Friday, February 17, 2012

OPEC Increases Drilling Rigs by 45%

OPEC crude output for the month of January, 2012 averaged 30.9 million barrels a day. That's about 900,000 barrels/d more than the output ceiling OPEC had originally agreed to.The graph to the right shows annual oil production by OPEC country.
According to the February OPEC Monthly Oil Report, production increased by 1.8% in 2011, to 29.8 million barrels/day.
2011 spare capacity was 4.7 million bbls/d.

Drilling Rigs
Over the last year (2011), OPEC increased drilling rigs by 155, for a total of 498 rigs. That's a 45% increase YoY.

Here's an interesting fact...
OPEC produced more oil in 2005 than in 2011, with less than half as many rigs.
Notice how in 2005, OPEC only had 237 rigs running, less than half the rig count of today.
So OPEC is drilling harder but producing less, (about 900,000 barrels/day less, comparing 2005 to 2011).

Saudi Arabia
Saudi Arabia is by far OPEC's largest producer, and second in the world behind Russia. You can view more on oil stats by clicking the "Oil" tab at the top of the page.
While reading Twilight in the Desert, by Mathew Simmons, I was led to look into a few pieces of data to try to gain some quantifiable insight on these super-giant oil fields like Ghawar.
Ghawar of Saudi Arabia, the world's largest oil field has been on production for over 60 years.  It produces approximately 5 million bbls/day, and has already produced more than 65 billion bbls. Production from this single field makes up more than half of Saudi Arabia's oil production.
During this time, Ghawar's production has been periodically ramped up to make up for shortages of other OPEC countries due geopolitical issues in order to preserve markets of developed countries, like the U.S. This seems to be a double edge sword: if they don't open the well head valves, developed countries decline and demand permanently decreases. If they do increase production, they risk overproducing the oilfield, which has damaging effects.  Doing so, decreases the life of the oilfield by bringing gas cap formations and premature water encroachment, which decreases ultimate oil recovery.
You can read about the Ghawar field here:

According to the 2011 BP Statistical Review of World Energy, Saudi reported 264 billion barrels of proven reserves (19% of the world's supply). They produce about 9.8 million bbls/d, with the capacity to produce 12 million bbls/d.
It's interesting to note that Saudi Arabia has been stating roughly the same number of proven oil reserves for the last 10 years.
In any case, assuming the number is accurate, production stays constant, and no reserve replacements, Saudi will deplete their reserves in 74 years (264B/(9.8mmbod*365 days)=~74 years).  If they produced 12 million b/d, that number becomes ~60 years, that is assuming there really is 264 billion barrels recoverable in Saudi Arabia.

Global Perspective
Using the same assumptions, if we look at the global oil supply (1.383 trillion barrels as of beginning of 2011), and global production (83 million bbls/d), we will deplete our proven reserves in 46 years (1.38 trillion/83mil*365).

Of course, as price increases, driven by demand from developing countries like China (graph, right ), we may be able to increase the recoverable amounts via technological advances that cost more to produce but are supported by higher oil prices, which is certainly possible, as well.
So, say we found a super-giant oil field tomorrow that increased our world's recoverable oil reserves by 50%; at current production rates, that would equate to 68 years left of our global oil supply.

Again, these are based on oil production of 83 million bbls/day- which is our current global crude output (2011 BP Statistical Review).

Today, we demand 89.5 million bbls/d.  The International Energy Administration projects world oil demand to increase to 91.1 million bbls/day by the end of this year (graph, right).

As the gap between supply and demand widens in this inelastic, illiquid market, the main determinant of who gets what will be price.

These simple calculation are by no means perfect, as there are several elements that may alter the potential outcomes.  Just something I wanted to share with my fund members to help demonstrate the trends supporting higher oil prices and the vast importance of the petroleum industry in our investment portfolio, as well as in our modern society.

Monday, February 13, 2012

U.S. Weekly Petroleum and Rig Count

Crude Oil Inventories

For the week ending Feb. 3rd, crude stocks increased by 304 thousand barrels from the previous week to 339.3 million barrels or 23.1 days of refinery demand. You can see from the graph on the right that this is in the upper limit of the range for this time year.

U.S. field production increased by 43 mb/d to 5,763 mb/d.  Refiners operated at 82.8% of capacity, an increase of 1% since the prior week, as total crude inputs increased by 180 mb/d and operable capacity decreased by 6 mb/d.

Gasoline Supplied
Motor gasoline supplied continues to remain at depressed levels at approximately 8 million barrels per day. The most recent 4 week rolling period is down 6.8% YoY.

Drilling Rigs
Total U.S working rigs declined by 8 from the prior week to 1989. Gas rigs dropped by 25 while oil rigs increased by 18. Directional rigs declined by 2 and horizontal and vertical rigs declined by 3 each.