Transcript mbd - United States Association for Energy Economics

The 30th USAEE/IAEE North American Conference
“Changing Roles of Industry, Government & Research
October 9-12, 2011, Washington DC
----------------------------------------------------------------------OPEC & the Looming Oil Crisis
------------------------------------------------------------------------------By
Dr Mamdouh G. Salameh
Director
International Oil Economist / World Bank Consultant
UNIDO Technical Expert
World Bank, Washington DC / Oil Market Consultancy Service
Spring Croft, Sturt Avenue
Haslemere, Surrey
GU27 3SJ
United Kingdom
Tel: (01428) – 644137
Fax: (01428) -656262
e-mail: [email protected]
Outline
------------------------•
•
•
•
•
•
•
The Changing Global Oil Market Fundamentals
Has OPEC Become Irrelevant?
The Interplay between Oil & Geopolitics
The China Factor
Impact & Trends in the Global Economy
An Impending Oil Crunch?
Conclusions
Introduction
------------------------------------------------------------
•
The global oil market is at a crossroads. Current global trends in oil supply
and demand are patently unsustainable environmentally, economically and
socially. It is no exaggeration to claim that the future of global economic
growth and, indeed, the future of human prosperity depend on how
successfully we handle the two central challenges facing us today: oil
supply security and the pace at which we develop alternatives to oil.
•
The oil market fundamentals have been undergoing drastic changes since
the early 1990s. Unfortunately, the current alignment of these fundamentals
could only lead to a severe tightening of the oil market. Other major factors
impacting on the global oil market are China and the declining influence of
OPEC
•
And with a looming oil crisis, OPEC will soon reach a crossroads. It has to
ramp up supplies very significantly to stem the projected steep rise in the oil
price or risk becoming irrelevant. However, OPEC’s previous encounter with
high oil prices in 2008 does not inspire confidence. OPEC was then
completely unable to halt the oil price onslaught because they hardly had
any spare production capacity.
•
The pressure on the oil price will, therefore, continue unabated in coming
years.
Has OPEC Become Irrelevant?
------------------------------------------------------------------------------•
The influence of OPEC has closely followed the peaks and valleys of the
world's demand for oil. September 14, 2011 marked the group's fifty-first
anniversary — a half-century of existence characterized by embargo, conflict,
and even war.
•
Today, economists and analysts debate as to whether OPEC still has any
influence on the global oil market and prices or has become irrelevant.
•
OPEC has not offset the loss of Libyan oil exports since February this year
despite a surge in crude oil prices. OPEC production in the first half of 2011
averaged 28.8 mbd, down by nearly 1.4 mbd from February 2011. The drop took
OPEC production to its lowest in almost two years despite concerns over the
impact of high oil on the world economic recovery.
•
Yet against a background of rising oil prices, declining OPEC production and
loss of Libyan oil exports, OPEC still wants us to believe that the market is well
balanced with supplies meeting demand. The truth of the matter is that OPEC
hardly has any spare capacity.
•
Conventional wisdom holds that OPEC has the world in its grasp. It can
manipulate prices by tinkering with supplies. But the conventional wisdom is
mostly wrong. OPEC is no wizard. For the most part, its actions lagged behind
fundamental changes in oil supply and demand rather than led them. OPEC
looks like a masterful cartel when, in fact, it is mainly just riding the waves.
OPEC (Continued)
-----------------------------------------------------------------------•
Today’s oil cartel, even more than in the past, is really about Saudi Arabia.
But Saudi Arabia also is no wizard at the controls of the world market.
•
The Saudis claim they have an ambitious plan to increase output by about
one third over the coming decade, but they are finding that it will be a
stretch. Their fellow OPEC members are in a similar situation. In fact, the
Gulf members of OPEC are today producing at just the same level as they
were three decades ago because none of them has invested enough in
finding and producing new supplies. Those hard facts produce high oil
prices.
•
In theory, one would assume that OPEC works more effectively when the oil
prices slide down because it is within their power to cut production to shore
up prices. But since the OPEC members have a history of not adhering to
their reduced quotas, even this policy will eventually fail. Moreover, since
the oil prices are projected to remain high well into the future, OPEC could
become irrelevant and its production quota system redundant along with
OPEC itself.
The Changing Global Oil Market Fundamentals
----------------------------------------------------------12234-
Peaking of conventional oil production
Questionable proven oil reserves
A slowdown in oil production & a growing supply/demand deficit
A declining discovery rate
A tight global production capacity
Peaking of Conventional Oil Production
----------------------------------------------------------
• Conventional oil production peaked in 2006. Moreover, nine of the
top oil producers in the world have already peaked (see Table 1).
The only one among the top producers that has clear capability to
increase production is Iraq once stability is restored to the country.
Table 1
The Peak & Depletion of Conventional Crude Oil
--------------------------------------------------------------------------------------------------------------------Country
Date of Peak
Discovery
Date of Peak
Production
%
Discovered
%
Depleted
Ultimate
Production
(bb)
--------------------------------------------------------------------------------------------------------------------Canada
1950s
1973
95
76
25
Iran
1960s
1974
94
76
130
Indonesia
1950s
1977
93
65
31
Mexico
1950s
2002
94
55
55
Norway
1970s
2001
93
48
33
Russia
1940s
1987
94
61
200
Saudi Arabia
1950s
2005
96
60
210
UK
1970s
1999
94
63
32
USA
1930s
1971
98
88
195
The World
1962
2006
94
56
2100
--------------------------------------------------------------------------------------------------------------------Sources: Association for the Study of Peak Oil’s (ASPO) websit www.peakoil.net /
IEA / Petroleum Review / OPEC.
Saudi Crude Oil Production Peak
------------------------------------------------------------------------------•
Saudi Arabia's crude oil production peaked in 2005 at 9.6 mbd. In 2010
Saudi production averaged 8.2 mbd.
•
According to official Saudi sources, Saudi oil production will not increase
beyond 8.7 mbd until 2015. And as domestic consumption is projected to
grow by 5% per annum, Saudi exports are expected to shrink by 10% in the
next 4-5 years (see Table 2).
•
A steady production decline was forecast from 2010 onwards (see Figure
1).
Table 2
Saudi Crude Oil Production, Consumption & Exports
(mbd)
------------------------------------------------------------------------------Year
Production
Consumption
Net Exports
--------------------------------------------------------------------------------------------------------------------1980
9.90
0.61
9.29
1990
6.41
1.11
5.30
2000
8.40
1.54
6.86
2001
8.03
1.61
6.42
2002
7.63
1.68
5.95
2003
8.78
1.78
7.00
2004
9.10
1.88
7.22
2005*
9.60*
1.96
7.64
2006
9.15
2.02
7.13
2007
8.72
2.14
6.58
2008
9.26
2.30
6.96
2009
7.95
2.44
5.51
2010
8.20
2.70
5.50
2015
8.70
3.45
5.25
--------------------------------------------------------------------------------------------------------------------% change 1980-2015 - 16
+ 466
- 43
--------------------------------------------------------------------------------------------------------------------Sources: US Energy Information Administration (EIA) / Official Saudi data.
* Peak production year.
Figure 1
Saudi Arabia’s Crude Oil Production Rate
-------------------------------------------------------------------
Questionable Proven Oil Reserves
-------------------------------------------------------•
Many experts have questioned the exact size of OPEC proven oil reserves
and those of other OPEC producers such as Saudi Arabia, Iran & Kuwait
(see Table 3).
Table 3
OPEC Proven Oil Reserves
-------------------------------------------------------------------------------
Country
Proven Reserves Claim
Experts Estimates
--------------------------------------------------------------------------------------------OPEC
1068 bb
< 500 bb
Saudi Arabia
264 bb
63 bb – 88 bb
Iran
137 bb
30 bb - 36 bb
Kuwait
101 bb
24 bb
----------------------------------------------------------------------------------------------Source: Petroleum Intelligence Weekly (PIW) / Research by Dr
Mamdouh G Salameh on OPEC reserves / Research by Iranian
experts on Iran’s reserves / BP Statistical Review of World
Energy, June 2011.
A Slowdown in Oil Production & a Growing
Supply - Demand Deficit
------------------------------------------------------------------•
While the global oil demand is projected to increase from 87.38 mbd in 2010
to 118 mbd by 2030, world oil production has been virtually flat since 2004
and is projected to continue its downward trend between now and 2030.
•
As a result, the deficit between global supplies and demand will continue to
widen reaching 9.20 mbd by 2015 and rising to 18.90 mbd in 2020 and
37.40 mbd by 2030 (see Table 4).
Table 4
Current & Projected Global Oil Demand & Supply,
2009-2030
(mbd)
-------------------------------------------------------------------------------
2009
2010
2011
2015
2020
2025
2030
--------------------------------------------------------------------------------------------------------Demand
84.72
87.38
87.80
90.40 100.00 112.35 117.40
Supply
80.28
82.10
81.25
81.20
81.10
80.50
80.00
Supply / Demand
Deficit
- 4.44* - 5.28
- 6.55
- 9.20 - 18.90 - 31.85 - 37.40
--------------------------------------------------------------------------------------------------------Sources: US Department of Energy’s International Energy Outlook, 2010 / IEA,
World Energy Outlook, 2010 / BP Statistical Review of World Energy,
June 2011 / OPEC Monthly Oil Market Report, March 2011 / The US
Joint Operating Environment (JOE) – 2010 / Author’s projections.
* Deficit is offset by OPEC’s production cuts.
Declining Oil Discovery Rate
--------------------------------------------------------------Table 5
Global Crude Oil Reserve Additions, 1992-2010
(bb)
--------------------------------------------------------------------------------------------------------------------------------------------------------------
Year
Added Reserves
Total Production
As % of Total
Production
--------------------------------------------------------------------------------------------------------------------1992-2010
98.69
523.00
19
--------------------------------------------------------------------------------------------------------------------Annual Average
5.48
29.10
19
--------------------------------------------------------------------------------------------------------------------Sources: IHS Energy Group’s Data / BP Statistical Review of World Energy, 19932011.
Tight Global Oil Production Capacity
-------------------------------------------------------------------Table 6
Net Capacity Addition, 2006-2012
(mbd)
-------------------------------------------------------------------------------------------------------2006 2007 2008 2009 2010 2011 2012
--------------------------------------------------------------------------------------------------------Net new capacity 1.037 1.300 1.456 5.722* 3.157** 1.189
--------------------------------------------------------------------------------------------------------Sources: Petroleum Review, (various issues 2006-2011).
* Includes 4.1 mbd of production cut by OPEC in October 2008 because of the
recession.
** Includes 1.968 mbd of OPEC’s production cuts.
Can Unconventional Energy Resources Bridge
the Energy Gap?
------------------------------------------------------------------------------Table 7
Current & Projected Contribution of Unconventional Oil to Global
Oil Demand, 2009-2030
(mbd)
--------------------------------------------------------------------------------------------------------------------2009
2010
2011
2015
2020
2025
2030
--------------------------------------------------------------------------------------------------------------------Demand
84.72
87.38
87.80
90.40 107.00 112.35 117.40
Supply
79.95
81.32
81.25
81.20
81.10
80.50
80.00
Of which
Unconventional
1.55
1.55
1.55
1.93
3.05
3.40
3.75
As a % of global
Demand
2
2
2
2
3
3
3
--------------------------------------------------------------------------------------------------------------------Sources: Energy Outlook, 2010 / BP Statistical Review of World Energy, June 2011
/ OPEC Monthly Oil Report, March 2011 / The US Joint Operating
Environment (JOE) – 2010 / Author’s projections.
*Excludes biofuels.
Renewable Energy Potential
----------------------------------------------
Table 8
Primary Energy Consumption, 2010-2050
(mtoe)
--------------------------------------------------------------------------------------------------------2010
2025
2050
--------------------------------------------------------------------------------------------------------Primary Energy
12002
16194
19679
Oil
4028
5135
5288
Natural gas
2858
5119
6927
Coal
3556
3526
2748
Nuclear
626
1061
1937
Hydro
775
314
299
Renewables
159
1039
2480
As a % of total
1%
6%
13%
-------------------------------------------------------------------------------------------------------Sources: Shell International, Scenarios to 2050 / BP Statistical Review of World
Energy, June 2011 / IEA, World Energy Outlook 2010.
The Impacts & Trends in the Global Economy
-----------------------------------------------------------------•
Rise of many emerging economies and the shifting of global economic
power balance from the West to the emerging countries and the oilexporting countries.
•
Currently the West plus Japan account for 52% of the global GDP. However,
by 2015 the emerging economies and the developing world are projected to
account for 50% of the global GDP.
•
The overall transfers from oil consumers to oil producers in 2010 were
estimated at $1.81 trillion, or 3% of world GDP.
•
The Arab Gulf Sovereign Wealth Funds (SWFs) are equally growing in
importance globally. In 2008, they controlled assets estimated at $1.78
trillion.
An Asian Oil Demand Shock?
-------------------------------------------------------------
•
While we recognize the risks associated with a supply shock in the oil patch,
the world should be just as concerned about the demand shock evolving
from Asia. At the moment, Asia’s energy resources are grossly inadequate.
•
In 2010 the Asia-Pacific region’s dependence on oil imports amounted to
69%. This is projected to rise to 77% in 2015 and 86% by 2025 (see Table
9).
Table 9
Current & Projected Crude Oil Demand, Supply & Imports
in the Asia-Pacific Region (2008-2025)
(mbd)
% of change
----------------------------------------------------------------------------------------------2008
2009
2010 2015 2020 2025
(2008-2025)
--------------------------------------------------------------------------------------------------------Production
8.05
7.98
8.35
6.94
6.00
5.29
- 34%
Consumption 25.72 25.87
27.24 30.18 34.15 38.63
+ 50%
Net imports 17.67 17.89
18.89 23.24 28.15 33.34
+ 89%
As a % of
Consumption 69
69
69
77
82
86
-------------------------------------------------------------------------------------------------------Sources: BP Statistical Review of World Energy, June 2011/ Author’s
projections.
The Interplay between Oil Peak & Geopolitics
---------------------------------------------------------------• And despite efforts to diversify the US energy mix, the United States
is still heavily dependent on oil imports and this dependency can
only deepen in the future (see Table 10).
• The bottom line is that a rising competition for diminishing oil
supplies could lead to a deadly confrontation between the world’s
leading oil consumers.
Table 10
US Current & Projected Crude Oil Production,
Consumption & Imports (2008-2025)
(mbd)
------------------------------------------------------------------------------% change
2008 2009 2010 2015 2020 2025 2008-2025
--------------------------------------------------------------------------------------------------------Crude production 6.73
7.27
7.51 5.79
5.24
4.73
- 30%
Consumption
19.50 18.77 19.15 21.00 23.19 25.60
+ 31%
Net imports
12.77 11.50 11.64 15.21 17.95 20.87
+ 63%
As a % of
Consumption 65
61
61
72
77
82
--------------------------------------------------------------------------------------------------------Sources: US Energy Information Administration (EIA) / BP Statistical Review of
World Energy, June 2011 / Author’s projections.
The China Factor
-------------------------------------------------------• China’s spectacular economic growth has significantly altered its
position in the global oil market. In 2010, China accounted for more
than 10% of global oil consumption compared to 5% in 1996, whilst
its share of global production only amounted to 5% (see Table 11)
• To sustain its spectacular economic growth, China is racing to
secure Middle East deals, putting it on a possible collision course
with US interests in the World’s most volatile region.
• China is now the biggest importer of Saudi oil, the second-biggest of
Iranian oil, and the largest player in the Iraqi oil game.
Table 11
China’s Oil Production, Consumption & Net Imports,
2006-2030
(mbd)
% change
-------------------------------------------------------------------
2006 2007 2008 2009 2010 2020 2030 1993-2030
--------------------------------------------------------------------------------------------------------Production
3.71 3.74 3.81 3.80 4.07 2.88
2.44
- 34%
Consumption 7.42 7.82 7.94 8.20 9.60 14.24 21.36
+ 188%
Net imports 3.71 4.08 4.13 4.40 5.53 11.36 18.92
+ 410%
Imports as %
Of demand 50
52
52
54
58
80
89
--------------------------------------------------------------------------------------------------------Sources: BP Statistical Review of World Energy, June 2011 / International
Energy Agency (IEA) / Author’s projections.
China’s Oil Security : A Serious Concern
•
China’s growing dependence on oil imports has created an increasing
sense of ‘energy insecurity’ among Chinese leaders. They worry about the
US naval presence near the Strait of Hormuz, through which 17 million
barrels of Middle East oil pass every day and the Malacca Strait between
Malaysia and Indonesia, through which 80% of China’s imported oil moves
(see Figure 2).
•
With the US Navy patrolling the southern end of the Malacca Strait and the
Indian Navy patrolling the northern end, China feels sandwiched in and
strategically vulnerable. The Chinese leaders have often referred to the
‘Malacca dilemma’.
Figure 2
World Oil Chokepoints
-------------------------------------------------------------------------
An Impending Oil Crunch?
-----------------------------------------------•
Global oil demand is projected to rise from 87.38 mbd in 2010 to 117.40
mbd in 2030. To meet this projected demand, even assuming more effective
conservation measures, would require the addition of roughly the equivalent
of Saudi Arabia’s current oil production every seven years.
•
It will also require that OPEC raises its oil production from 30 mbd currently
to at least 50 mbd. at least 50 mbd. However, OPEC may either be unable
to raise its production to that level or may have a vested interest in
restricting production increases, both to conserve finite resources and to
keep prices high.
•
Even assuming the most optimistic scenario for improved oil production
through enhanced recovery means, the development of unconventional oil
and new discoveries, oil will be hard pressed to meet the projected future
demand of 118 mbd by 2030 (see Figure 3).
Figure 3
Future Oil Production
-------------------------------------------------------
Oil Crunch (continued)
------------------------------------------------• By 2030 the world will require production of 118 mbd, but oil
producers may be able to produce only 100 mbd. By 2012, oil
production surplus capacity could entirely disappear if the global
economy continues to grow. And by 2015 the shortfall in oil output
could reach nearly 10 mbd causing an oil crunch which will be
reflected in higher oil prices unreached before (see Table 12).
Table 12
Current & Projected Global Oil Demand & Supply,
2009-2030
(mbd)
------------------------------------------------------------------2009
2010
2011 2015
2020
2025 2030
--------------------------------------------------------------------------------------------------------Demand
84.72 87.38 87.80 90.40 100.00 112.35 117.40
Supply
80.28 82.10 81.25 81.20 81.10 80.50 80.00
Supply / Demand
Deficit
- 4.44* - 5.28 - 6.55 - 9.20 - 18.90 - 31.85 - 37.40
--------------------------------------------------------------------------------------------------------Sources: US Department of Energy’s International Energy Outlook, 2010 / IEA,
World Energy Outlook, 2010 / BP Statistical Review of World Energy,
June 2011 / OPEC Monthly Oil Report, March 2011 / The US Joint
Operating Environment (JOE) – 2010 / Author’s projections.
* Deficit is offset by OPEC’s production cuts.
Oil Crunch (continued)
• A severe oil crunch could, therefore, be in the offing by 2015 or
thereabouts.
• While it is difficult to predict what economic, political and strategic
effects such a crunch might produce, it surely would, at best, lead to
periods of harsh economic adjustments and, at worst, to conflict and
even war should one of the major oil-consuming nations choose to
intervene forcefully.
• The war on Iraq was a foretaste of what’s to come. That war cost the
global economy $14.13 trillions and was instrumental in precipitating
the recent global banking crisis and the world recession from which
the world is still suffering.
Conclusions
•
An analysis of the global oil market fundamentals indicates that a severe oil
crunch could be in the offing probably by 2015 or thereabouts.
•
And with a looming oil crisis, OPEC with hardly any spare production
capacity, can no longer influence the global oil market and the oil price and
has, therefore, become irrelevant. Moreover, since the oil prices are
projected to remain high well into the future, OPEC’s production quota
system will become redundant along with OPEC itself.
•
The pressure on the oil price will continue unabated in coming years
because of the growing global demand for oil and the dwindling global
proven oil reserves.
•
How far up will oil prices go is anybody’s guess but a projected price
ranging from $150-$170/barrel by 2015, may not be out of place. When the
oil price hit $147/barrel in July 2008, it precipitated the biggest economic
crisis the world has witnessed since the 1930s. One can only imagine what
damage to the global economy a price level of $150-$170/barrel could
cause.
Conclusions (Continued)
--------------------------------------------------------------------
•
However, the impending oil crunch might provide the incentive needed to
accelerate the movement away from oil and the development of alternatives
to oil.
Thank you for attention
Oil Market Consultancy Service
UK
&
The World Bank
Washington DC