World Energy Supply Is To Reach 283M B/DOE, With 3.7M B/D Of Spare Capacity, By 2015

APS Review Oil Market Trends, Nov 20, 2006

*** OPEC Capacity To Produce Crude Oil Will Rise From 33.45M B/D To 65.5M B/D By 2030; By Then OPEC's Supply Of NGLs Will Rise To 8M B/D, From 4.8M B/D At Present

*** Russia Wants To Establish A Cartel Of Nat. Gas Exporting Countries Like OPEC; But The Kremlin Keeps Quiet About This For The Time Being, Wanting First To Secure Its WTO Seat

*** WTI On Nov. 15 Rose After 3-Day Fall To $58.76 And The Average Of The Unleaded Gasoline Retail Price In USA Was $2.29/G, Down 2.7% From The Same Period In 2005; Distillate Stocks In USA Were Up 10% On The 5-Y Average

Addressing an international petroleum conference held in Tehran on Nov. 20-21, APS Energy Group President Pierre Shammas forecast that the world's primary energy demand will rise to 279.3 million b/d of oil equivalent by 2015, with the capacity to supply the global market to reach 283 million b/doe. This would leave the world with a spare capacity of 3.7 million b/doe by 2015, which is not much - meaning that oil prices would remain high through most of the period until then.

The following are extracts from the Shammas presentation: "...The need for expansion of capacities to produce petroleum (oil and gas) in the coming years is attested by the tightness of the current market and a difficult balance between supply and demand. In this respect the price of crude oil plays a crucial role.

"Capacity expansions on the supply side are proceeding apace and are dependent on the security of demand. There are no guarantees for the security of demand. The only credible security from the demand side comes from consumption projections being made by individual countries as well as by multilateral organisations, without taking into account such major risk factors as global and/or regional economic recessions".

Of the world's total of primary energy demand, he said, "the combined share of crude oil, natural gas and coal will account for about 82%, to 217.85 million b/d of crude oil equivalent, on the assumption that WTI's front-month price is to average $55/barrel of 2005 US dollars or above.

"On the basis of this scenario, the world by 2015 will have a sustainable capacity to produce about 283 million b/d of crude oil equivalent in oil, natural gas, coal and alternative sources of energy. The spare capacity of about 3.7 million b/d of crude oil equivalent will not be much. This means crude oil prices will be strong most of the time, which will help in the commercialisation of alternative sources of energy to the extent that these will be able to account for about 18% of the sustainable world capacity by 2015. The share of alternative sources of energy will grow to more than 20% of total primary energy needs by 2030.

"At times...when the spare capacity is to consist partly of alternative sources of energy, the latter will take priority over conventional petroleum; their share of the market will expand at the expense of conventional oil whose price will then be depressed. But the price movements in the period between now and 2015 will be mainly driven by the following factors:

1. The pace of technological advance for alternative sources of energy will accelerate when the average WTI price is above $55/barrel in 2005 US dollars continuously for more than 12 months.

2. The pace of technological advance for conventional petroleum will accelerate at the expense of alternatives when the average WTI price is below $55/barrel continuously for more than 12 months.

"Speculation in energy futures will continue and alternative sources of energy will have entered the futures markets by 2015. This factor - speculation in energy futures - will be strong only for as long as investors prefer commodity markets over equity markets. Things might change in favour of equity markets".

"OPEC will be in the lead in expansion of capacities to produce crude oil and condensate/NGLs. OPEC's capacity for crude oil will rise from 33.450 million b/d now to as much as 50.250 million b/d by 2015 and 55.5 million b/d by 2030. With condensate/NGLs included, OPEC's capacity now comes to as much as 38.250 million b/d and will reach 57.255 million b/d by 2015 and 73.5 million b/d by 2030.

This calculation is based on the assumption that Iraq's crude oil production capacity will rise from 2.5 million b/d in 2006 to as much as 4 million b/d by 2015 and 10 million b/d by 2030. This is also based on the assumption that Saudi production capacity for crude oil will rise from the current level of 11.3 million b/d to 13.5 million b/d by 2010 and to 15 million b/d by 2015 and through to 2030.

Kuwait's sustainable crude oil production capacity is to rise from 2.58 million b/d to 3.5 million b/d by 2015 and to as much as 10,000 b/d by 2030.

In Iran, three fields will enable the country to raise its crude oil production capacity by 1 million b/d in the next three to four years. These are Azadegan, Yadavaran and Anaran oilfields in southern Iran. It is said the oil recovery rate in these giant oilfields is about 10-16% and in some cases may touch 40%.