doubting Saudi Arabia 2 million b/d in excess capacity / letter to the editor / OGJ
Oil & Gas Journal
June 6, 2016 issue
Letters
Saudi spare capacity
Concerning your Apr. 25, 2016 "Journally Speaking" [about deliberation by oil-exporting countries of a production freeze], I think any of us could have predicted the outcome of the Apr. 17 meeting (OGJ, Apr. 25, 2016, p. 16). You are right, you should have gone on record before the event.
I do have a comment on the generally accepted belief that Saudi has 2 million b/d in excess capacity. I have been hearing that Saudi can produce 12 million b/d for over 16 years. I worked in Saudi Arabia in 2000-02, and I do not think that they can produce 12 million b/d. They couldn't for sure then and probably can't now.
In 2006 they were producing 9.5 million b/d, and the OPEC price was $60/bbl. In 2012 they got production to 10.02 million b/d, and then it dropped back to 9.24 million b/d. The price was $109/bbl. If they were capable of 12 million b/d, why didn't they produce it then? They would have claimed greater market share (Iran had just been slapped with sanctions), would have gotten tremendous revenue, and could have dampened the price enough to curtail the unconventional boom that was building in the US.
In spite of hundreds of billions of dollars invested from 2002 to 2015, they were only able to boost production to 10.25 million b/d in June, an all-time maximum. They have to find 750,000-1 million b/d in new production each year just to replace decline.
I love the Arab people and enjoyed my association with them in my work there. I think it is good for them, politically, to have 2 million b/d in spare capacity, just as it was for Saddam Hussein to have nuclear weapons. I think their spare capacity may be just as real as Saddam's nukes were.
W. Todd Lovett
Reservoir Engineer
Amarillo
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