political constraints on oil production
Financial Times - May 10, 2007
Politics and easy profits signal global oil crunch By Sheila McNulty in Houston
In the oil business, the constant development of new technology has
created the adage “good fields just keep getting better and better”.
Companies are able to get more out of oil fields than they expected
even a decade ago. Yet if they cannot access those fields, the oil
within is not going to come to market.
A study by PFC Energy, the respected consultancy, shows world oil
supplies might well fall behind growing demand in the long term as
political factors limit production capacity increases in key
producing nations.
“The full impact of the nationalisations that took place in the 1960s
and 1970s are taking effect now,” says Robin West, chairman of PFC
Energy.
Key national oil companies are not making the needed investment,
either because resource nationalism is leading them to block out
technologically advanced international oil companies or because they
are making so much money from current fields that they do not see the
need to reinvest.
The report singled out Mexico, Venezuela, Iran and Iraq as declining
producers. It listed Russia and Kuwait as stagnant producers and
Saudi Arabia - only just - as an expanding producer, with
qualifications.
Lord Truscott, UK parliamentary undersecretary of state for energy,
says countries such as Russia could have problems in future if their
national oil companies do not have sufficient funds to invest in new
fields, while other countries must attract western investment and
technology to increase production capacity.
PFC says the Cantarell field, which accounts for two-thirds of
Mexico’s production, is declining rapidly, yet developing deep-water
exploration could hold production steady if not boost it.
Venezuela could significantly increase production if it encouraged
investment in heavy crude. Yet its move this month to nationalise
major fields is likely to have the reverse effect, as the
international oil companies get less for their investment.
In Iran, prospects for capacity increases are not favourable, given
the political environment.
Iraq is seen as a “wild card”. Pre-war production capacity was
significantly higher than current levels, but new investment could
reverse that trend.
PFC lists the stagnant producers as Russia and Kuwait. Russia’s
production levels are expected to flatten, it says, and without
better management and capital, investment inflows are likely to
remain flat. That seems especially probable given President Vladimir
Putin’s statements that current output levels are “appropriate”.
Kuwait’s courting of international oil companies to boost production
has stalled on political infighting.
Saudi Arabia has said future demand for its production may advance
its efforts, but Saudi Aramco, its national oil company, has said
increasing production too much might run down its reserves faster
than the country would like.
The impact of continued depletion and stagnation of oil production
capacity will not be felt for some time, given that other producers
are expanding production, many of them in partnership with
international oil companies.
In Kazakhstan, Angola and Nigeria, for example, production is
expanding with the aid of outside investors, says PFC, which says
that Brazil has created a strong and innovative national oil company
that funds and develops production increases on its own.
“The scale of these additions, however, is limited and will peak in
relatively short order,” PFC says.
Whether the declining and stagnant producers will step in at that
point remains to be seen.
“For the first time in this petroleum cycle, the national oil
companies have a major responsibility for supporting world oil
markets over the long term,” Mr West says.
“The real challenge is whether the national oil companies will meet
their responsibility to bring the oil to market,”he says.
It is unclear whether that responsibility is as important to those
countries as meeting their needs at home.
For, as Jim Mulva, chief executive of ConocoPhillips, the US’s third
largest oil company, says: “The [national oil companies’] host
country may have other strategic objectives, which may limit the
speed by which they develop their resources.”
May 10th, 2007 at 10:22 pm
All of that research by PFC is well and good, but if the reserves of OPEC countries are overstated as is very likely, then the research becomes worthless. There is no other resource which is so clouded by obfuscation, phony data, political expediency and plain lies, than is oil. Any estimate of world reserves and thus future production is merely well informed guesswork, some of which is better that others.
It may be that world oil production has already peaked as investment Matt Simmons (read his excellent book on Saudi oil ‘Twilight in the Desert’)and others have stated. If not, then it is almost certain to do so within the next decade. The frightening thing is that no one is really sounding the alarm bells, and with no other energy source even remotely capable of replacing oil, our entire financial system, even our civilisation, is at grave risk.