International
Saudis say OPEC will not meet projected oil demand in 10-15 years
By Finfacts Team
Jul 6, 2005, 23:34

OPEC, the Organisation of the Petroleum Exporting Countries, will be unable to meet projected western oil demand in 10 to 15 years, Saudi officials have warned.

At today's prices, the world will need the cartel to boost its production from 30m to 50m barrels a day by 2020 to meet rapidly rising demand, according to the International Energy Agency, the Paris-based energy watchdog.

Saudi Arabian oil refinery at Yanbu, on the Red Sea coast - Oil prices will continue to rise until world economic growth slows, due to supply constraints at both pumping and refinery level. BusinessWeek says that ExxonMobil figures the world contains some 7 trillion bbl. of heavy oil, oil sands, and shale-oil reserves alone, an amount roughly equal to those of all conventional reserves. If just 20% of those were recovered, ExxonMobil figures that would top the 1 trillion bbl. of conventional oil produced on the planet to date.

According to the Financial Times, senior Saudi Arabian energy officials have privately warned US and European counterparts that OPEC would have an “extremely difficult time” meeting that demand. Saudi Arabia calculates there is a 4.5m b/d gap between what the world needs and what the kingdom can provide.

Saudi Arabia has the world's largest oil reserves and will have to produce up to half Opec's production growth in the next 10 to 20 years, with the rest primarily coming from Kuwait and the United Arab Emirates.

OPEC produces about 29.5m b/d, 40 percent of world oil production and Saudi Arabia pumps 9.5m b/d. The FT says that Saudi has said that it could reach 12.5m b/d in 2009 and probably 15m b/d eventually. But a senior western energy official said: “They said it would be extremely difficult to move above that figure”.

So high consuming countries would need to adopt conservation measures for the 44.5m b/d to match world demand.

Two decades of falling prices in the 1980s and '90s have had a big impact on investment levels and the last new oil refinery to be built in either the US and Europe, was in the 1970's. With many of the easy-to-find fields already on the map, big oil producers have had to seek out  new sources in ever-more-difficult environments: not just under thousands of feet of water but also across frozen tundra and in politically unstable countries. As a result, production has risen slowly in recent years, while energy demand, particularly from China and India, has jumped. In 2004, global oil consumption rose 3.4 percent to 80.7 million barrels per day, the largest volume increase since 1976.

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.

CERA says such sources will account for 30% of all supplies in 2010, up from just 10% in 1990. BusinessWeek says that ExxonMobil figures the world contains some 7 trillion bbl. of heavy oil, oil sands, and shale-oil reserves alone, an amount roughly equal to those of all conventional reserves. If just 20% of those were recovered, ExxonMobil figures that would top the 1 trillion bbl. of conventional oil produced on the planet to date.