Current Events

Join us as we watch the crisis unfolding

July 23, 2001

The prices for crude oil and natural gas have been creeping slowly downward during the last month. The lower prices and the lessened electric demand in California have led many people to believe that the "crisis" is going away. Stay tuned.

Rumors, published over the last couple of months, suggest that all of the OPEC countries, except Saudi Arabia, are producing close to their full capacity. In the absence of loud, screaming denials from OPEC members, we can assume that the rumors are substantially correct.

The Saudi government announced a new program to increase the utilization of natural gas within Saudi Arabia in order to free oil for export. In the same announcement came the immense surprise that major international oil companies are going to manage and implement the program. ExxonMobil will manage, on behalf of a consortium, a project utilizing gas from the supergiant Ghawar field. Shell will be the lead dog on a smaller program associated with the Shaybah field. The Saudi government made it very clear that the international companies were not being brought in to increase oil production. The government explained that the production capacity of Saudi Aramco is 10.5 million barrels per day and they are currently exporting only 8 million barrels per day. Great! World oil production is currently 67 million barrels per day and the Saudis have an extra cushion of 2.5 million barrels per day.

The most recent report from the International Oil Scouts includes the disturbing news that oilfields in Iraq are being produced faster than the maximum efficient rate. "Damaging the reservoir" is mentioned, although that is sort of an all-inclusive indictment. An example of reservoir damage is "water coning." If there is a water-saturated layer underneath the oil, pumping the field too rapidly can draw water up into the producing wells. If they water-cone the Kirkuk field, they will have messed up their crown jewel.

The New York Times, July 22, 2001, page A-1, column 1, reports that U.S. production of natural gas has been essentially constant since 1989, but natural gas producers are having to drill sharply increasing numbers of new wells to maintain that level of production. Like the Red Queen, they are running very fast in order to stay in one place. U.S. demand for natural gas is increasing by two percent per year because it is the most environmentally acceptable fossil fuel. Virtually all natural gas moves by pipeline, so Canada and Mexico are the major exporters to the U.S.A.