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Old 03-05-2011, 03:32 PM   #50 (permalink)
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Originally Posted by jamesqf View Post
I'd be curious to know, though, exactly how peak production is defined, and why the Saudis especially are producing much less than their peak. Seems like peak can be defined two ways:

1) The amount of oil they can actually pump out of the ground & ship;

2) The amount of oil the pumps &c are theoretically capable of pumping.

If it's #1, then the Saudis could produce more oil, and we have to wonder why they're not, when everyone else is running close to capacity. If it's #2, then they're sucking the wells dry, and can't really produce more even though they theoretically have capacity.
As I understand it the capacity figure is not a real one - as in not a real, physical limit. It is the OPEC limit or quota on production based on the declared reserves for each of the members. This regulation was designed to protect members from overproducing to fund their economies too highly to pay for vanity projects - like Dubai World for example.

The problem is that a lot of the key members of OPEC, such as the Saudis, wanted to keep production at previous levels to maintain their income so they 'adjusted' their declared reserves to maintain the previous output.

Note that the estimation of reserves doesn't seem to fall with output at all. That can't be correct ?

Saudi Arabia is also a 'swing' producer - they normally step in to replace lost production in the event of an emergency - for example the Kuwait invasion by Iraq. In this case they made sure we didn't have an oil shock when the oil of Kuwait was no longer available in return for us (the West) doing the military work of actually removing the Iraqi army from Kuwait.

They have been able to replace up to 8% of world daily output by just turning on their taps a little more but it seems they may not be able to do this for much longer if their reserves are started to dwindle.

The problem for the Saudi government is that if they declare that they are in decline, or even at peak, then the ruling family will have a very hard time keeping control of the country. SA's population has grown by 10x since the 1950s and a lot of them are unemployed and poor and living off government handouts as there is no industry really apart from oil.

When they learn those handouts may reduce or even end then who knows what they might want to do. I suspect that leaving the Bin-Saud family free to reap the remaining cash available before moving to Switzerland is unlikely to be their no.1 choice.

Another graph, oil prices.

I take nothing from this except why didn't we adjust and learn here in the west ?
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