About 45mbpd extra oil capacity required in 20 years to meet rising global demand

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Oil producers need to generate an extra crude output capacity of about 45 million barrels per day in the next 20 years to meet rising demand and offset a steady decline in major fields, the International Energy Agency (IEA) has said.

The bulk of the increase is expected to come from Saudi Arabia and other members of the 12-nation Organisation of Petroleum Exporting Countries (Opec) as other supply sources have nearly reached their peak, Fatih Birol, IEA's Chief Economist, told the Paris-based Arab Oil and Gas magazine.

Birol said Opec, which controls nearly 70 per cent of the world's oil but pumps just under 40 per cent of the supplies, would have the financial resources to add that capacity given the expected sharp rise in its earnings.

Citing forecasts by the IEA, he said Opec's cumulative crude export income could reach a staggering $23 trillion (Dh84.48trn) during 2008-2030, nearly four fold the group's revenues in the previous 22 years. "In the World Energy Outlook 2008, we carried out a very detailed analysis of the rate of decline of output at 800 oil fields that accounted for two-thirds of world oil production and contained three-quarters of global reserves," he said.

"That study found there was an average rate of decline of 6.7 per cent a year at most mature fields. We then explained that, even if world oil demand remained flat between now and 2030, one would need to add 45 million bpd to existing production capacity to replace the decline at existing fields, which is equivalent to around four times the production capacity of Saudi Arabia. The outlook for world oil supply thus represents a major challenge at the geological, technological, economic and financial levels," he told the magazine.

He estimated that about half the 45 million bpd will have to come from oil fields that have not yet been developed and the other half from fields that have not yet been discovered. "On the basis of this analysis, we estimate that conventional oil supply could reach a peak around 2020 if we do not discover new oil basins between now and then. But when discussing the peak oil issue, it is not at all enough to study only the prospects for supply."

Citing forecasts by IEA, dubbed the 450 scenario, he projected world oil demand to increase from around 85 million bpd at present to 89 million bpd in 2030.

"On this assumption, peak oil is not a major issue. When we think about energy security, we have to focus also on demand and not solely on supply," he said.

He said non-Opec producers could reach their peak supply in 2010 and this means that the burden of increasing oil production in order to meet the growth in demand will fall entirely on a few key oil producers, in particular within Opec.

He said in the IEA's 450 scenario, oil demand in 2030 is projected to be slightly higher than today, at around 88.5 million bpd.

"Given that Opec possesses the world's largest and lowest cost reserves, in this scenario they have a definite economic incentive to bring on this additional capacity as it would lead to substantial revenues from oil exports," he said. "We project that cumulative Opec revenues between 2008 and 2030 would amount to $23trn - a four-fold increase compared with the period 1985-2007. This is $4trn less than in the reference scenario, but this can be seen as merely a postponement of revenue, as more reserves would be left under the ground to generate revenue for future generations. As a result, spare capacity is set to peak soon and subsequently begin to fall. There is also the risk that faster demand growth than we projected could squeeze capacity even more."

By Nadim Kawach

© Emirates Business 24/7 2010