Since The Barrel blog at Platts does not invite comments to the articles it posts, I’ve decided to post my response here. You can see the original article here. But I’d like to point out this excerpt featuring a quote from Chatham House:
“The world’s largest exporter of oil is consuming so much energy at home that its ability to play a stabilizing role in world oil markets is at stake,” Chatham House warned in the report entitled “Burning Oil to Keep Cool, the Hidden Energy Crisis in Saudi Arabia.
“Saudi Arabia’s demand for its own oil and gas is growing at around 7% per year. At this rate of growth, national consumption will have doubled in a decade,” its authors said.
And my response:
The late Matt Simmons of Simmons International wrote a book entitled “Twilight in the Desert” in which he stated that, once Saudi Arabia oil production peaks, then global oil production will have also peaked. It now appears, especially when you consider the information in this article, that Saudi Arabia has peaked.
When an oil producer such as Saudi Arabia begins to feel the effects from its own oil consumption, it can be presumed that a peak has occurred. So, despite the high price of oil most of the past 5+ years, Saudi Arabia has apparently been unable to increase production to make up for losses from other producers such as Lybia and Iran and from their own consumption. They have inadequate spare capacity. And now what we’re seeing in Saudi Arabia is a phenomenon known as the Export Land Model, developed by Dallas geologist Jeffrey Brown.
The Export Land Model postulates that as an oil producer uses more and more of its own oil they will export less and less. This article lends credence to that model. I don’t have a current graph of Saudi export v. consumption but I think a look at the situation in Mexico comes close to what we’re seeing in KSA. The following graph offers a visualization, showing a growing gap between exports and consumption in Mexico, scale notwithstanding:
As you can see, the black line depicting consumption is now decoupled from the exports, in green, and a growing gap is evident. There is no reason to believe that adding 2011 data will change this picture.
Saudi Arabia is past their peak in crude oil production. Gaining a wider perspective of global oil production will show that we are indeed on a plateau that has lasted 8 years now. And we will soon know if Matt Simmons had it right regarding the effects of KSA decline on the global production trajectory. But, so far, he seems to be right on the mark.