"Government policies aimed at reducing oil demand create another element of uncertainty for prducers," Naimi said in a reference to President Bush's comments in his State of the Union address on America's "addiction to oil."  "This added risk is detrimental to timely investment decisions."

Al-Naimi said that the world currently has 2 million barrels per day, "or less," of excess production capacity  but not enough to keep markets calm that suppliers could offset a major output disruption.

"We would be more comfortable if we had between five to seven million barrels per day, he said, assuming daily global demand of about 85 million barrels per day.

The oil minister also also said that Saudi Arabia plans to build two new refineries - one in Jubail on the east coastand the other in Yanbu on the Red Sea coast - to increase its exports of refined products, such as petrol/gasoline and diesel. The refineries will have a capacity to refine 400,000 barrels of oil per day.

Together with other investments in refineries, in the United States and South Korea, Saudi Arabia plans to increase its refining capacity by 50 percent over the next five years to 6 million barrels per day.

The price of light crude for March delivery on the New York Mercantile Exchange fell more than a dollar on Tuesday. The price of light crude oil on the New York Mercantile Exchange is down to $62.84 per barrel. on Wednesday Feb. 8th.

Saudi Arabian Oil Minister Ali al-Naimi

BusinessWeek magazine says that 'there's little reason to assume that the next five years will simply see a continuation of current trends. Thanks to a combination of higher prices, increased exploration and production spending, and improved technology, oil supplies are poised to grow much faster than they have in recent years. Cambridge Energy Research Associates (CERA), a respected energy consultant, sees 20 or more major new fields coming on line each year through 2010. Altogether those fields could boost worldwide production capacity 15%, from 87.9 million barrels per day to 101.5 million by the end of the decade, CERA estimates. As a result, supply should exceed demand by 7 million bbl. per day, a huge leap from the current cushion of 1 million bbl. That should take pressure off prices. "OPEC countries have the potential, and [most] are increasing production," says Peter Jackson, a CERA researcher. "Non-OPEC production has increased at quite a lick compared to the 1990s."'

BusinessWeek says that hiking its exploration-and-production expenditures by 50% since 2000, to $12 billion a year, Exxon Mobil Corp. expects to add more than 1.2 million bbl. per day of new supply by 2007 from 27 projects, including ones off the coast of Angola and Russia's Sakhalin Island. Chevron Corp. expects its Big Five fields in West Africa, Australia, the Gulf of Mexico, and Kazakhstan to generate 800,000 more bbl. per day by 2009 -- a third of its current production. "We've got that pretty well mapped out," says Chevron Vice-Chairman Peter J. Robertson. "Projects are more complex now. They take a little longer. There's still plenty of oil in the world."

Not everyone agrees, of course. For starters, CERA's projections don't take into account the possibility of political instability, natural disasters, or other unforeseeable events that are facts of life in the oil business. What's more, despite all the new fields coming on stream, some experts argue that they won't be enough to compensate for the declining output of existing fields, which are being depleted at a rate of 5% per year. Since 1960 only four super-giant oilfields have been found outside the Middle East -- in China, Russia, Mexico, and Alaska -- and all except China's Daqing field are in steep decline. "Discovery size is going down," says J. Robinson West, chairman of consultant PFC Energy. "Decline rates are a problem."

Even mighty Saudi Arabia's ability to increase output substantially has come into question. The world's biggest oilfield, Saudi Arabia's Ghawar, has been producing for more than 50 years and is showing signs of age, with increasing amounts of water leaking into the oil, according to technical papers by Saudi Aramco engineers cited in a new book, Twilight in the Desert.

Certainly, global energy producers are struggling to clear all sorts of hurdles as they respond to rising demand. The number of rigs drilling for oil and gas worldwide is up 35% since the start of the decade, to 2,500. That's putting pressure on the prices of oil-field services. Operating costs at major oil companies now average $13.75 a barrel, a 33% increase since 1999, according to brokerage firm A.G. Edwards Inc. Even CERA believes that oil production could hit a plateau around 2020. If that happens, the world economy could face a major setback. Fuel prices would soar and energy-dependent sectors would be seriously crimped. Opening new reserves can be painstakingly complex and slow.

Oil production will require a spike in investment as new technologies are required to drill from what are termed "unconventional sources." Estimates of the reserves trapped in Canada's oil sands, where oil is mined like coal from big deposits, top 175 billion bbl. -- larger than those of Iran or Iraq.

Cambridge Energy Research Associates (CERA) has organised the energy conference in Houston

“We see no evidence to suggest a peak before 2020, nor do we see a transparent and technically sound analysis from another source that justifies belief in an imminent peak,” CERA Senior Consultant and Director of Global Oil and Gas Resources Robert Esser testified before a House Energy and Air Quality Subcommittee hearing on Understanding the Peak Oil Theory.  “It will be a number of decades into this century before we get to an inflexion point that will herald the arrival of an ‘undulating plateau’ of global hydrocarbon production capacity,” Esser said.

Expanding Sources

CERA projects that world oil production capacity – including crude oil, condensate, natural gas liquids (NGLs), oil sands, gas-to-liquids (GTL), and other sources – has the potential to rise from 87 million barrels per day (mbd) in 2005 to as much as 108 mbd by 2015, with further growth in capacity continuing after that point.

“A detailed new audit of our own analysis and the enormous scale of reserve upgrades in existing fields, confirmed by the most extensive and complete databases on field production – the proprietary databases of IHS, of which CERA is now part – contradicts those who believe that peak oil is imminent,” Esser testified.

Between 2005 and 2010, production capacity expansion will be  split between OPEC and non-OPEC countries, according to the CERA analysis; over the coming ten years, OPEC countries will produce a net gain of 12.2 mbd, almost 60% of the total expected capacity increase, with non-OPEC capacity rising 8.2 mbd.  Regionally, the United States and North Sea capacity declines, while Canada, West and North Africa, Latin America, the Caspian and Middle East continue to increase.  After 2010, increases in capacity will shift more to OPEC countries.

The increases flow from a large number of major projects in both OPEC and non-OPEC countries, with the top 10 projects being brought onstream each year together adding a cumulative gross capacity of 2.0 to 2.5 mbd per year until 2010.  Many of these projects were approved under a much lower oil price regime, and will proceed even if the price of oil falls significantly, Esser observed.

To evaluate assertions by some that the failure of global exploration to replace production in recent years is evidence of a peak, CERA and IHS reviewed detailed field-by-field data which indicated that production has been more than replaced by exploration plus  upgrades of previous discoveries.  For the period from 1995 through 2003, according to IHS figures and CERA analysis, global production of 236 billion barrels was more than compensated for by exploration success of adding 144 billion barrels and field upgrades of 175 billion barrels.

Unconventional Liquids

 In addition to crude oil from conventional sources, CERA’s analysis concludes that non-traditional sources will continue their dramatic rise -- expanding to about 35% of total capacity in 2015, compared with 10% in 1990.  Among the primary unconventional sources, many of which CERA expects to be considered traditional by 2015, are:

• Continuing rapid expansion of ultra deepwater production from 3.4 mbd in 2005 to over 9 mbd by 2010, with growth in the “big four” deepwater areas: the U.S. Gulf of Mexico, Brazil, Angola and Nigeria.
• Over 250% expansion of heavy oil production capacity from Canada and Venezuela from 1.8 mbd in 2005 to 4.9 mbd in 2015.
• New condensate and natural gas liquids (NGL) capacity expansion from 14 mbd currently to 23 mbd by 2015, with notable add-ons occurring in Qatar’s liquified natural gas (LNG) business and in Norway, along with NGL growth in many OPEC countries, including Saudi Arabia, Qatar and Nigeria.
• New gas-to-liquids (GTL) developments likely to produce 1 mbd by 2015, compared with 160,000 barrels per day presently.

Above-Ground Risks

While CERA’s outlook for capacity growth incorporates the uncertainties normally associated with exploration, development and production projects, it believes the major risks to this outlook are not below ground, but above ground.  In the immediate term, these include shortages of qualified people, rigs, yard space and raw materials, as will as rising operating costs.

Other above-ground risks include political turbulence, abrupt changes in contract terms, controversy over fiscal terms, weather and environmental effects, creeping nationalization and reconsolidation, and potential violence and insecurity.  All these factors can limit expansion of exploration and slow the rate at which new projects will be sanctioned, Esser stated.

Data Reliability

Esser observed that one reason for debate over peak oil is the reliance of different observers on different data sets, with the most visible being those published by exploration and production companies and filed with the U.S. Securities and Exchange Commission (SEC).  “These data are overly conservative as evidenced by the extent to which upward reserve revisions outweigh downward revisions.  This structural bias provides increasingly less useful information to investors and sets a confusing baseline for estimating future oil and natural gas supplies,” he testified.

A CERA report published earlier this year identified a key weakness of the SEC reporting rules as the fact that, having been developed in the 1970, the rules reflect the industry’s technologies and structures of that time, and therefore cause large portions of discovered oil fields to be excluded from disclosure until late in their producing lives. 

 Updating and modernizing the SEC rules to conform with the most widely accepted definitions for oil and gas reserves, as developed by the Society of Petroleum Engineers, would lead to the creating of a globally consistent data set covering the vast majority of the world’s reserves.  “As the very definition of what is oil begins to change with the addition of non-traditional resources such as gas-related liquids, syncrudes, GTLs and even liquid fuels made from coal, a reliable dataset will be even more vital to inform the debate about when the world may face an undulating plateau of global oil production,” Esser said.

Esser, CERA’s Director of Oil and Gas Resources, has led the company’s work on global oil and gas production analysis and forecasting for the past 15 years.  He is the author with Peter Jackson, CERA’s Director of Oil Industry Activity, of the recent study, Worldwide Liquids Capacity Outlook to 2010: Tight Supply or Excess of Riches?, and of numerous CERA reports and analyses of global exploration and production for oil and gas, including The North American Gas Supply Challenge: The Role of the Gulf of Mexico.  Prior to joining CERA, Mr. Esser worked as an exploration geologist and was responsible for Mobil Oil’s corporate energy resource analysis and oil and gas supply projections to support supply forecasts and oil and gas exploration strategies.  He is a member of the American Association of Petroleum Geologists (AAPG) and a trustee of the AAPG Foundation, and holds degrees in geology from Yale University and Stanford University. 

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