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By Robert Rapier on Jan 3, 2008 with no responses

Saudi Aramco Delays Khursaniyah

It never ceases to amaze me just how quickly people can develop amnesia. Take the case with oil production in Saudi Arabia. A year ago, their production was declining. A number of people argued that this was because they were experiencing an irreversible, involuntary, geological decline. My position was always that the evidence looked to me like they were managing their production to keep oil prices high, and that they had spare production.

By March of 2007, their production had stopped declining, which was supportive of my theory. After all, if their decline was involuntary, how can we explain that production suddenly flat-lined, and remained steady for the next 10 months? Furthermore, in March I said that I expected Saudi to raise their production later in the year when demand picked up.

What happened? Saudi did start to increase production in the fall, and those arguing for the geological decline suddenly developed amnesia. “Well, we always knew that they had some spare capacity.” But my favorite was “We knew Khursaniyah was going to come online in the 4th quarter, and that’s where this production is coming from.” I challenged several people on this claim, asking for evidence that the production increase came from the Khursaniyah startup. The best anyone could come up with was that the new production was coming from Khursaniyah, because where else would it come from (since Saudi had no spare capacity)? This is of course just circular logic, and a prime example of failing to think critically and skeptically about the situation.

Well, today Saudi answered the question on Khursaniyah:

Saudi Aramco Delays Production Start From Khursaniyah

Jan. 3 (Bloomberg) — Saudi Aramco, the world’s largest state- owned oil company, delayed the start of production from its 500,000 barrel-a-day Khursaniyah oil-field project and said it will meet market demand with existing spare capacity.

“Saudi Aramco stands ready to meet market demands with ample spare capacity, including 1 million barrels of Arab Light crude,” the company said in an e-mailed statement today.

Khursaniyah will commence “upon completion of commissioning activities,” Saudi Aramco said. The company didn’t say when production would start, after it missed a December deadline.

But amnesia comes in very handy, and I doubt too many will attach much significance to this, conveniently forgetting that this was their explanation for the 4th quarter Saudi production boost.

I do maintain that extra crude capacity is in very short supply, and will remain so as far out as I can see. While I don’t think oil production has quite peaked, I think increasing demand from India and China will eat up any new production that comes online. Thus, I think the evidence continues to favor Peak Lite – where new production can’t come online fast enough to meet demand.