RIYADH, Aug 11: Investments in oil search within the Opec is currently at the highest level in two decades. A mid-year Opec report said 336 oil rigs were operating within its member countries at the end of last year. Rigs count is regarded as the best way to determine the drilling activity at a given time and the current number is the highest since the peak recorded in 1982. Oil price then hit an all-time-high equalling $90 a barrel in today’s terms.
This current level of activity within Opec was thus all the more interesting and indeed perplexing too, when seen in the backdrop of the IEA warning of an “oil supply crunch” looming over the next five years.
The reasons attributed includes a global economic growth, high crude consumption and fall in output. The agency in a report last Friday again insisted that the Opec needed to open its taps further.
In Saudi Arabia, the Opec’s kingpin, 382 new wells were drilled last year and this was the highest number for any year since 1980. The number of rigs in operation in the kingdom was also reported to be 120 plus at the end of last year.
The kingdom is currently investing billions of dollars to boost its production capacity to 12.5 million barrels a day by 2009, up about 11 per cent from current levels. 10 major projects are currently under execution within the kingdom.
The ongoing work in Khurais is believed to be the largest development in Saudi Aramco’s history. Khurais is thought to contain 23 billion barrels of oil reserves, most of it is light, sweet crude that's easy to refine. The adjacent Abu Jifan and Mazalif fields hold an estimated 4 billion barrels.
Other Opec members have also embarked upon significant expansion plans, so as to ensure regular and secure oil supplies. In the medium term, over 100 projects, with an overall estimated cost of some $120 billion are being undertaken by Opec member countries (excluding Iraq).
As a result of all these projects, the Opec crude capacity is projected to reach 39.7 million barrels per day by 2010 from the current 35.7 million bpd.
An idea of the level of work going on within Opec to increase capacity was provided by Opec Secretary General Abdalla Salem el-Badri. According to him Opec members had earmarked $130 billion for undertaking capacity expansions. This would add a net 6.7 million barrels a day to its overall capacity.
This level of investment however, has only been made feasible because of the firm global oil prices. There exists a relationship between the two. Opec members have posted record revenue of nearly $650 billion last year on high crude prices and increased oil production.
However, the ongoing political rhetoric, of finding alternatives to crude oil, so as to lessen dependence on the ‘oil from the Gulf’, Saudi Arabia and other regional producers taking a close look at their expansion programmes.
Capacity expansion is a costly affair, especially when coupled with galloping project costs. The ongoing political rhetoric thus may make some of those projects practically unfeasible making the investors shy to get into a risky venture.
Earlier there was euphoria in Dhahran, the virtual global energy capital, of a new wave of upstream investments, so as to take the production to 15 million barrels a day and even beyond. That seems to have died down lately – apparently a casualty of the political rhetoric.