November 13th, 2005

Kuwait admits it.

Apparently the world's second largest oilfield is past its peak, and they're cutting their production rate from 1.9 million barels per day to a more sustainable 1.7 million.

Notice that it's possible to throw more money at the problem to up the production rate. Modern oil extraction uses steam injection, you can drill more wells and throw more steam down them to bring up more oil. But this ups the price of every gallon you get. When Saudi Arabia started pumping they were getting 20% water and 80% oil back up the pipes, and last I heard (about 5 years ago) they were getting 20% oil and 80% water. Beyond a certain point, extra steam just comes back up immediately as water.

When the US is pushing saudi arabia to pump faster, what we're telling them to do is waste a lot of money. The saudis were protesting that it didn't make economic _SENSE_ to do what the US wanted. If they doubled their entire ifrastructure investment, spending as much new money as they've ever spent on drilling and pumping, total. Combined. Then they still wouldn't come anywhere _close_ to doubling their daily production. All the best spots already have wells, and those wells extracting at the rate the stuff can permeate through the rock. Suck faster and you just get a slurping sound, not more oil. All they would do is greatly increase what each barrel costs them to extract, without increasing the total number of gallons coming out of the field over its lifespan.

There's a point at which it doesn't make sense to spend any more money to increase the rate of production, and there's a point not too far after that where you can't go any faster even with an unlimited budget. Kuwait is taking the political hit to back off to a sustainable rate that makes economic sense. Good for them. (Note that this is a reversal of their previous position. I'd like independent confirmation, since there are still some conflicting messages coming from Kuwait, but we'll see. The cited source, Bloomberg, is a pay service...)