On 18th Jan 2007, the news agency the Associated Press issued a story which stated that Saudi Arabia intends to increase its oil production capacity by 40% by 2009. In fact, it intends to do no such thing.
Background
Saudi Arabia is one of only a few countries (all members of OPEC), for much of 2006 reputed to be the only country, that can produce more oil than it actually does. The total amount that it can produce is commonly referred to as its production capacity – what it is capable of producing. Representatives from Saudi Arabia have for some time been saying that it can produce about 11 million barrels / day (mb/d) of oil, although for most of 2006 it was producing 9 – 9.5 mb/d according to Middle East Economic Survey (MEES). The gap between what it can produce and what it actually produces is known as the spare capacity, depending on various factors 1.5 – 3 mb/d.
Saudi Arabia is currently undertaking various projects that will total about 3 mb/d of new production between 2004 (they started the projects 3 years ago) and 2009. However, this will NOT increase Saudi Arabia’s production capacity between now and 2009 by 3 mb/d. Some of this 3 mb/d is already available, and some oil production is lost to depletion. As detailed below (see link to Nawaf Obaid’s presentation, Nov 2006, slide 6), the NET increase to 2009 will be about 1.5 mb/d.
In summary, the Saudis expect their production capacity to increase from about 11 mb/d in 2006 to about 12.5 mb/d in 2009.
First a quote, then the reality
From Forbes magazine, “Saudis to Increase Oil Output Capacity” (also reported by the International Herald Tribune, Washington Post and many others),:
Saudi Arabia plans to increase its crude oil production capacity nearly 40 percent by 2009 and double its refining size over the next five years to keep pace with growing global demand, the country’s oil minister said Thursday.
Ali Naimi said the plans are part of a $80-billion-commitment that Saudi Arabia – the world’s biggest oil exporter – has made to increase oil supplies in the global market.
… It plans to expand crude production capacity to 12.5 million barrels a day by 2009 from 9 million barrels now. And if market conditions demand, the country has identified additional projects to further boost capacity after 2009, he said…
The root of the problem is the distinction between ‘production capacity’ and ‘actual production’. Saudi production capacity now is about 11 mb/d, not 9 mb/d. Therefore, the increase to 12.5 mb/d by 2009 is an increase of only 1.5 mb/d, not 3.5 mb/d, not 40%.
The most recent detailed, and public, report of what exactly the Saudis hope to achieve was given by Nawaf Obaid on Nov 9th 2006 in a PowerPoint presentation to the Center for Strategic and International Studies (CSIS) in Washington D.C., which is still available online (Presentation [PDF, 545 Kb], website). There is a review of the presentation on the ODAC Bulletin Board, see “Saudi Arabia’s Strategic Energy Initiative: Safeguarding Against Supply Disruptions”.
From Obaid’s presentation:
Slide 3: Saudi Arabia has a production capacity of 11.1 – 11.3 mb/d; exports 8 mb/d; and produces between 8.6 – 9.0 mb/d and 1 – 1.3 mb/d of natural gas liquids.
Slide 6: March 2006 – Aug 2009 estimated sustainable oil production capacity will increase by a net of 1.55 Mb/d. Depletion rate used works out at about 1.8% per annum.
11,000,000 b/d Estimated sustainable capacity in March 2006
+ 2,350,000 b/d Estimated increase in capacity 2006-09
– 800,000 b/d Estimated natural production decline 2005-09
≈ 12,550,000 b/d Estimated sustainable capacity in August 2009
Slide 9: Aug 2009 – 2011 estimated sustainable oil production capacity will increase by a net of 0.9 Mb/d. Depletion rate used works out at about 2.8% per annum over two years.
12,550,000 b/d Estimated sustainable capacity in August 2009
+ 1,400,000 b/d Estimated increase in capacity 2009 – 2011
– 500,000 b/d Estimated natural production decline 2009 – 2011
≈ 13,450,000 b/d Estimated sustainable capacity by 2011
In summary:
Net new capacity to 2009: 1.55 Mb/d
Net new capacity 2009-2011: 0.9 Mb/d
So we can summarise fiction and reality like so:
Reported
The Associated Press issued an item that states Saudi oil production capacity will rise by 40% over the next two years.
Reality
Saudi oil production capacity will rise from 11.1-11.3 mb/d (slide 3 quoted above) to 12.55 mb/d in 2009. That is an increase of 1.25-1.45 mb/d, or 11-13%.
Media Bias
The article highlights the bias the media has when it comes to reporting oil production: good-news reports, yes, bad-news reports, no. Not that the 40% was deliberately reported, this was clearly a mistake.
However, this was such a good-news story re “plenty-of-new-oil-coming-onstream, Peak-Oil-is-a-myth” that it was subsequently widely reported by the press. For those trying to educate the general public about the reality of Peak Oil, the damage has been done.
Very few people know the details of Saudi oil production, and an ‘increase of 40% over the next two years’ is all they need to know to register Peak Oil as something they do not have to worry about, for now.
