No one contests — the world needs more oil. Most also agree that oil supplies would continue meeting the growing demands for many, many more decades to come and that the oil era is still far from over.
However, at the same time, there is also a growing consensus that most of the new supplies have to come from this very region. Output increase from the Middle East and especially Saudi Arabia would be crucial in meeting the galloping global demand. And it also remains a fact that any further increment in output would come with considerable investment in the sector.
According to the UK-based consultancy Wood Mackenzie, Saudi Arabia could increase its oil production capacity by 48 percent by 2025. The report says Saudi Arabia’s output capacity could hit 16 million barrels per day by then.
Saudi Arabia has said that it could add another 200 billion barrels of oil to its current proven reserves of 264 billion barrels. Riyadh is investing $80 billion by 2009 to raise its output to 12.5 million barrels a day.
Similarly, Iraqi Oil Minister Husain Al-Shahristani also claims that as per recent studies, besides the current 115 billion barrels of proven Iraqi reserves, the country has a significant potential yet to be explored. He emphasized 78 such oilfields have been identified over the last few years and most of them were of the “gigantic or large” size. He also noted that 25 such massive fields have already been earmarked for development.
Iran on the other hand is also now claiming it has the potential to increase its oil reserves considerably.
The region still holds considerable potential.
Saudi Petroleum and Mineral Resources Minister Ali Al-Naimi when asked earlier at the Asian energy ministers’ gathering in Riyadh about Saudi plans beyond 2009, said “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 b/d,” adding that “producers need concrete signs of demand before committing to further supply boosts beyond its 12.5m barrels per day target in 2009.”
While consumers insist on energy security, oil producers underline this could be ensured only if they are provided with demand security.
Soaring infrastructure project costs are making producers even more cautious. “Making such investments at a time when capital expenditure costs are at an all-time high entails a significant risk. The last thing we need is idle capacity,” OPEC President and United Arab Emirates Oil Minister Mohammed Al-Hamli also emphasized while in Riyadh.
High prices have, in the meantime, slowed annual demand growth from the breakneck pace of 2004, when the world’s thirst for oil grew more than 3mbd. Last year, annual growth was just over 750,000 b/d, according to the IEA. But in absolute terms, the consumption was still growing.
Besides encouraging conservation and alternatives, high prices have also allowed non-OPEC producers to begin drilling oilfields that were previously deemed not feasible economically. All of a sudden those became feasible too.
With a current capacity of 11.3, Saudi Arabia produced around 8.5mbd in April. This meant the Kingdom was already sitting on almost 3 million bpd spare capacity. And by adding another 1-1.5 million barrels per day in capacity by end 2009, as currently scheduled, the spare capacity would touch the 4 million barrels per day mark. But project cost on bringing new fields on stream keeps rising.
The current scenario has adversely impacted the investment climate in this strategically crucial sector.
