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Kuwait May Link Rate of Oil Production to Level of Oil Reserves

27 July 2006

Dar Al Hayat. Kuwait’s parliament is considering a bill that would link the rate of oil production to the assessed amount of the country’s crude oil reserves.

The proposal came after Petroleum Intelligence Weekly published a report suggesting that Kuwait’s oil reserves were only 48 billion barrels—less than half the claimed volume of 100 billion barrels.

Earlier in July, Kuwait’s Oil Minister Sheikh Ali Al Jarah Al Sabah said that the country would clarify its actual oil reserves.

...is a very significant matter and soon the volume and truth of oil reserves will be announced based on clear scientific studies, characterized by reality and credibility, and supported by international documents and certificates.

—Sheikh Ali Al Jarah Al Sabah

Given the uncertainty over the reserves, And in the absence of the verification promised by the Ministry of Oil, ten members of the Kuwait National Assembly proposed the new measure in an attempt to ensure an appropriate level of production designed to maximize the life of the resource.

If the bill is approved, Kuwait will become the first oil state to regulate oil production based the state of oil reserves.

To further simplify the equation, the current rate of Kuwait’s oil production has stood at 2.65 million barrels per day for two consecutive years. If we assume that the current oil reserve is 100 billion barrels, and that any change in oil reserve, for example, drops to 85 billion barrels, Kuwait’s production will be reduced, and the Ministry of Energy will therefore have to reduce the output to 2.25 million barrels per day instead of 2.65 million.

The proposal specifies the mechanisms and the responsibilities of the Ministry of Energy to provide the National Assembly, the Cabinet, and the SAB of Kuwait with the dates for sending the data, the timetables of the reserve of every field and reservoir. Furthermore, the ministry will be committed to reporting any discoveries or new fields and reservoirs annually, two months after the end of the fiscal year.

The biggest technical and political challenges will be the agreed-upon calculation of reserves, and the explanation of discrepancies.

July 27, 2006 in Oil | Permalink | Comments (18) | TrackBack (1)

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Makes you wonder about Saudi's claimed reserves. I thought Kuwait was supposed to be planning to boost output to 4 million barrells a day.

Many reserves around the world are unaudited, so it will be interesting if other countries follow suit.

Fellow commenters,
The stated oil may be in the ground, but due to economic, technological, and environmental constraints, the oil is not produceable. Due to OPEC reserves/production ratio scheme in place, there was a clear benefit in inflating your recoverable reserves with the then unproduceable reserves. They had hoped that when the time it came to start producing oil from them, they would either discover new fields/reserves or better production/enhanced recovery methods. It looks like it did not work out completely like they had hoped.

Bakhtiari and Campbell are on the record saying that dividing the official ME reserves by two is more realistic. That seems to be accurate for Kuwait. Kudos to Kuwait for showing the most transparency.

Larger countries like Russia, Nigeria, Mexico may soon restrict their export to retain oil for their growing middle class.

If smaller country like Kuwait also cuts, then Oil prices will surely increase.

Preserving one's own assets is not significantly different from the US developing an SPR. Cutting production to preserve resources for their own country is a logical economic move. It is a good investment if you think prices will rise over time.It made no sense as long as there seemed to be plenty of oil in the world and prices might fall. This is further evidence that those dreaming that the real price of oil should be $50 bbl if you were to take out the "terror risk."

I listened to an "expert" say on TV yesterday that the oil price will be coming back down to $50/barrel just as soon as everything levels out but I honestly think that the expert may be mistaken. I do not see how prices could come down when demand is increasing. I may be wrong but I think that oil prices will be increasing substantially.

adrianakau@aol.com

Adrian

Earlier experts said that Oil prices will come back to $30, now they are saying $50. It will come to that level, when massive investments are made in Nuclear and Wind power or Coal.

We should appreciate Kuwait for being honest, hope other OPEC countries also show transparency. Otherwise they may end up like Indonesia which is now an Oil Importer.

Kudos to the Kuwaitis. First their women get the vote and now this. Why can't the rest of the middle east follow their lead?

Yes Tripp

Democracy brings sense and Kuwaitis want to ensure that their future generations enjoy the same benefits of high oil prices like now.

What are the Americans doing to ensure their future generations get cheaper fuel.

Recently the Wind energy, Ethanol, Hybrids are all increasing, but there are criticis here as well.

The alternative energy sources, wind/solar/waves/ethanol etc, will not lower the price of power, but may provide a ceiling.
Other than that, there is lots of oil and gas, it just takes more and more money to get, not only because of the natural phenomena of smaller pools in harder to get to places or large amounts that are much more expensive to refine such as the tar sands, but also because the 'host' nations are changing the financial terms, to their advantage of course.

Max,

The cost of oil is pretty independent of energy derived from nuclear, coal and wind. These are all electricity fuels and do not compete with oil. Very little oil, at least domestically, is used for electricity production.

In the long term, coal may compete with oil through liquification technologies. Again all three electricity fuels might relieve pressure on oil prices if we develop a significant market share of ev or phev transportation.

Bill - A Correction

Around 7% households in US use Fuel Oil for heating, and 3 % of utilities use Oil for power generation.

If this is replaced with electricity from Coal/Nuclear or Wind, it could reduce oil consumption.

Similarly countries like Russia, Japan, Korea use lot of oil for power generation and they are planning to use the coal, nuclear.

So even in non-transport sector, there is alternative for oil.

If we develop phev/ev then the competition will be intense.

Tran

You wrote "There are lots of oil and gas"

but now a days, we have to drill 5,000-6,000 to get the oil and it comes only in lower quantities.

So the margin between energy input and output is declining.

And for the tar sands, its more expensive than the coal-liquids venture.

Above all, there are lots of people in China, India and even USA's population is surging.

No wonder, oil prices have doubled.
And if Kuwait cuts their supply even by 10%, it could have a bigger impact on the market.

Please don't see Kuwait as an isolated case. The entire OPEC increased their stated reserves back in the eighties. This is a story that took place between 1984 and 1988. On average, reserves on paper grew 60% to 100% and never came down afterwards. If the 'quota wars' resulted in fake reserves, then the fake reserves might count for 1/3 of present day reserves world wide.

http://en.wikipedia.org/wiki/Oil_reserves#Suspicious_official_estimates_of_oil_reserves_from_OPEC_countries

Suspicious,
The oil may be down there, but my point was one may bankrupt oneself trying to extract/mine it. The overarching point may be OPEC may need to restate its reserves like Royal Dutch Shell did.

Electricity is the only alternative to fuel vehicles (and not nuclear produced electricity). Petro-Politics are here to stay. Expect $100 per barrel oil soon and the fall-out to follow... world recession and more war.

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