Peak Oil News: Supply-chain squeezes impair oil 'deliverability's

Wednesday, September 28, 2005

Supply-chain squeezes impair oil 'deliverability's

Engineering News Online

WPCThe world is not facing a shortage of crude oil, Saudi Arabian Minister of Petroleum and Oil Ali Al-Naimi said yesterday.

However, price pressures are being experienced in the global oil and petroleum industry because of backlogs and constraints across the span of the supply chain, he said.

Speaking on the second day of the 18th World Petroleum Congress, in Johannesburg, Al-Naimi said that the spare capacity, which was enjoyed in the mid-1980s to 1990s, has disappeared and the industry now struggles to meet the demands of unforeseen disasters, such as hurricanes Katrina and Rita, have served as examples of the fragility of the energy-delivery system.

The situation has arisen due to increasing global energy demands and insufficient investment in capacity, Al-Naimi said.

Nonetheless, he emphasised that there is no cause for panic, as the oil industry is an 'exceptionally resilient' industry.

On reports that the world's oil reserves are nearing depletion, he asserted that global reserves are more than sufficient to meet the projected demand.

“This sort of talk is not productive. In reality, we are experiencing a problem, not of availability, but of deliverability,” he said.

Al Naimi added that, since the 1970s, when there was a similar scare that oil reserves would run out, global reserves have more than doubled in size.

In Saudi Arabia alone, proven reserves have risen to 264-billion barrels, from 88-billion barrels in 1970, despite having produced 91-billion since then.

He said that the growth in reserves is largely due to improved exploration and extraction technology.

In fact, a 1% improvement in recovery rate in Saudi Arabia alone would result in an extra year's worth of production.

Also, due to technological advances and a stepped-up exploration programme, the Kingdom expects to soon boost its proven reserves by a further 200-billion barrels, Al-Naimi said yesterday.

'No competitive alternatives'

On the future competitiveness of oil in an increasingly-pressurised global energy market, the Saudi Minister said that, while he sees room for greater contributions from renewable energy sources such as nuclear and hydropower, as well as coal, he does not expect this to diminish the role of oil and petroleum.

“There are no competitive alternatives to petrol in the transport industry, and I do not expect this to change over the medium to long-term.” In fact, new technologies and environment-friendly demands will only increase the competitiveness of oil, he argued.

Need for stable, predictable industry

On the issue of deliverability, Al-Naimi said the lack of new capacity to meet rising demand is due to, among other things, public opposition to construction of new infrastructure near populations, government regulation and interference, and inadequate return-on-investment due to the long period of low prices experienced during the 1980s and early '90s.

He said that neither very high nor exceptionally low prices are sustainable in the long term.

“Low prices result in underinvestment in new capacity across the supply chain…and very high prices cause global growth, as well as the oil industry itself, to suffer,” he said.

These extreme peaks and troughs complicate the decision-making process for producers and investors.

With prices at their current levels, producers can ensure the returns needed to warrant new capacity and, over the next three to four years, the market can expect to see improvements, which, in turn, should provide some margin of safety to world oil markets, Al-Naimi said.

He added that price volatility in the global oil market is exacerbated by government intervention and a severe lack of world supply-and-demand data.

Calling for a global drive to confront deliverability issues, he said that Saudi Arabia was committed to lead the way in capacity expansion.

The kingdom is undertaking an aggressive exploration programme and expects to expand production capacity from 11-milion barrels a day to 12,5 million barrels a day, by 2009, as well as increasing its spare capacity from between 1,5-million and 2-million barrels a day to 3-million barrels a day of crude oil over the next four years.

It will also expand and upgrade existing refineries, build new export refineries in Saudi Arabia and key consumer economies, invest in new technology, train and develop the workforce, expand its research-and-development programmes and work to improve dialogue on an international scale between producers and consumers.

However, Al Naimi asserted that there is a need for increased cooperation and action on a global scale to find acceptable solutions to impediments and constraints to the growth of the oil industry, and proposed that the international community undertake a study of the global oil industry to identify bottlenecks and propose workable solutions.

'No takers' for OPEC offer

Al-Naimi also said yesterday that the Organisation of the Petroleum Exporting Countries had not received any offers for its spare output capacity, the bulk of which is held by Saudi Arabia.

The offer was made after the group's meeting last week, and will be valid from October 1, for three months.


At 8:52 PM, September 28, 2005, Blogger Neal Dikeman said...

Peak Oil Issues

Keep in mind one major thing about Peak Oil - product substitution and fuel blending.

As refined product price rises past a critical point, refiners and end users can and will substitute blended, for example, synfuels, biodiesels, and ethanol, substitutes into their fuel mix.

e.g. instead of just blending ethanol for the emissions benefit, we will blend it for cost in selected markets as the economics slowly dictate.

This will have the result of allowing the market to ease the transition through the Peak Oil problem, no matter when it occurs. Crude oil shortages are not an all or nothing issue. Fuel blending substitution will provide a safety valve.

Neal Dikeman

At 2:04 AM, September 29, 2005, Blogger sudhakar said...

Hi there, you have done a great analysis on Peak oil, I also thought about it for a long time and later found that people call it "Peak Oil", Iam from India, there is little or no awareness about it over here, and I feel there is nothing we can do about it, Have a look at my blog,it is not not in as much depth as yours.


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