Will Saudi Arabia, Kuwait, and other Middle East oil producers go the way of Indonesia? Reporters for Reuters Breakingviews (www.breakingviews.com) asked yesterday April 21.

Indonesia, which had exported 1.2 million barrels of oil a day in 1980, became a new oil importer in 2004. The reason? Huge domestic subsidies had made oil so cheap that Indonesians had tripled their domestic consumption.

That seems to be what’s happening in Saudi Arabia and Kuwait now, Reuters reported. In Saudi Arabia oil consumption has climbed by 50% in the last decade to an estimated 2.7 million barrels a day. Saudi Aramco, the national oil company, projects that demand could hit 8.3 million barrels a day by 2030.

In 2010 Saudi Arabia exported 7.5 million barrels of oil a day. Add in estimated spare capacity of 2.8 million barrels a day. And then to the very scary math: If Saudi consumption rises to 8.3 million barrels a day, the country will consume almost all of the 10.3 million barrels a day it has in exports and spare capacity.

Where’s all this consumption growth coming from? Read more

Oil drilling failure rate surges at the Western majors

It’s not a factor now in the climbing price of oil but the trend certainly doesn’t portend cheaper oil down the road. Or a rosy future for the Western oil giants.

In 2009 Chevron’s (CVX) drilling failure rate climbed to 35%. More than one-third of exploratory wells came up dry. That compares to a 10% failure rate in 2008.

And that’s by no means an isolated increase in the drilling failure rate. ConocoPhillips (COP) saw its failure rate climb to 43% in 2009 from 32% in 2008.

Higher failure rates mean that it gets more and more expensive to find new oil to replace what’s been pumped out of the ground. Chevron’s target is a modest 1% increase in oil and gas production this year. ConocoPhillips is forecasting a 2.7% drop in production in 2010.

The reasons for the climbing failure rate are pretty simple. Read more

ExxonMobil buys U.S. natural gas for $31 billion–I told you this was a big trend

ExxonMobil (XOM) will buy XTO Energy (XTO) for $31 billion in stock. (ExxonMobil will also assume $10 billion in XTO Energy debt.)

This acquisition is just the latest example of a shift among the international energy majors from exploration and development for oil in risky new geologies and tough climates to a concentration on predictable, low-production cost assets such as onshore U.S. reserves of natural gas locked up in shale formations such as the Barnett shale formation of Texas.

I flagged that trend for you in two posts earlier this month. You’ll find links to those columns later in this post. Read more

Devonshire Energy’s decision to sell its expensive to develop deepwater assets in the Gulf of Mexico in order to concentrate on its onshore natural gas reserves makes perfect sense.

For that company.

For the oil industry and for the global economy picture, though, could make the predicted energy crisis of 2015 or so much worse.

In the short-term, there’s plenty of oil. The slowdown in the global economy and the addition of new supplies from countries such as Angola assures that. OPEC (Organization of Petroleum Exporting Countries) has a sizable surplus of production capacity.

In the long-term the story is very, very different. In the long-term, say 2030, oil could be in serious shortage again. And I think the likely effects of that shortage now 20 years off will be felt much sooner thanks to perfectly reasonable decisions by individual oil companies to maximize their profits. Maybe as soon as 2015.

If you are a genuinely long-term investor I’ve got a three stocks to suggest at the end of this post for how to profit from what is admittedly a very distant trend. Even if you’re not interested in putting money to work on prospects that are so far away, I think knowing about this trend will give you potentially profitable context for all your investments. Read more

Mexico’s rapid decline in oil production is proving peak oil proponents right

The news just keeps getting worse from Mexico’s huge Cantarell oil field—and worse faster than anybody had expected too.

Cantarell, a big field in the Gulf of Mexico, was once the world’s second largest oil field. But after years of under investment by Mexico’s national oil company Pemex production started to drop.

I wrote about this decline in my December 2008 book The Jubak Picks. At that time Pemex was projecting that even if it stepped up its investment in technology to wring more oil out of the field production from Cantarell would fall to just 700,000 barrels a day by 2012.

That would make a huge fall from the 2 million barrels a day that Cantarell produced in January 2006, I wrote way back then.

On September 8, however, Pemex announced that production at Cantarell had already plunged to just 500,000 barrels a day, way below the 700,000 pessimistically projected in December 2008 for 2012.

The damage from Cantarell’s decline doesn’t stop with Pemex. Read more