See: http://www.ceri.ca/Publications/
documents/GoE_Oct05.pdf

Mara, The ‘upgrader’ and ‘refing’ sections here might provide some idea beyond my poor old memory re. coker units and hydrocracking:
http://www.lloydminsterheavyoil.com/

‘who is really tying our hands’ – refinery upgrades are quite expensive. So far as Saudi Aramco’s reservoir management, please see the above PDF.

Yves, In 2000, the Saudis and some others changed their pricing method – Saudi Aramco applies formula pricing for crude oil sales adjusted monthly to the following benchmarks and markets: (a) the Brent Weighted Average (Bwave-1), which covers the extended trading session as the basis for its crude sales to Europe and gives protection against price distortion; (b) Dubai/Oman for the east of Suez, and (c) spot WTI for the US and the Bahamas.
…
The prices of WTI and Bwave-1 are set by futures trading on NYMEX and the IPE. ( APS Review Oil Market Trends, 8 October, 2007)

Now it may be that they have control over the futures markets but I think it more likely OPEC remains a convenient scapegoat.

Had you read the piece, it pointed out the Saudis have every reason to drive up the price themselves, since governments around the world are moving toward carbon tax and cap and trade regimes to reduce the use of fossil fuels of all kinds. Why let governments and private traders benefit from discouraging use of your big product if you can run up the price yourself, achieve the INEVITABLE result of reduced usage, but at least reap the economic rent? Seems like a no-brainer to me.

And it would also be in their interest to do so gradually and look like the matter was out of their control.

Now the post states clearly, most observers believe that Saudi Arabia is capacity constrained. But other experts, including Dr. Richard Pike, who worked in the oil industry for 30 years and now heads the Royal Society of Chemistry, argues that the methodology used for estimating proven reserves understates the total by 50%, and this is well known within the oil industry. However, according to him, they choose not to advertise this fact, since they benefit from higher prices.

And Pike is no oil industry shill; in fact, he think the fact that oil is more abundant than it is commonly believed to be is a very bad thing, because it will delay switchover to environmentally friendlier energy sources.

That does not tell us what is up with the Saudis, but was included to illustrate that basic facts are very much in dispute.

Saudi was supposedly able to turn the taps up to 12 million bpd almost overnight. Instead they have been investing in the largest number of new wells in the world over the past year. All they have to show for it is a measly 300m bpd. Ghawar is dying. They destroyed it by turning it off once and on again too high when they ran up to 12 million a few years back.

The rest of OPEC is maxed out or has heavy, sour crude which is not as desirable. That said, there is a price for everything. It is not as if heavy sours are selling for fifty percent of the price of Brent. Dubai, for example, is a mere 5$ cheaper than Brent. Hardly a pariah of the oil market.

I believe the frightening truth is that Saudi and OPEC production has peaked on existing fields and wells. OPEC oil consumption is rising rapidly. New oil is extremely expensive to produce (think Tupi which is six miles down from surface, under tremendous pressure, and at temperatures which melt titanium drill bits).

The drivel about Saudi punishing the world for developing biofuels is plain stupid. Saudi Arabia learned the lesson in the seventies when the OPEC embargo spiked prices. US consumers lowered their thermostats, put in insulation, and bought smaller cars. After prices came down (at least in real terms), the thermostats did not rise much, the insulation was NOT ripped out, and mileage requirements were legislated. Only much later, after years of bubbling inflation, did we circumvent mileage laws and start driving trucks (SUVS, hummers, etc.). The result, along with Chindian growth, was an explosion in demand and prices.

Now we are scrambling again to raise mileage requirement, develop hybrids, use clean coal, etc. Why in God’s name would Saudi push oil prices UP to stop us from doing all that?

One factor to consider in increasing output is that you risk damage to the well.

First, a “cap” of natural gas can form at the top of the well when the pressure drops (think of opening a 2-liter of soda that you just dropped)

Secondly, wells are not just a big swimming pool of oil underground…while Ghawar is probably closest to this, most of the other Saudi wells are more “complex”, meaning different pools at different depths.

It is much more efficient in the long run (higher total oil recovery) to pump slow and steady, and let the groundwater push the oil up to the well head, if you pump water (currently at like 11 million barrels per day) to maintain pressure, you can cut off outlying pools, and start getting a much higher water “cut” much sooner.

The Arabs likely have another easy-to-pump field that they mothballed…but this is probably being saved for future generations.

Plus, OPEC members have every reason to lie about their reserves, as their quota allocation is based upon stated reserves.

Keep up the good work Yves!
-DaveP
Pgh PA

I thought of another reason they might want to keep prices high. When Bush wen over there to ask them to drop the price, his motivation might have had to do with an attack on Iran. If the Saudis were to pierce the bubble before an attack, it might lessen the blow. In that same trip, he visited Israel where he allegedly gave the OK for them to attack.

Maybe the Saudis would just assume put the kibosh on an attack that could strengthen the hand of their own extremists? Oil at $138 makes an attack close to economic suicide for the US.

I know that the sour crude is trading significantly discounted to the sweet price, around $40/bbl less, and there is actually a large amount from Iran in floating storage right now.

My question is: who is really tying our hands in not being able to handle this sour crude? I know that we import a great deal of sour from Venezuela already, so we must have some capacity to deal with this.

I heard the Saudis were using water to pump into the wells to get more oil out, but that it was not a good long-term strategy.

I do cheer for alternative fuels, but I think the truly innovative ones have been suppressed, and we end up with highly destructive dreck like corn ethanol.

It’s small wonder that they don’t. They’re entirely too much like the 16th-century Catholic Church:

“…the Church didn’t want–didn’t permit–wide readership of the New Testament. Studying it was a privilege they had reserved for the heirarchy, which could then interpret passages to support the sophistry, and often the secular politics, of the Holy See.” (William Manchester, “A World Lit Only by Fire”)

Irrespective, they are only producing sour crude and that’s going to be very hard to refine given the refining infrastructure available.