bye bye oil

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First signs of a global decline in oil?

By Adam Porter

 

Wednesday 25 August 2004, 10:31 Makka Time, 7:31 GMT

 

 

Many producers not only can not expand, they are in decline

 

 

 

 

 

 

New statistics are claiming that oil production in 18 producer

countries has passed its peak and is declining faster than

previously thought: At about 1.14 million barrels a day.

 

 

As oil prices bounce around the $45 mark one of the main factors

underpinning the price rise is the increasingly popular notion of

oil ''depletion''.

 

This is the idea that certain countries' reserves of oil have fallen

to such low levels that they can no longer produce at the volumes

they once did.

 

British trade journal Petroleum Review has reviewed the 2003

Statistical Review of World Energy, put together by British

Petroleum, to look for signs of depletion.

 

Its study claims that a large group of producer countries are now in

decline - putting even more pressure on those countries who have

spare production capacity.

 

There are several worrying aspects to this decline. The first is

that added to the current increase in global demand, it means other

countries must produce more just for the market to stay still.

 

Secondly, as those countries are forced to produce to their

capacity, it only hastens the day when they too will have declining

output.

 

Depletion speeding up

 

" The phenomenon of multiple counties all declining is a new one for

everybody... So, in the longer term, matching demand to the new

capacity of producer countries may prove to be a very tough call "

 

Chris Skrebowski,

Petroleum Review editor

 

" What surprised me was the rate of decline among the 18 countries

whose production is going down, " Petroleum Review editor and oil

analyst Chris Skrebowski told Aljazeera.

 

" For fourteen out of the eighteen countries the rate of depletion is

speeding up. This has confounded a long held view that decline was a

slow, gradual process.

 

" The first country to start to decline was the USA. It could be

possible that because they have such a high skill base, so many

wells and such cheap capital that they were able to slow their rate

of depletion. Other countries cannot, " he said.

 

Those 18 countries in decline amount to about 25% of the world's

producers. They are losing about 1.14 million bpd.

 

This means that the other 75% have to increase output. Not only to

add the extra barrels lost by the declining countries, but also to

meet leaping global demand, about 2.4 million bpd in 2004.

 

That demand is set to continue its increase, forecast by the

International Energy Agency to grow by another 1.8 million bpd in

2005.

 

" It's a crazy see-saw where the fulcrum, the pivot, is constantly

moving across. Eventually it is going to get to a point where the

see-saw can no longer balance, " said Skrebowski.

 

Sudden decline

 

Another problem analysts are facing is that it appears countries can

carry on expanding production until suddenly the decline sets in,

never to be reversed.

 

 

Depletion could eventually make

current high prices seem cheap

 

" The UK expanded production each year until 1999, " Skrebowski

continues. " Since then it has gone down every year by 5%, then 6%

then 8% and this year, 2004, it looks set to be higher. This is even

with the best technologies and techniques available. "

 

The country with the biggest rate of decline is Gabon. The

impoverished west African state experienced an 18% drop in

production year on year.

 

This is on a set of fields who only came on the market in the 1970s,

having been developed by the French oil companies. Such a rate of

decline could spell disaster for vulnerable African economies.

 

Geo-political factors

 

Of course these are the most obvious examples of depletion. The more

intangible effects are geo-political.

 

" Depletion is not very exciting or special if it is just in one

country, say the west of country X is going down but the east is

going up. No one really cares about that except those directly

involved.

 

" If, however, it is going down in 'stable' country X and up

in 'unstable' country Y, then you get the geo-political dimension.

What happens if declines in safe countries can only be offset by

increases from those less secure? " Skrebowski asks.

 

Because that is exactly what may be happening. For example

Petrologistics, an oil industry firm which tracks tanker shipments,

reported that Saudi Arabian output actually fell by 400,000 bpd last

month.

 

No more room

 

" It's a crazy see-saw where the fulcrum, the pivot, is constantly

moving across. Eventually it is going to get to a point where the

see-saw can no longer balance "

 

Skrebowski, on demand and supply

 

" There are serious questions being raised about the ability of Saudi

Arabia to expand production. Plus places like Abu Dhabi and Kuwait

have little or no room for movement as well. And you don't need very

many large producers to peak to make things very difficult for the

others, " said Skrebowski.

 

" As well as the 18 in decline there are many others who have no

further room to expand production by any significant amount. Mexico

has some problems with expanding any further and they do not appear

to have invested in any new exploration whilst China's figures claim

they are still just increasing capacity. Yet at the same time even

they have admitted their two main fields are in decline. "

 

Without gigantic and costly investment, that would itself inflate

prices, squeezing more oil out of the ground may prove hard.

Petroleum Review's rigorous statistical analysis may just be the

prologue to a bigger, more unsettling story.

 

" The phenomenon of multiple counties all declining is a new one for

everybody. Up to 1990 only the USA and Romania had started

declining. So, in the longer term, matching demand to the new

capacity of producer countries may prove to be a very tough call, a

very tough call indeed, " predicted Skrebowski.

 

And that may prove to be an understatement.

http://english.aljazeera.net/NR/exeres/561306AC-83F7-4FCE-A7EE-

3EDD1B5C6096.htm