Tuesday, April 22, 2008

Sauidi oil production / Ghawar Field

Saudis put off longer-term oil capacity rise

By Carola Hoyos in Rome
Financial Times April 20 2008

Saudi Arabia, the world’s biggest oil producer, has put on hold plans to increase long-term production capacity from its vast oil fields beyond existing proposals, its most powerful policymakers have said.

In a series of statements, including one by the king himself, the kingdom has warned consumers it does not reckon there is a need for further expansion beyond 12.5m barrels a day, an assumption disputed by the world’s biggest developed countries.
The realisation Saudi Arabia will not increase production to 15m barrels a day as quickly as important consumers and the markets had assumed could put further pressure on oil prices, which touched fresh records last week.

Mr Naimi has floated the figure of 15m barrels a day several times as representing the next phase of Saudi expansion although the number has never been adopted officially as a target. International organisations such as the International Energy Agency have taken the statements as signalling that Saudi Arabia will continue with its expansion plans.
New York benchmark futures reached a record of slightly less than $117 a barrel last week in response to fear that Russia, the world’s second largest producer, was unable to increase production in the next years.
Abdullah Jum’ah, chief executive of Saudi Aramco, the kingdom’s oil company, said in a closed door meeting with oil ministers and executives in Rome on Sunday that market signals were ’imperfect’ and that there were uncertainties created by the move away from oil, the world’s worsening economic outlook and the recent turbulance in the financial markets, according to one person who took notes at the discussions. This has impacted Saudi Arabia’s view on the profitability of investing billions of additional dollars into its industry at this point, Gulf sources said.

In a recent interview with Argus, an industry newsletter, Ali Naimi, Saudi Arabia’s energy minister, made clear Saudi Arabia had “no plans” to embark on its next phase of expansion. “We are idling at around 9m bpd and we will reach capacity of 12.5m bpd by 2009.”
He added: “That is substantial spare capacity. As far as I know, all the latest projections, at least up to 2020, do not require anything higher than that.”
Forecasts by the International Energy Agency, the watchdog of the main consuming countries and an important participant in the forum, reach a different conclusion.
Most recently the group calculated that, even if all the policies to increase renewable fuels and to use oil more efficiently were to be enacted on Tuesday, the world would still need Opec’s daily production to increase by 11.5m barrels by 2030, the bulk of which would have to come from its biggest members, such as Saudi Arabia.
That is a tall order. It is more than 50 per cent more than Opec has managed to increase output during 1980 to 2006.

Recent announcements will harden the view of those sceptics who argue the kingdom is unable to boost production because of the high decline rates at its fields – a view that is still in the minority among those in the industry and one Riyadh emphatically rejects.
King Abdullah, reported by the official news agency this month, said: “I keep no secret from you that when there were some new finds, I told them: ‘No, leave it in the ground, with grace from God, our children need it’.”

New aggressive Saudi stance points to $100 oil for the long term

Letter April 22 2008

Financial Times

From Mr Peter Hutton.

Sir, Your article on constraints in Saudi capacity (“Saudis put oil capacity rise on hold”, April 21) is further evidence of a structural shift in the position of Saudi Arabia.
Since 2004, Saudi Aramco has more than doubled the number of oil wells, trebled the number of well recompletions and quadrupled the number of workovers, without any real increase in production. Oil service companies such as Schlumberger and Weatherford report significant increases in enhanced oil recovery techniques, and according to a key local supplier to Aramco their fastest-growing product is for water injection, not crude transportation.
Aramco is now also suffering from project delay: Khursaniyah (500,000 barrels a day) should have been ready in the fourth quarter of last year, but is still not in production, and latest reports estimate a partial start-up next month. The bigger risk is on Khurais, a 1.2m b/d oilfield due late in 2009, where similar delay would have a significant impact on the world's oil market.

Even without delay, Aramco is signalling no new capacity between the end of 2009 and 2012 (at least). Furthermore, adding all new projects to existing capacity, the total should reach 13m b/d, yet Saudi Aramco's own targets are lower at 12.5m b/d at the end of 2009 and 12.2m b/d in 2012. The likely assumption is that decline from the 5m b/d giant Ghawar field is increasing, a trend that they have long publicly denied.

Saudi Aramco looks to be undergoing a significant shift in policy. In February, its chief executive Abdallah Jum'ah flagged to a major industry conference that the world had sufficient reserves only if one included non-conventional sources (ie, oilsands, a big admission for Saudis). Conceding to oilsands suggests an inability to produce enough to prevent investment in this competing source, and perhaps also a recognition that having this expensive alternative as the price-setting mechanism in the long-term oil market is a positive development for prices.
Saudi fears of demand destruction have not been borne out and the kingdom is becoming more reconciled to high oil prices, not least because it has more than $400bn of infrastructure projects to carry out over the next 10 years. The comments in your article look to be further signalling of the new, more aggressive stance by Saudi Arabia at the highest level. The logic and evidence looks increasingly compelling for a long-term call for oil at $100 a barrel or above, rather than $75 analyst consensus and even lower figures from the oil companies. Such a move would be further bad news for those hoping that any economic correction would be shallow and swift, and might explain the unease about confronting higher oil prices more publicly in consuming nations.

Peter Hutton,
Head of Research,NCB Stockbrokers,London EC4R 6BH

Thursday, April 17, 2008

Rice, wine and water

As Australia dries, a global shortage of rice

Keith Bradsher

International Herald Tribune April 17, 2008

DENILIQUIN, Australia: Lindsay Renwick, the mayor of this dusty southern Australian town, remembers the constant whir of the rice mill. "It was our little heartbeat out there, tickety-tick-tickety," he said, imitating the giant fans that dried the rice, "and now it has stopped."
The Deniliquin mill, the largest rice mill in the Southern Hemisphere, once processed enough grain to satisfy the daily needs of 20 million people. But six long years of drought have taken a toll, reducing Australia's rice crop by 98 percent and leading to the mothballing of the mill last December.
Ten thousand miles separate the mill's hushed rows of oversized silos and sheds beige, gray and now empty from the riotous streets of Port-au-Prince, Haiti, but a widening global crisis unites them.
The collapse of Australia's rice production is one of several factors contributing to a doubling of rice prices in the last three months increases that have led the world's largest exporters to restrict exports severely, spurred panicked hoarding in Hong Kong and the Philippines, and set off violent protests in countries including Cameroon, Egypt, Ethiopia, Haiti, Indonesia, Italy, Ivory Coast, Mauritania, the Philippines, Thailand, Uzbekistan and Yemen.
Drought affects every agricultural industry based here, not just rice from sheepherding, the other mainstay in this dusty land, to the cultivation of wine grapes, the fastest-growing crop here, with that expansion often coming at the expense of rice.
The drought's effect on rice has produced the greatest impact on the rest of the world, so far. It is one factor contributing to skyrocketing prices, and many scientists believe it is among the earliest signs that a warming planet is starting to affect food production.
While a link between short-term changes in weather and long-term climate change is not certain, the unusually severe drought is consistent with what climatologists predict will be a problem of increasing frequency.
Indeed, the chief executive of the National Farmers' Federation in Australia, Ben Fargher, says, "Climate change is potentially the biggest risk to Australian agriculture."
Drought has already spurred significant changes in Australia's agricultural heartland. Some farmers are abandoning rice, which requires large amounts of water, to plant less water-intensive crops like wheat or, especially here in southeastern Australia, wine grapes. Other rice farmers have sold their fields or their water rights, usually to grape growers.
Scientists and economists worry that the reallocation of scarce water resources away from rice and other grains and toward more lucrative crops and livestock threatens poor countries that import rice as a dietary staple.
The global agricultural crisis is threatening to become a political one, pitting the United States and other developed countries against the developing world over the need for affordable food versus the need for renewable energy. Many poorer nations worry that subsidies from rich countries to support biofuels, which turn food, like corn, into fuel, are pushing up the price of staples. The World Bank and the United Nations Educational, Scientific and Cultural Organization both called on major agricultural countries to overhaul policies to avoid a social explosion from rising food prices.
With rice, which is not used to make biofuel, the problem is availability. Even in normal times, little of the world's rice is actually exported more than 90 percent is consumed in the countries where it is grown. In the last quarter-century, rice consumption has outpaced production, with global reserves plunging by half just since 2000. Current economic uncertainty has led producers to hoard rice and speculators and investors even see it as a lucrative, or at least safe, investment.
All these factors have made countries that buy rice on the global market vulnerable to extreme price swings.
Senegal and Haiti each import four-fifths of their rice. And both have faced mounting unrest as prices have increased. Police suppressed violent demonstrations in Dakar on March 30, and unrest has spread to other rice-dependent nations in West Africa, notably Ivory Coast. The Haitian president, René Préval, after a week of riots, announced subsidies for rice buyers on Saturday.
Scientists expect the problem to worsen in the decades ahead.
The Intergovernmental Panel on Climate Change, set up by the United Nations, predicted last year that even slight warming would decrease agricultural output in tropical and subtropical countries.
Moderate warming could benefit crop and pasture yields in countries far from the Equator, like Canada and Russia. In fact, the net effect of moderate warming is likely to be higher total food production around the world in the next several decades.
But the scientists said the effect would be uneven, and enormous quantities of food would need to be shipped from areas farther from the Equator to feed the populations of often less-affluent countries closer to the Equator.
The panel predicted that even greater warming, which might happen by late in this century if few or no limits are placed on greenhouse gas emissions, would hurt total food output and cripple crops in many countries.
Paul Lamine N'Dong, an elder in Joal, Senegal, worries that hot weather and failing rains have already crippled his village's crop of millet, a coarse grain eaten locally and traded for rice.
Sitting on a concrete dais reserved for elders, N'Dong said on a recent morning, "The price rises very quickly, which means we really have to go and look for money."
"It is live or die," he said.

Survival Techniques

For farmers in a richer nation like Australia the effects of the current drought are already significant.
The rice farmers who do not give up and sell their land or water rights are experimenting with varieties or techniques that require less water. Australia now has some of the world's highest rice yields for a given quantity of water.
Still, Australia's total rice capacity has declined by about a third because many farmers have permanently sold water rights, mostly for grape production. And production last year was far lower because of a severe shortage of water; rice farmers received one-eighth of the water they are usually promised by the government.
The accidental beneficiaries of these conditions have been the farmers who grow wine grapes in the same river basin where the Deniliquin mill stands silent.
Even with the recent doubling of rice prices, to around $1,000 a metric ton for the high grades produced by Australia, it is even more profitable to grow wine grapes.
All told, wine grapes produce a pretax profit of close to $2,000 an acre while rice produces a pretax profit around $240 an acre.
Ranchers like Peter Milliken, who raises sheep on 37,500 acres near Hay, Australia, are trying to reduce the water they use. Milliken is installing a buried nine-mile pipe to replace an irrigation canal that lost up to 90 percent of its water to evaporation and planning for the day when he does not irrigate at all.
Sheep farmers have already worked out cooperative arrangements to send flocks to whatever fields have recently received rain, sometimes herding or trucking them long distances. Keeping an eye on a flock, Frank Cox, a drover, said recently, "We had to move the sheep because they were dying of starvation, and truck them down here."
The changes here are making rice harder to find.
For instance, SunRice, the Australian rice trading and marketing giant owned by the country's rice growers, began preparing to mothball the Deniliquin mill five months ago, when it noticed that Australian farmers were planting almost no rice. To make sure that it could continue supplying the domestic market, as well as export markets in Papua New Guinea, South Pacific island nations, Taiwan and the Middle East, SunRice went into international markets and stepped up rice purchases from other countries, the chief executive, Gary Helou, said
The SunRice purchases became one among the many factors that are making it harder for longtime rice importers elsewhere to find supplies.

Seeking Hardier Rice

Researchers are looking for solutions to global rice shortages for example, rice that blooms earlier in the day, when it is cooler, to counter global warming. Rice plants that happen to bloom on hot days are less likely to produce grains of rice, a difficulty that is already starting to emerge in inland areas of China and other Asian countries as temperatures begin to climb.
"There will be problems very soon unless we have new varieties of rice in place," said Reiner Wassmann, climate change coordinator at the International Rice Research Institute near Manila, a leader in developing higher-yielding strains of rice for nearly half a century.
The recent reports of the Intergovernmental Panel on Climate Change carried an important caveat that could make the news even worse: the panel said that existing models for the effects of climate change on agriculture did not yet include newer findings that global warming could reduce rainfall and make it more variable.
Many agronomists contend that changes in the timing and amount of rain are more important for crops than temperature changes. Rajendra Pachauri, the chairman of the panel, said long-range climate forecasts for precipitation would require another 5 to 20 years of research, depending on the region.
In addition to drought, climate change could also produce more extreme weather, more outbreaks of pests and weeds, and changes in sea level as polar ices melts. Most of the world's increase in rice production over the last quarter-century has occurred close to sea level, in the deltas of rivers like the Mekong in Vietnam, Chao Phraya in Thailand and Ganges-Brahmaputra in Bangladesh.
Yet the effects of climate change are not uniformly bad for rice. Rising concentrations of carbon dioxide, the main greenhouse gas, can actually help rice plants and other crops although the effect dwindles or disappears if the plants face excessive heat, inadequate water, severe pollution or other stresses.
Still, the flexibility of farmers and ranchers here has persuaded some climate experts that, particularly in developed countries, the effects of climate change may be mitigated, if not completely avoided.
"I'm not as pessimistic as most people," said Will Steffen, the director of the Fenner School of Environment and Society at Australian National University. "Farmers are learning how to do things differently."
Meanwhile, changes like the use of water to grow wine grapes instead of rice carry their own costs, as the developing world is discovering.
"Rice is a staple food," said Graeme Haley, the general manager of the town of Deniliquin. "Chardonnay is not."