Oil supply can outpace future demand, CERA says
By Paul Haavardsrud
Global oil capacity can rise faster than demand for the next decade and beyond according to a fresh study of world oil fields that works to puncture views that higher prices are imminent as supplies near a peak.
The call from a well-respected international energy consultancy comes as oil prices trade near a record, pushed this week by problems that are forcing Alaskan producers to shutter 400,000 barrels a day.
Immediate disruptions aside, worldwide production capacity could increase nearly 25 per cent by 2015, according to Cambridge Energy Research Associates.
"In the short term, as we all know, this is a world oil market that is labouring under stress and apprehension, but the growth that we see there is very substantial," said Dan Yergin, CERA chairman and Pulitzer Prize-winning author of The Prize: The Epic Quest for Oil, Money & Power.
Updating and extending a study released last year, CERA now believes world supply can hit 110 million barrels a day in the next nine years up from 89 million barrels a day currently.
It's a far cry from projections from the so-called ``peak oil camp'', who believe cresting oil supplies will spur a rude comeuppance for a world hooked on oil.
Counterpunching that notion, CERA's field-by-field analysis and look at 360 new projects suggests global supply can keep climbing for decades.
"You have to ask yourself, why wouldn't you see further growth with prices where they are, why would you not see tremendous levels of investment, unless economic laws were abolished," Yergin told reporters on a conference call.
After jumping three per cent to start the week, oil closed off 67 cents in New York trading at $76.31 US.
Already jittery due to instability in the Middle East, markets were further roiled this week when pipeline corrosion forced BP Plc. to shut-in 400,000 barrels a day from Alaska for several months.
In an energy world with little buffer between supply and demand, even the spectre of lost barrels is enough to send prices higher. CERA argues that dynamic won't last forever.
Bringing on meaningful amounts of oil is a long process and one that had slowed dramatically in the late 1990s due to low prices, plentiful supply, and sluggish demand.
A growth surge earlier this decade caught the industry flat-footed. When consumption was, in the span of a few short years, pushed higher by some six million barrels to the current level of about 85 million barrels a day, oil markets were forced to respond with the record prices seen today.
Coming soon, though, investments in big projects such as those in Canada's oilsands will start to give oil markets more breathing room.
Oilsands production is set to more than triple to 3.5 million barrels a day by 2015, according to CERA's estimates. The increase represents about 12 per cent of the total growth in oil supply envisioned by CERA over the next nine years.
Unfortunately for those who would like to see prices head lower, adding production from a stable country such as Canada is hardly the norm. Much of the pending capacity is being counted on from places where political uncertainty is the rule rather than the exception.
On this point, CERA is quick to note that its analysis is based on what's geologically possible, and may well be derailed by above-ground politics.
Regardless, for some energy experts, the choice to gloss over political realities is a flaw that marginalizes CERA's work.
"When they talk about OPEC increases, how much is in Iraq and Nigeria?" Jan Stuart, a global oil economist with UBS Securities LLC told Bloomberg News.
"How is this remotely relevant or realistic or useful would be the key question I have."
In the context of dire predictions from the ``peak oil crowd'', CERA's study does offer a counterbalance that can be lost when oil prices rush higher.
A look at Saudi Arabia, for instance, shows that new projects and a fresh emphasis on exploration will shortly lift capacity there to 12.5 million barrels a day from about 10 million.
The finding directly refutes claims made by Houston-based investment banker Matthew Simmons who posited in his 2005 book Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy, that production from the Kingdom was set to fall sharply taking the global economy along for the ride.
"I have no reason to suppose that Saudi Arabian productive capacity is really in any danger and might start falling off rapidly anytime soon," said Peter Jackson, a co-author of the CERA report.
"The peak in oil production that is being debated, ostensibly, at the moment, is many decades away."