Global oil supply to rise by 20 mm bpd by 2010

Feb 11, 2004 01:00 AM

The world will experience a strong surge in oil supply growth this decade, according to a panel of Cambridge Energy Research Associates analysts assembled at the energy think tank's annual CERAWeek conference in Houston.
Robert W. Esser, CERA senior consultant and director, global oil and gas resources, predicted global oil production capacity will expand by 20 mm bpd during 2004-10. Other analysts with the Cambridge, Massachusetts-based CERA focused on selected areas of growth such as the Middle East, Russia, and the Caspian Sea region.
However, a couple of critical caveats emerged from the panellists' brief presentations:
-- There may be some roadblocks ahead in achieving these production gains in certain areas.
-- Should this spurt in output exceed projections of a very large increase in world oil demand this decade, then persistent downward pressure on oil prices will result.

According to Esser, the gain projected for world oil production for the balance of the decade compares with an increase of 10 mm bpd for 1995-2003.
"[The 20 mm bpd increase] may seem like a huge number," he said, then sought to counter scepticism by ticking off a list of major projects on tap that would support such a forecast. Big deepwater developments in the Gulf of Mexico and off West Africa and Brazil and the development of "huge discoveries" in the Caspian represent increments of 250,000-500,000 bpd apiece, "all coming on stream at the same time," he said.

In addition, Esser pointed to a sizable volume of natural gas liquids and condensate coming on line in tandem with the "huge volume" of natural gas expected to be produced this decade in response to rapidly growing demand for both pipeline gas and LNG. And he cited a coming surge in oil sands output in Canada and increased capacity in extra-heavy and heavy crude oil production capacity in Venezuela.
Of the forecast increase, Esser estimated that 6 mm bpd of new production capacity, "all under development now," will have come on stream during 2003-05.

The gains will be split 50:50 between members of OPEC and non-OPEC countries, he noted, citing Iraq, Nigeria, and Algeria in the former category and Russia, Brazil, Sudan, Ecuador, and the Caspian region in the latter. During 2003-07, the total new increment of supply will be 13 mm bpd, led by Russia and the Caspian, Angola, Brazil, and Canada in the non-OPEC group and Iraq, Nigeria, and Venezuela in the OPEC group, Esser said.
"During 2007-10, growth in supply will moderate, while growth in non-OPEC [productive capacity] will drop off," he noted.

Esser also underscored the importance of "non-conventional" sources of petroleum liquids supply in his forecast for the rest of the decade: Gas-related liquids and deepwater fields would account for 6 mm bpd each, and heavy and extra-heavy crudes would register another 2 mm bpd.
And the CERA analyst pointed out that much of this growth in supply is the result of major discoveries in recent years, in the Gulf of Mexico, off Braziland West Africa, and onshore in Iran. He estimated gains in reserves from these discoveries at 12 bn barrel in 2003 and 8 bn barrel in 2002.
"However, this very strong growth in international oil supply comes with a large caveat," Esser said. "Should it exceed the very large growth in demand that we are estimating, then downward price pressure will persist."

Although several presentations at the CERA conference touted Russia's potential for further big production gains, CERA Director Matthew J. Sagers noted the hurdles of current infrastructure constraints and growing concern over political constraints. A lack of pipeline export capacity currently has Russian companies exporting 800,000 bpd of crude by rail, with plans to export a further 1.5 mm bpd "by hook or by crook," Sagers said.
He noted that the netbacks are poor for crude exports via rail in Russia, which itself could act as a curb to Russian production growth. But recent Russian government actions targeting the giant domestic oil companiesmay be indicators of a broader move by the Kremlin, with disturbing implications for the prospect of Russian oil supply growth.
"Now we have the Russian government in a new mood, a growing infatuation with industrial policy," Sagers said.

Such a development entails proliferating efforts by the Kremlin to hike taxes on Russian oil and gas producers and "redistributing these added rents across the economy," as well as an overall bid to curb the power of oil companies in Russia. "Now we have some in the Russian government talking about whether Russian oil production should be capped," he said.

Sagers pegged 2003 Russian oil production at 8.91 mm bpd and forecast further growth in output this year of 700,000 bpd. While such a cap would not be applied directly to production, the Kremlin would resort to "the power of the pipe," or its control over export pipelines, to indirectly crimp production.
"In Russia, the stakes are really quite high... It is hard to assess what kind of attraction this new infatuation [with industrial policy] has," Sagers said.
While the re-election of Russian Vladimir Putin in March's national election is a given, Sagers said, he wondered about the makeup of the new ministerial team and how that will affect the prospects for a more muscular industrial policy in the Kremlin.
"Two months from now, it could be a totally different picture."

CERA analyst Katherine Hardin pointed to potentially positive developments in the Caspian region, including some regime changes, and said she sees the recent completion in $ 2.6 bn in multilateral lending agencies' financing for the Baku-Tbilisi-Ceyhan export pipeline as "a sign of confidence in the region."
Hardin estimated that the Caspian region's oil production capacity will total 3-4 mm bpd by 2010, "with much of the growth driven by renewed Russian interest in the region, especially the North Caspian."
She foresees Azerbaijan's current output of 280,000 bpd "more than tripling" by 2010, as the Azeri-Chirag-Guneshli fields complex builds toward ultimate output of 1.4 mm bpd. And she expects Kazakhstan's oil production capacity, pegged at 1 mm bpd in 2003, to more than double by 2010.

While many oil market observers have pointed to the startling growth -- 10.4 %-in China's oil demand last year as evidence that the Asian giant has emerged as a major new force in oil markets, CERA Director K.F. Yan warned that such a performance is not likely to be repeated in 2004.
"Sources of oil demand growth in China are cyclical," he noted, adding that much of China's impressive oil demand gain last year stemmed from a surge in oil-fired power generation capacity and from an incredible 75 % jump in sales of passenger vehicles. As growth in both these areas is slowing, Yan said that CERA expects Chinese oil demand growth to average only 5 % in 2004. Driving much of this year's oil demand growth will be added consumption of jet fuel and distillates, he added.

China observers should be prepared for more volatility in the outlookfor Chinese oil demand, Yan said, in the form of "unexpected demand surges or growth slowdowns."
Among other Chinese oil trends on the horizon, Yan cites stepped-up efforts by Chinese oil companies seeking more oil supply sources abroad through involvement in foreign exploration and development, as well as increases in tanker and strategic oil storage capacity.

Source: Oil & Gas Journal
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