Unless demand plummets, world oil supplies are nearly certain to remain tight through the rest of this decade, according to a study by the Oil Depletion Analysis Centre in London.
The study found that 68 oil-recovery “megaprojects” with announced start-up dates through 2010 would add 12.5 million b/d of crude supply by the turn of the decade. But that is unlikely to be enough to meet the world’s growing needs, said ODAC officials.
“This new production would almost certainly not be sufficient to offset diminishing supplies from existing sources and still meet growing global demand,” said Chris Skrebowski, ODAC board member.
Most of the estimated new supply would simply replace natural depletion of current production. A modest 1% annual increase in world demand for crude over the next 6 years would leave little or no surplus capacity to cushion against unforeseen supply disruptions, the ODAC study concluded.
If demand increased by 2%/year, available supplies would fall short of the total projected to be needed in 2010 by more than 2 million b/d—”roughly equivalent to losing all of Kuwait’s current daily production,” ODAC officials said.
“With most producers operating flat out to meet runaway demand increases this year, the world’s immediately available spare production capacity has virtually disappeared. This means that significant additional supplies in the near-to-medium term must come from new projects already in the development pipeline,” said Skrebowski.
“We now see those projects providing surprisingly limited relief in terms of incremental supply in coming years, and indeed physical shortages appear ever more likely if demand remains strong,” he said. “Even with relatively low demand growth, our study indicates a seemingly unbridgeable supply-demand gap opening up after 2007.”
As editor of the UK magazine Petroleum Review published by the Energy Institute in London, Skrebowski tracks details of major development projects for which oil companies estimate reserves of at least 500 million bbl each and the potential to produce 100,000 b/d. Using that list of projects, ODAC examined potential demand-growth scenarios of 1-3%/year.
Production losses
The study also assumed that the combined annual rate of production losses would remain constant in countries where output appears to be in permanent decline. However, evidence indicates the rate of production loss appears to be accelerating, and more producers are likely to go into decline soon, ODAC reported.
“The effect of depletion in mature oil-producing regions is now becoming a much more significant factor in the supply-demand equation,” said Skrebowski. The study cites data from the latest BP PLC Statistical Review of World Energy that 18 major oil-producing countries are past peak production and that their combined annual output dropped by more than 1 million b/d in 2003. That group accounts for almost 29% of total world production, ODAC said.
The study did not attempt to forecast when oil production in other countries would peak and go into decline. However, it said, “experts agree” that Mexico and China “appear to be among the likely candidates” within the next few years. It noted that Petroleos Mexicanos, Mexico’s national oil company, has announced that production from Cantarell oil field will peak in 2006 and decline by 14%/year. “China, too, has confirmed that its two largest producing regions are now in decline,” the study said. “It achieved only modest overall production growth last year of 1.5%.”
Of the 68 projects analyzed by ODAC, 56 are scheduled to come on stream within the next 3 years. Of the remainder, 7 are due to be activated in 2008, followed by 3 in 2009 and 2 in 2010. “Since it takes on average 6 years from first discovery for a major project to start producing oil, any other new projects approved now would be unlikely to add further supplies until after 2010,” ODAC concluded.
“It is disturbing to see such a dramatic falloff of new project commitments after 2007 and not more than a handful of tentative projects into the next decade,” Skrebowski said. “This could very well be a signal that world oil production is rapidly approaching its peak, as a growing number of analysts now forecast, especially in view of the diminishing prospects for major new oil discoveries.”
The study noted that IHS Energy, Epsom, UK, recently reported that 85% of all the oil ever discovered is now in production and that only half of the total produced last year was replaced by new field discoveries. Oil consumption has now exceeded new discoveries every year since the early 1980s. Overall, worldwide oil discoveries have been declining steadily for the past 40 years, it said.
