A recent article in Rigzone pointed out these opposite views on oil supply :
- Well known oil man T. Boone Pickens, who has been correct about this market about as well as anyone else, was on CNBC talking about $60 oil, after some short term weakness.
- Venezuelan Oil Minister Rafael Ramirez reported Tuesday (4/5) that "The Organization of Petroleum Exporting Countries is running out of spare production capacity"
- Fed Chairman Allen Greenspan was quoted as saying "higher prices eventually should soften demand for energy and boost supply ...the investment needed to bring oil to market had fallen short of what was needed to match unexpected recent gains in demand, especially gains in China." He also said that the world oil refining capacity was "worrisome".
This reminded me that there were many other related items in the news recently, including:
- Matthew Simmons president of his international banking firm was reported to say that Saudi Arabia's oil fields are in decline and they will not climb much higher then 10 million gallons per day (mmbd).
- In the same article as above Nansen G. Saleri a manager of reservoir management for Saudi Aramco refuted Simmons statement saying that Saudi Arabia can maintain production capacity at the current rate of 10 mmbd for the rest of this decade and if needed they could increase maximum output by 20-50% within a decade.
- The New York Times in its Feb 24, 2004 edition said "Saudi Arabia's vast oil fields, pumped for more than half-century, are in decline, raising serious questions about whether kingdom will be able to satisfy the world's thirst for oil in coming years."
- On Tuesday 12 April 2005 on Aljazeera.net , bank of Montreal's analyst Don Coxe was quoted as saying "The combination of the news that there's no new Saudi Light coming on stream for the next seven years plus the 27% projected decline from existing fields means Hubbert's Peak has arrived in Saudi Arabia"
- In the same report Saudi Aramco's chief executive officer Abd Allah Jumaa was reported to say "We have ambitious expansion plans to boost our capacity ... [and] raise our production capacity to 15 million barrels a day... We are confident that we can maintain these production rates for about half a century"
- On NewsRatings, a financial analyst web site, quoted Saudi Arabia's Oil Minister Ali al-Naimi as saying " Saudi Arabia can increase its oil supply by 1.5 million barrels per day... [and]Saudi Arabia is planning to expand its oil production capacity to 12.5 million barrels per day in the next four years, beginning 2006"
- "It was widely reported that a Goldman Sachs research report said "The oil markets are in a "super-spike'' period that could see 1970's-style price surges as high as $105 a barrel"
The EIA statistics and projections should be reviewed in light of these reports:
- According to the EIA World Oil Demand report the world demand averaged 82.63 million barrels per day (mmbd) during 2004.
- In their Annual Energy Outlook 2004 they projected 2004 consumption to be 82.25 mmbd in 2004, 84.26 mmbd in 2005 and 91.65 mmbd in 2010.
- In the same report they forecast OPEC to produce 32.06 mmbd in 2004, 33.08 in 2005 and 35.79 by 2010.
- In the EIA Short Term Outlook, April 2005 they listed Saudi Arabia's production capacity at 10.500-11.000 mmbd.
- In their April 2005 Short-Term Energy Outlook EIA also said "Gasoline prices in 2005 are projected to remain high, at an expected average of $2.28 per gallon for the April to September summer season, 38 cents above last summer. Similar high motor gasoline prices are expected through 2006."
- In the same outlook they said "West Texas Intermediate crude oil prices are projected to remain above $50 per barrel for the rest of 2005 and 2006."
- The EIA report, Long-Term World Oil Supply Scenarios, defends and explains their production forecast.
In looking this over there are many comments that could be made, but these five come to mind:
- As pointed out in Rigzone it is unusual for so much publicity in the popular press. Does this mean that more people are becoming aware that declining oil production will occur at some time?
- By saying that prices will remain high for at least two years, is EIA admitting indirectly that peak oil is a fact? I think that they are, but to the best of my knowledge they still think it is a long way off, somewhere in the 2030's. It will be interesting to see what they say in their Annual Energy Outlook 2005, due out next month.
- EIA, in its base case, assumes that demand will grow by almost 2.2% between now and 2010. Is this realistic in view of China's and India's seemingly unquenchable demand or are we going into a economic decline that will sharply cut demand?
- Where are we going to get even 10 mmbd more oil than we have now by 2010 if OPEC's output increases by only 3 mmbd. Russia, Caspian Sea area, Iraq, Venezuela? It seems very problematic, considering the number of countries whose oil production is in decline.
- It seems that the only groups that don't believe that we will soon be in a period of short oil supplies are economists and financial types (except Simmons), the EIA and Saudi Arabia. Most forecasts (many of them not referenced here) expect a peak between 2 and 10 years from now. When is EIA and the administration going to get the message? And why are all the economists so uninformed? They must think that demand can squeeze oil out of a dry rock.
This comment on the WFMY2, Greensboro, NC web site sums it up:
"While gas prices continue to soar, now the U.S. Dept. of Energy says get used to it."
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