The fact is that the crude markets are tight. There is call all around to add capacity. Fingers are pointing at OPEC, particularly the Gulf oil producers. The issue of adding capacity is increasingly under focus and the onus for adding capacity is on OPEC. The International Energy Agency chief, Claude Mandil, has called on oil producers to invest more in infrastructure so that production can be boosted to meet growing energy needs. An additional 3 million barrels per day of extra capacity is needed to avoid another year of blistering oil prices, he added. “We need much more investments in the oil sector globally. The capacity for additional production among oil producing countries is extremely weak, far lower than in the 1990s,” he said earlier in the week.
Eyes are hence focused on Saudi Arabia. “If some large producing countries won’t authorize foreign investment in their oil sector, then at least let state oil companies like Saudi Aramco in Saudi Arabia invest more,” Mandil emphasized.
The London based Center for Global Energy Studies (CGES) asserts that OPEC has refrained from adding to its capacity since 2000, disregarding market signals such as growing demand and rising prices. “The truth is that OPEC does not have enough spare capacity to help ease the situation. OPEC’s capacity has remained around 31.5 million bpd whereas global oil demand has grown by an impressive 6 million bpd over this period. Non-OPEC oil producers have supplied 72 percent of this increment, so perhaps can be excused for not having felt the need to boost its capacity. However, oil demand has been booming offering OPEC — along with rising oil prices — a clear enough signal of tightening market conditions, which the organization seemed to disregard,” said the August Monthly Oil Report.
According to the 10-member Arab Petroleum Exporting Countries (OAPEC), capacity expansions could lift output of Saudi Arabia along with the UAE, Kuwait, Qatar and Iraq from 21.7 million bpd in 2000 to 42.9 million bpd in 2020. The projects could push output from 31.4 million bpd in 2000 to 42.9 million bpd in 2020 - almost double the capacity. As per the OAPEC study, over the same period, Saudi Arabia could lift its capacity from 9.4 million bpd to 22.1 million bpd; the UAE could boost its capacity to 5.1 million bpd by 2020 from 2.5 million bpd in 2000. In contrast however, Qatar’s output will shrink from 900,000 to 700,000 bpd as Doha is concentrating on mega gas projects as its giant North Field. Kuwait has moved to revive a $7 billion project to develop four oil fields near the border with Iraq which could double its production from 450,000 in the area. Kuwait has already pre-qualified some 25 operator and non-operator foreign companies for the project.
The Kuwaiti energy minister said in June that the emirate was planning on an ambitious project to increase its production capacity to 10 million bpd over the next two decades. The new Kuwaiti oil strategy stipulates raising output capacity to four million bpd by 2010 and to five million bpd by 2015. The revival of the decade old project to develop the four fields with the help of international majors seems to be in line with the stated goals of the Kuwaiti energy minister.
These projects however, would only be possible, if the required finances are available. The Gulf oil producing states would need to tap all the sources of financing to meet the growing global expectations from them. New mode of financing hence could come into play, in the near to mid-term, to tap the energy riches of the region even further.
