production numbers, you can fudge what's still in the ground. But which way to fudge it?
Wasn't the plan basically to divest/diversify away from oil. This doesn't seem to be doing that, so what's the point?
What's more curious is that the US reported it as 5.7million barrels in 2004!
My bet is, invasion forces. I can hope though that they'll push for space industry