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Plan Would Lift Saudi Oil Output

You see the Saudis are going to raise their oil output by 500,000 barrels a day, next month. Yes, according to Jad Mouawad of the New York Times Saudi officials have briefed “analysts” and “oil traders” of their plans. Ahhh, but Ibrahim al-Muhanna, of the Saudi petroleum ministry declined to comment on the reports. Hmmmm, now that is a trifle curious. Why would the Saudi petroleum ministry refuse to confirm the good news? After all, this is what the world has been crying, dare we say, “begging” for. So if the Saudis were really going to do this, would there be a need for secrecy?? It is a little hard to imagine, given that they would win accolades all around. And who doesn’t like accolades? So why would Mr. al Muhanna refuse to confirm the good news? Maybe because it is not true? After all, you can spread all sorts of false reports, but if you have never gone on record with the supposed information, it will be pretty hard for people to blame you after the fact. Especially if Mr. Mouawad never tells us who his sources are.

Mr. Mouawad also lets us know that as part of a “huge expansion program” expected to bring its production capacity to 12.5 million barrels a day by 2009, Saudi Aramco “is planning to start soon an oil field, called Khursaniyah, with a daily production rate of 500,000 barrels per day.” This “could” be made public at an energy meeting scheduled by King Abdullah.

If Mr. Mouawad had taken five minutes to do a simple Google search he would have found the following articles, indicating that Khursaniyah has already been started, more than a month ago, but has just not reached 500,000 barrels per day, yet.

RIGZONE - Saudi Aramco Starts Up Khursaniyah
Apr 22, 2008 ... RIGZONE News - leading source for the latest news and information for the oil and gas industry.
Saudi Aramco Starts Up Khursaniya - 27k - Cached - Similar pages - Note this

Upstreamonline - Aramco 'opens Khursaniyah taps'
Saudi Arabia has kicked off production at its 500000-barrels-per-day Khursaniyah oilfeld, Abdullah Jumah, head of state oil company Saudi Aramco said. ...
Aramco 'opens Khursaniyah taps' - 42k - Cached - Similar pages - Note this

Aramco to miss Khursaniyah deadline
Mar 7, 2008 ... Boost in production to 500000 barrels a day unlikely to be achieved until later in the year....
Aramco To Miss Khuraniyah Deadline - 25k -

Also,….can we please get real for a second. No one ever just flips a switch and starts a field producing 500,000 barrels a day. That is not how it works. Do you imagine that they have all the wells drilled, a huge array of pumps all in place, King Abdullah flips a switch, and they all start pumping at once, filling the pipelines? That would be crazy. Production from an oil field gradually builds over time, as it is increasingly developed. There is never a simple step function from 0 to 500,000 barrels per day.

Mr. Mouawad does note that “Some investors doubt that Saudi Arabia has the capacity to increase its production beyond current levels.” That is the only point in the article that he recognizes, without naming the name “Matthew Simmons” that at least one very smart and very insightful petroleum analyst, who has spent a lot of time and effort studying this issue, does indeed, refuse to believe that “Saudi Arabia has the capacity to increase its production …. .” And why???? For one thing they are working awfully hard to produce at their current levels. For another, the “water cut” at their premier field, named “Ghawar” is up to 30%. This is a real problem. As the Khursaniyah field comes on stream, it is likely to be partially replacing a decline in production at Ghawar.

What has really happened here??? This is my theory. There is indeed a lot of pressure on the Saudi’s to do something to alleviate the high petroleum prices. There is a rising public sentiment, looking to find someone to blame, and OPEC is ever convenient. But if truth be known, I don’t think they can increase their production. I think they would love to produce more oil and sell it at $135 a barrel. But they can’t. Because of the intense ruckus, however, they have decided to pretend to do something, just to see if that mollifies the crazy westerners. So they float a rumor, and host an oil summit. They say they would really like to see the price come down a bit. This part might be true, because they tried to keep prices high in the early 1980’s and it really backfired. So now they might truly be somewhat worried that this latest price increase will lay the seeds of a future price decline. Then again, they are raking it in now, so I don’t think they are too terribly upset. Whether they are, or not, I really doubt that there is a thing they can do about it. Just sit back, enjoy, and host a summit, just to let people know that they are concerned. Float a rumor that they are increasing production, but not go on record so that in two months when people ask, “where was that increased production?” they can say, “we never said we were increasing production.”