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Saudi Aramco Crude Oil Production Dropped 1.7% in 2006

Saudi Aramco’s annual production of crude oil dropped 1.7% to 3.253 billion barrels (8.9 million barrels per day) in 2006 from 3.309 billion barrels in 2005 (9.1 million barrels per day), according to the company’s Annual Review for 2006.

Aramco
Aramco crude oil production. Click to enlarge. Source: Saudi Aramco

Natural gas production increased 4.5%, however, from 7.871 billion SCF daily in 2005 to 8.224 billion SCF daily in 2006.

State-owned Saudi Aramco is the world’s largest oil company, and holder of the world’s largest crude oil reserves.

In the review, Aramco said that it currently has half a dozen major crude oil development projects underway at various stages that will increase its maximum crude oil production capability by some 3 million barrels per day—roughly 20% over its current maximum capability and 33% over its average daily production level in 2006.

Some of that capacity will offset natural decline, while the remainder will expand our maximum sustained production capability, which by the end of 2009 will reach 12 million bpd. We have also developed scenarios to increase that level, should market conditions warrant expansion.

Our slate of mega-projects also will enable us to maintain spare production capacity of 1.5 to 2 million bpd above forecast production.

The company said it achieved crude oil reserves replacement of 104% in 2006, adding 3.6 billion barrels and bringing the total to 259.9 billion barrels.

Matthew Simmons, founder of the energy investment bank Simmons & Co and former energy adviser to President Bush, for one has concluded that the Saudi oil reserves—which are absolutely essential to any scenarios of fulfilling future demand—are overstated and that production there may already have peaked. (Earlier post.)

Comments

jack

Gotta keep those prices high.

zevutah

Gotta keep those prices high.

Do you really think prices are too high? Help me out with the math here, because its late and I am kinda wore out right now.

Tonight I went to the Greek Festival for some great food and company. Knowing what the tap water is like on this side of town I bought a 16 oz bottle of water to go with the meal.

Price 1 dollar for 16 oz water or half a quart.
So that would be 2 dollars per quart or
8 dollars per gallon or
336 dollars per barrel for water. ( 42 gallon barrel )

I don't know Jack, but it sounds like 75 dollars a barrel for Oil is pretty dang cheap to me.

Just curious man, what kind of car do you drive and what kind of mileage does it get you?

jack

So, Zev, you're in favor of making a limited number of people, with track records of not-so-nice behavior, wealthy beyond most people's ability to imagine? Do you have the beginning concepts of how much money is made at these prices?

Do you think the price of the resource reflects the cost of producing it?

Do you think that the money that flows to oil producers could be better utilized?

Price has tripled from OPEC's former target price range. Has demand shrunk 2/3?

Comparing the price of gasoline (a bulk commodity) with the price of a consumer good in small packaging (a bottle of water) is out-and-out silly. My tap water costs a dime for 42 gallons. Gasoline is over 1,200 times that.

Neil

Yes, US (and Canadian) gas prices are on the low side in terms of both the real cost (environmental and military) and ability to push us away from petroleum towards alternatives. On the other hand, if you push gas prices up too fast your going to shock your economy into recession. Gradual planned tax increases (keeps the money in the country) to raise the price of gas predictably would spur adoption of alternatives. Revenue should be spent on renewable energy development to keep the government from becoming addicted to the income.

If we rely strictly on market forces to make the transition it will work, but it will be a very bumpy ride.

Neil

On second thought, I can't see Americans ever allowing any kind of reasonable gas tax. Party on! (till the piper comes to collect)

jack

I feel sorry for people who focus on the supposed need for higher prices to stem demand (which isn't essential, nor necessarily effective) while ignoring who most benefits from higher prices, and how that money then gets utilized (eg, to put forth ceaseless propaganda campaigns to confuse people about climate change).

Neil

If you use taxes to raise gas prices then the money isn't going to the oil producers or the oil companies.

jack: Do you think it's necessary to reduce oil (particularly US) consumption? If so, what is your preferred mechanism to reduce said use.

jack

If you use taxes to raise gas prices then the money isn't going to the oil producers or the oil companies.

Unless consumption curtails significantly, oil producers and oil companies won't see any slackening in obscene profits.

jack: Do you think it's necessary to reduce oil (particularly US) consumption?

Absolutely.

If so, what is your preferred mechanism to reduce said use.

Cap consumption and institute a trading mechanism for individuals to profit from consuming less than the norm. If you leave it to the "market," price goes up, demand goes down, prices go down, demand goes up. Vicious cycle. Hard cap the consumption level (and keep ratcheting it down over time) and put in a price floor at peak retail prices (around $3.25 in the US). If pre-tax fuel prices fall, capture the difference as additional tax revenue. Use it to pay down the national debt (which lowers the cost of servicing the debt) and to invest in technologies which get us away from automobile dependence.

That's the soft path.

The hard path could be much more draconian and painful in the short-term, but if proper safety mechanisms were put in place to deal with the shock, we could radically shift the power relationship between ourselves and those who supply us with 60% or more of our petroleum.

It's idiotic that we're in this position and go off launching wars to deal with it in the guise of "fighting terror." But as long as it makes a select few very powerful and very rich, and those people run the people who run the government, it's not going to change.

People need to wake up.

Neil

A reasonable approach. As with all plans the devil's in the details.

mahonj

The US needs higher energy taxes, perhaps up to European levels. It will bring down consumption. It will hurt a bit, but the cars are available now, much more so than in 1974 and 1979 - it is just that people choose not to drive them.
There are loads of economical cars available, and loads more in other areas (Europe / Japan) that can fill the role. Ford and GM already make them in their European subsidiaries.

You can even have SUVs, just not huge V8 ones.

The main question is how to bring in the tax (let's say $2 / US gallon).
All at once ?
In 2 halves, or
20 c / year ?

People in Europe live with high fuel taxes - they just drive more economical cars ( in general ), and perhaps they don't drive as far.

The advantage is that the US government gets the money, not the oil producers.

If fuel goes from $3 to $5, but people switch from 20 mpg to 33mpg, you are back where you started.

People might have to learn to live with a V8 burble.
It might save the planet, and a lot of lives in Iraq on the way.

mahonj

I will add that China also needs a proper gas tax - and probably India too - the US does not need to shoulder all the blame for global fuel consumption, only about 25% of it.

jack

1998-2006, US
Oil, real dollar price per barrel +270%
Oil, consumption +9%
Natural gas, real dollar wellhead price +165%
Natural gas, consumption -2%


As you can see, even extreme price increases have done nothing to deal with consumption levels.

Yet, in real dollars, oil and natural gas at the commodity level cost us an additional $460 billion annually compared to 9 years ago. That's 4% of GDP down the tubes, a privatized tax.

jack

I will add that China also needs a proper gas tax - and probably India too - the US does not need to shoulder all the blame for global fuel consumption, only about 25% of it.

The meteoric growth rates of those two economies are the direct result of developed nation outsourcing and offshoring of production. From 1998 to 2006, the annual real dollar trade deficit is up 269%, a $553 billion (4.9%) annual hit to GDP. Another private tax.

Cervus

China has kept the value of its currency artificially low for a long time, making their labor costs far, far lower than anything developed nations can possibly compete with. There is no "private tax" here. The Chinese government has artificially created a huge vacuum of cheap labor in order to keep that 10% economic growth rate and to keep itself in power.

jack

There is no "private tax" here.

Right, it goes against the ideological belief, so that $1 trillion down the tube annually compared to less than 10 years ago isn't really happening.

Cervus

Jack:

The term "private tax" is loaded with your own ideology. So don't go sneering at me for applying mine.

You seem to consider a business owner moving to a cheaper supplier for some part or other as a "private tax". I don't see it that way. What I do see is the Chinese government manipulating its own labor costs through command-and-control currency valuation. They've only recently started allowing some movement because of political pressure from abroad.

jack

The term "private tax" is loaded with your own ideology. So don't go sneering at me for applying mine.

What is a tax? A forced payment as a result of government policy, or "a burdensome or excessive demand; a strain." I didn't invent the English language, so don't blame me for using it properly.

You seem to consider a business owner moving to a cheaper supplier for some part or other as a "private tax".

No, but radically distort what I said all you want. How does that apply to what I said about energy prices? Did some business owner move to a cheaper supplier for that? No.

I don't see it that way. What I do see is the Chinese government manipulating its own labor costs through command-and-control currency valuation. They've only recently started allowing some movement because of political pressure from abroad.

So? Are we forced to buy their goods? Is it a given that our government has the policy it does with respect to that country? That we have the "cheapest consumer good" approach to our economy? No. But when you play those things out, you get a net transfer of over $700 billion per year from this economy to countries like China, then people like yourself can complain about their power. So do you think maybe having an economy growing like gangbusters thanks to countries like ours is responsible for the kind of power they now have?

And again, thanks for avoiding the first issue I raised about energy prices, which is what this thread is more strictly about.

glenn

jack:

I have a few questions/comments about your mechanism for reducing oil consumption ahead of that which oil depletion will inevitably impose.


"Cap consumption and institute a trading mechanism for individuals to profit from consuming less than the norm."

Is this rationing without calling it such? Where individuals would receive coupons for either purchase or sale? While it seems fair, it also seems difficult to implement. As an alternative, how about an oil tax and some fixed amount of income tax rebate per individual. Almost the same thing without the added complexity of rationing coupons. Increase the tax to encourage less use and use some of the tax revenue to provide alternative transportation for those priced out of private car use.

"If you leave it to the "market," price goes up, demand goes down, prices go down, demand goes up. Vicious cycle."

Back in the late 70's, Henry Kissinger suggested a floor price for oil to avoid just such a problem. Although his suggested price was $10/barrel, and we will probably never see oil prices plummet to that level again, it would be good policy to have a floor price to protect investments in alternatives and provide a consistent environment for energy decisions.

"Hard cap the consumption level (and keep ratcheting it down over time) and put in a price floor at peak retail prices (around $3.25 in the US). If pre-tax fuel prices fall, capture the difference as additional tax revenue. Use it to pay down the national debt (which lowers the cost of servicing the debt) and to invest in technologies which get us away from automobile dependence."

Makes sense!

jack

it also seems difficult to implement. As an alternative, how about an oil tax and some fixed amount of income tax rebate per individual. Almost the same thing without the added complexity of rationing coupons. Increase the tax to encourage less use and use some of the tax revenue to provide alternative transportation for those priced out of private car use.

Without capping consumption, pricing alone is only going to do what I said it would -- if at any point demand slackens as a result of some price level being met, then prices will decline which then spurs demand.

I also wouldn't be placing bets on oil depletion, since proven reserves are a function of oil prices. Canadian tar sands didn't used to factor into global reserve calculations, and now they do. Pretty soon we'll be adding North Pole oil to the picture.

As for difficulty of implementation? A breeze. All you need to do is hand out magnetic cards and use them at the pump or at the gas station register. Don't have the gasoline credits, then either you're not buying or you pay on the open market for those credits. Tax rebate schemes involving people most hurt by high oil prices (those with the lowest incomes) now drag a lot of people into filing taxes when maybe they don't and so forth. Tax schemes are far more complicated without any sure results with respect to consumption levels.

Back in the late 70's, Henry Kissinger suggested a floor price for oil to avoid just such a problem. Although his suggested price was $10/barrel, and we will probably never see oil prices plummet to that level again, it would be good policy to have a floor price to protect investments in alternatives and provide a consistent environment for energy decisions.

Right. As of now, I know millions of Americans think that these price levels will go away once Bush leaves office and/or the "war on terror" goes on simmer or goes away. They may or may not be right -- no one knows. But the fact that people think that makes a good number of people delay purchasing something more efficient, or perhaps changing elements of their life to drive less, both of which are highly infrequent, long-term decisions. A price floor and hard, decreasing consumption level caps tell people what the limits are, and when they're going to be at what level, so they can make informed decisions about how to allocate their capital.

It also gives people a clear sense that there exist some limits in this world and we need to work within them. It also gives strong incentive signals for being low down the food chain, whereas now there is little or no benefit. If I decrease my consumption, I help lower prices, which only ends up helping someone who is wasteful. Zero sum, and I get nothing but "saved money." It would be nice to profit from being efficient.

Makes sense!

It's all about efficient capital allocation, and unfortunately, the way our government works at this point has nothing to do with it.

WhiteBeard

"1998-2006, US
Oil, real dollar price per barrel +270%
Oil, consumption +9%
Natural gas, real dollar wellhead price +165%
Natural gas, consumption -2%
"

Jack,

I think your chosen examples make for too simple an economic argument -- which I understand to be that oil and NG have no price/consumption elasticity.

You use the increase in prices starting from a rather low point, and terminate it before the lag in the market can adquitly reflect consumption choices. Transportitation, eletrical generation and industrial processes are capital intensive, and substitution takes a while.

The increased cost to consumers from substancial additonal taxes might produce some real demonstration of elasticity in demand. I’m not shure that the signal is suffently above the noise level.

For example: I’m in Alaska and we monitor tourists border crossings into the state. People are still driving motorhomes the very long distance to come here, although there has been some slight reduction the last couple of years. A further increase in fuel costs might lead people to opt for a much closer summer destination. At some point you break the camel’s back. Dealers around here are having a tough time selling motorhomes to the locals, as opposed to conditions 5 years ago.

On NG, supply capacity has been restricted and coal is often the cheeper alternative, no?

I’m not trying to just be a contrarian here, and agree people need to wake up – but there’s that old devil inertia again.

Neil

jack says:

"I also wouldn't be placing bets on oil depletion, since proven reserves are a function of oil prices. Canadian tar sands didn't used to factor into global reserve calculations, and now they do. Pretty soon we'll be adding North Pole oil to the picture."

I wouldn't be placing bets against it either. You are correct about the economics of reserves, but sooner or later you run up against geological restraints.

jack

You are correct about the economics of reserves, but sooner or later you run up against geological restraints.

Of course. Very little of what we rely upon now is sustainable.

But what's relevant is that we know we're damaging ourselves in many ways with this reliance and we have the means to stop that damage, so my interest lies in what is most effective in making sure it stops.

From a policy level, steep taxation seems very unlikely to occur in the US, and even if it did, would never be as effective (or as dependable) as setting strict and declining caps would be. But that option is also unlikely to be exercised until we have some change in thinking at the top.

glenn

Hi Jack:

I believe a tax on oil (and all fossil fuels) would be more effective and more easily administered than individual ration coupons since:

1. a tax would apply to commercial and industrial consumers not just individuals. It would be difficult to separate sole proprietorship businesses from their owners with rationing but not with taxes. Perhaps the enlightened citizen would invest his tax rebate in energy conservation and efficiency rather than buying more gas.

2. A properly formulated tax would include feedback so that if consumption goals were not met, the tax would increase. This is not any more politically difficult than adjusting a consumption cap. NRDC Cap and trade worked for some coal power plant emissions but the first year in the EU it failed to reduce CO2 since caps were set so high.

3. A tax on fuel may have the effect of keeping the pretax cost lower; rationing may allow gas prices to escalate dramatically.

4. A fuel tax would be income producing, rationing not so. Unrebated taxes could be used for to improve the energy efficiency of the economy. "Tax shifting" has been successful in Germany"

5. Rationing would encourage a black market and fraud. A tax would be difficult to circumvent. Rationing is not as simple as printing and mailing out magnetically readable cards to every person. In WW2 we had 8000 ration boards and a public which was pretty much in agreement about the reasons for rationing. Many people today would rather see drilling in ANWAR than a reduction in consumption.

I agree rationing is the fairest way to distribute a depleting resource and it would certainly work with a small homogeneous society but seems impossible with 300+ million non communicating people.

jack

a tax would apply to commercial and industrial consumers not just individuals. It would be difficult to separate sole proprietorship businesses from their owners with rationing but not with taxes. Perhaps the enlightened citizen would invest his tax rebate in energy conservation and efficiency rather than buying more gas.

I didn't mean to imply that the only mechanism should be a cap on individual consumption. I focused on it because 75% of liquid fossil fuel consumption in the US is for the movement of personal vehicles. As for the "enlightened citizen," I don't have much faith in people becoming enlightened in a short period of time. If people are subjected to strict limits, they are forced to make rational choices to live within those limits, pay to exceed those limits, or profit from consuming below those limits. All of the pricing would be above-board and as noticeable as the price of gas at a gas station is.

2. A properly formulated tax would include feedback so that if consumption goals were not met, the tax would increase. This is not any more politically difficult than adjusting a consumption cap. NRDC Cap and trade worked for some coal power plant emissions but the first year in the EU it failed to reduce CO2 since caps were set so high.

It's not the fault of capping that someone was too timid with setting a cap level, and I don't think it's politically feasible for a system of ever-increasing taxes. There's far too much anti-tax conditioning in the US to be overcome at this point. Witness the difficulty in even getting passed a temporary 5 cent increase in the federal gas tax for bridge safety in the wake of the bridge collapse.

3. A tax on fuel may have the effect of keeping the pretax cost lower; rationing may allow gas prices to escalate dramatically.

If consumption is capped and diminishing with time and a price floor established, it's hard to imagine how the retail price of gasoline would escalate dramatically. What might get terribly expensive is the cost of gasoline credits for those who choose to consume above the cap, and that's a good thing, as it would take from the rich and give to the poor -- the opposite of what a gas tax does.

4. A fuel tax would be income producing, rationing not so. Unrebated taxes could be used for to improve the energy efficiency of the economy. "Tax shifting" has been successful in Germany"

It would be income producing for those who consume below the cap, since they would profit from selling their excess credits, and as I proposed earlier, all additional spread between the price floor and the tax-excluded wholesale price of gasoline could be devoted to government revenue, either as debt reduction or investment in oil dependence reduction technologies and infrastructure.

5. Rationing would encourage a black market and fraud. A tax would be difficult to circumvent. Rationing is not as simple as printing and mailing out magnetically readable cards to every person. In WW2 we had 8000 ration boards and a public which was pretty much in agreement about the reasons for rationing. Many people today would rather see drilling in ANWAR than a reduction in consumption.

So how does that last comment address your tax proposal? If taxes are punitively high, is that going to force a reduction in consumption? You say it is and you're probably right. As for black markets and fraud, I also don't see how that's different from if there were a punitive tax. I find it hard to believe that it would be that easy to circumvent a system of magnetic cards that authorize through the standard credit card verification system. Fraud in that would be on the level that it is with credit cards in general.

I agree rationing is the fairest way to distribute a depleting resource and it would certainly work with a small homogeneous society but seems impossible with 300+ million non communicating people.

This term "rationing" is rather loaded. Say a performer is giving a concert. Do 300 million Americans think they can all attend? No, they realize there's a finite number of seats at the venue and the venue sets the price for occupying those seats. If those tickets then sell out, the market then takes purchased tickets and sees what prices people are willing to pay for this scarce resource.

We limit the availability of alcohol, tobacco, and driving vehicles based on people's age. We set limits all the time when we consider it in our best interests.

Max Reid

According to bp (Beyond Petroleum) stats,
Saudi Oil in 2006
Production is down by 2.3 % while
Consumption is up by 6.2 %, so exports have declined drastically.

Today Oil prices have set the Record closing price of $77.49 (previous high was a month ago at $ 77.03).

It all depends on whether OPEC is going to increase the production in tomorrow's meeting. OPEC has quickly increased their floor price from $ 25 in 2000 to 45, then 50 then 60, now they are saying that its 70.

Whether $ 70 is more or less depends on where you are, Crude Oil is called Black Gold and probably its going near the Gold.

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