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Peak Oil Review # 32 out PDF Print E-mail
Monday, 14 August 2006
ASPO-USA has launched its latest newsletter, with an interesting contribution from Chris Skrebowski about CERA.

Subscribe to this newsletter at www.aspo-usa.org

Vol.1 No. 32

August 14, 2006 Tom Whipple

ASPO-USA conference in Boston on October 26-27; for more info, visit www.aspo-usa.com

1. Middle East

Little changed during the past week in the three inter-twined Middle East crises -- Lebanon, Iraq, and Iranian nuclear enrichment. Despite a ceasefire in Lebanon, few observers expect a stable situation to emerge in the near future. The near-civil-war in Iraq continues apace and Iran is still defying the deadline to end uranium enrichment by the end of the month or face UN discussions of possible sanctions.

As evidenced by the British plane-bombing plot, passions bred by various cultural, ethnic, and sectarian struggles in the Middle East continue to grow around the world. There is no end in sight, and the possibility that exports from the Middle East will be reduced remains as the major threat to global oil supplies.

2. Prudhoe Bay

After announcing that 400,000 b/d of production from the Prudhoe Bay oil field would be shut down due to newly discovered leaks, BP announced on Friday that, with increased inspections, oil from the west side of Prudhoe could continue to be pumped safely. Production is now down to 155,000 b/d, but BP plans to increase this to this to about 200,000 b/d.

Most of the lost 200-250,000 b/d of production is currently going to West Coast refineries that process about 2.7 million b/d of crude. Initially, the missing Alaskan oil production will be made up from crude oil stocks. US West Coast refineries lack pipelines to move supplies of crude westwards from the strategic reserve and other stockpiles. As the stockpiles dwindle, replacement crude will have to come from Asian and Latin American ports or by diverting cargoes, destined for the US Gulf via the Panama Canal.

A 200,000 b/d cut in crude supplies to the US West Coast should be manageable through drawdowns of existing stocks and increased imports. The loss of Prudhoe's entire 400,000 b/d production, however, would have likely resulted in much higher prices and possibly shortages along the US West Coast.

3. The CERA Report

Worldwide oil and natural-gas production capacity will rise 25 percent in the next nine years, Cambridge Energy Research Associates (CERA) said in a report released last week. One of the report’s four key conclusions: The much discussed "peak oil" is not imminent nor is the start of the "Undulating plateau". CERA's analysis points to global productive capacity rising from 88.7 mbd in 2006 to 110 mbd in 2015.

As could be expected the CERA report (or at least the press release version -- few would pay the $2,500 for the details of the "private report") came under immediate criticism from the peak oil community.

Peak Oil Review

, Editor

Cambridge Research and most peak oil analysts generally agree on the size of current world production and that existing fields are depleting at about 5 percent a year. CERA however goes on to posit that an additional 40 million b/d of new production will become available during the next 10 years. CERA, in general, takes a very optimistic view of future developments.

In some regards however, CERA's analysis approaches deception when they talk about "productive capacity" rather than actual production of oil or re-label oil from the hard-to-extract tar sands as growth of oil reserves.

CERA has a large following in business, the government, and the media. This new report will add still more delays to universal appreciation of how imminent the peaking of world oil production really is.(Over the next several weeks, POR will provide further analysis and commentary on this CERA report.)

4. China's demand for oil continues to grow

China's net import of crude oil rose to 70.33 million tons and refined oil products, 12.03 million tons, in the first half of the year, according to China's General Administration of Customs. This is an increase of 17.6 percent and 48.3 percent year on year, respectively.

In the meantime, China produced 91.66 million tons of crude, up by 2.1 percent over the same period last year, and 84.82 million tons of refined oil, representing a year-on-year increase of 5.6 percent, in the first half.

5. Energy Briefs

     

  1. • Iraq's crude oil production is back at 2.5 million barrels a day after the pipeline that takes oil to Turkey was repaired last week. The pipeline to Turkey, a popular sabotage target, has a capacity of 400,000 b/d.
  2.  

     

  3. • The International Energy Agency (IEA) raised its forecast for China's oil product demand in 2006 by 24,000 barrels per day (bpd) to 7.1 mln bpd, representing year-on-year growth of 6.5 percent expansion.
  4.  

     

  5. • Since 1994, natural gas reserves in Texas increased by 44 percent and the number of producing wells by 45 percent. Production, however, has remained fairly flat, varying between 5.3 and 5.8 trillion cubic feet. Year-over-year production has declined for 14 straight months and is down 8 percent in the first 5 months of 2006.
  6.  

     

  7. • Kuwait's parliament called once again for the government to reveal how much oil the country has in its reserves. Speculation has continued for months that the country has 48 billion barrels of oil in reserve, about half of the official figure of 99 billion.
  8.  

     

  9. • Nigerian authorities reported no progress in the search for 10 foreign oil workers kidnapped over the past 11 days in the Niger Delta.
  10.  

     

  11. • World grain stocks at the end of this crop year are projected to drop to 57 days of consumption, the shortest buffer since 1972 that triggered a doubling of grain prices. A major contributor to the shortage is the use of grain to produce fuel. In the US 55 million tons, or one fifth of the projected 268-million-ton corn harvest for 2006, will be used for this purpose.
  12.  

 

     

  1. • An oil spill caused by Israeli raids on a Lebanese power plant could, if not urgently addressed, rival the 1989 Exxon Valdez disaster that despoiled the Alaskan coast, the United Nations said Tuesday.
  2.  

Commentary: Chris Skrebowski on OPEC trends and CERA’s new report

(Note: Commentaries do not necessarily represent ASPO-USA's positions; they are personal statements and observations by informed commentators.)

We caught up with Chris Skrebowski for a quick Q&A just as he was preparing to depart for the airport, bound for Australia. He had time to provide quick observations about OPEC’s production trends and CERA’s new report.

POR: We sometimes read statements like this: "About 98 percent of global crude oil comes from 50 nations, of which more than half have already peaked in oil production, including seven of the 11 OPEC nations." Our question: since some of these OPEC nations peaked during the 1970s, then deliberately cut production, then lost production, and are now increasing production with more in the works, isn’t the more important issue "which OPEC nations can increase production, from today going forward, and by how much, and for how long," rather than who peaked when?

Skrebowski: I totally agree with that view. Let’s take a quick look at the OPEC production trends, one by one.

     

  1. • Algeria can go on squeezing out a little more oil every year until around 2010.
  2.  

     

  3. • Libya has big unknowns but can expand fairly gently certainly to 2010 and, depending on exploration success, probably for some time after that.
  4.  

     

  5. • Indonesia is in terminal decline but may get the odd year off (production stabilizing).
  6.  

     

  7. • Kuwait has a little more increase in their production to come but is likely to peak around 2010-2012.
  8.  

     

  9. • UAE/Abu Dhabi probably won’t peak till 2015.
  10.  

     

  11. • Qatar’s expansion is overwhelmingly linked to gas liquids and condensates associated with the gas/LNG production. In theory it could expand for some time but this really depends if the North field is as big as is claimed. Qatar is the original all-the-eggs-in-one-basket producer.
  12.  

     

  13. • Venezuela is a bit of a mystery. Maintaining conventional oil production requires (because of a high decline rate) a level of drilling and investment that is currently not happening. Expanding heavy oil (Orinoco) requires new projects. Higher tax take and preference for Chinese and Russian companies means no plans have been sanctioned, so even if there is sudden progress there will be no supply impact before 2010/2011. The longer investment is postponed the less chance of expanding supply; remember -- Depletion Never Sleeps. So Venezuelan production is more likely to decline than expand under Chavez’s leadership.
  14.  

     

  15. • Iran is clearly struggling. Decline rates in existing fields are high and although there are new projects they’re not coming through fast enough to expand production. I would expect production to remain around current levels with slow decline more likely than expansion.
  16.  

     

  17. • Saudi is also clearly struggling. They’re draining rigs and completion engineers from around the world. They’re already up to 100 big rigs and
  18.  

     

  1. expect to get to 120; just two or three years ago they were running a mere 30 rigs. I would guess that Saudi production will now have a saw-tooth profile with jumps in production as reworked/redeveloped fields come on-stream. All the new field developments they tout, with the exception of the 100,000 b/d Nuayyim field, are redevelopment of old fields that have actually been in production several times. All the super-duper new technology will do is extract the last knockings – fast. I’m with Matt Simmons on the Saudi outlook.
  2.  

     

  3. • Iraq is Iraq, but a not-too-cynical guess is no real expansion before 2010, probably holding at around current levels between now and then.
  4.  

     

  5. • Nigeria has expansion potential till 2010/2012 when rapid onshore declines are likely to overwhelm offshore gains. However, we have a replay of the Biafran Civil War underway (although we’re too polite to mention it). So far some 800,000 b/d of production has been shut in. So the Nigerian production outlook? Cloudy and unpredictable.
  6.  

POR: Cambridge Energy Research Associates just came out with a new report—"Expansion Set to Continue: Global Liquids Productive Capacity to 2015"--that projects a 25% production increase between now and 2015. Can you comment? We realize you’re off on an extended trip to Australia momentarily, so you probably haven’t had a chance to look at the full report…

Skrebowski: Very briefly, consider a few of the key facts from CERA’s summary:

     

  1. • CERA has higher Russian production than the Russian government.
  2.  

     

  3. • CERA projects higher OPEC production than even OPEC claims on its website. In terms of some individual fields they have higher output than OPEC claims.
  4.  

     

  5. • In 2009 they project production from Uruguay, despite the fact that the Petrobras house magazine (latest issue) says it's a 2011 start-up for a project they've only just sanctioned.
  6.  

     

  7. • BP’s start up in Angola by 2009 is another implausibility zone (among many).
  8.  

As if that was not enough they have global production several million b/d higher in 2011 than the IEA's new Medium Term Market Report (this only goes to 2011). As the IEA is usually criticized (correctly) for being too optimistic, CERA's estimates (which escalate dramatically after 2011) are frankly just plain fantasy.

This raises two immediate questions: First, did CERA just start with the answer -- 110 million b/d in 2015 -- and then work backwards to fit? Second, on whose behalf or behest are they issuing this nonsense?

Chris Skrebowski, with the Energy Institute (London), has edited The Petroleum Review since 1997. He has spent his entire working career in the oil industry, split roughly two-thirds as an oil journalist and one-third as a planner/market analyst within the industry (for BP, Saudi Arabia, etc.).

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