RIYADH, May 19: Notwithstanding the growing calls for increasing the global crude output, producers seem to be cautious – somewhat confused and nervous -- and indeed for definite reasons.
Political rhetoric of reducing dependence on crude supplies form the Middle East and the growing emphasis on alternative fuels are finally having their impact. For an energy-starved world, this is an ominous development.
There is a growing consensus all around that most of the required incremental supplies would have to come from Middle East, particularly Saudi Arabia. But any increment needs massive investment in the infrastructure. And this investment into the sector would only flow if sentiments were in the positive area. That sentiment now seems to have been busted.
Most analysts agree Riyadh has the potential to come up to the challenge of keeping the global economy well oiled.
According to the UK-based consultancy Wood Mackenzie, Saudi Arabia could increase its oil production capacity by 48 per cent by 2025.
The report says Saudi Arabia could hit the output capacity 16 million barrels per day by then.
Saudi Arabia has been underlining for at least a couple of years now, it could add another 200 billion barrels of oil to its current proven reserves of 264 billion barrels.
Riyadh is investing $80bn by 2009 on upping its output to 12.5 million barrels a day.
Similarly, Iraqi Oil Minister Husain al-Shahristani says as per recent studies, Iraq that has 115 billion barrels of proven reserves currently, has much more potential acreage yet to be explored.
Although Shahristani did not say whether the surveys conducted so far have substantially increased the country’s current proven reserves, yet he emphasised 78 such oil-fields were identified over the last few years and most of them were of the “gigantic or large” size.
He emphasised the Iraqi National Oil Company has already identified 25 such massive fields for urgent development. In an era when there are questions about finding new super giant wells, this news is literally music to ears.
Iran says its oil reserves could also go up considerably.
Thus most of the new oil is to come from this region, as most concede. But this would come at a cost. Is the environment conducive to making such investments?
There were expressed intentions and even plans within the Opec kingpin – Saudi Arabia, to take output to 15-16 million barrels a day and even beyond.
The Saudi oil minister Ali Al-Naimi while answering a question about Saudi plans to expand the output beyond 2009, emphasised “Our feeling now, with the thrust and push for conservation, efficiency and the use of alternatives, is that we probably need not go beyond 12.5 million barrels per day,” he said after the gathering of Asian and Middle East energy ministers in Riyadh.
With talks all around about finding alternative, fuels and sources of crude other than the Middle East, a sense of hesitation is simply there in the air. The message was simple, “Saudi Arabia needs concrete signs of demand before committing to further supply boosts beyond its 12.5m barrels per day target in 2009.”
High prices have in the meantime, definitely slowed annual demand growth from the breakneck pace of 2004, when the world’s thirst for oil grew more than 3m barrels per day.
Last year, annual growth was just over 750,000 barrels per day, according to the IEA. But in absolute terms, the consumption was still growing and this needed to be met from somewhere.
Since then, besides encouraging conservation and alternatives, high prices have also allowed non-Opec producers to begin drilling oilfields that were previously deemed not feasible economically.
With a current capacity of 11.3, Saudi Arabia produced around 8.5m barrels per day in April. This meant the Kingdom was already sitting on almost 3 million barrels per day spare capacity. And by adding another 1-1.5 million barrels per day in capacity by end 2009, as currently scheduled, the spare capacity with Riyadh would touch the 4 million barrels per day mark.
