International
Weak demand, future reserve concerns color global pictureAs this mediocre year mercifully comes to a close, the latest supply-and-demand news from the International Energy Agency (IEA) is not comforting. IEA has revised oil demand estimates for 1998 and 1999 downward, "to reflect the latest reported demand and economic information, (which) have been lower than expected." IEAs fourth-quarter 1998 estimate was slashed by 600,000 bopd, resulting in a year-long growth trend of only 550,000 bopd, to 74.3 million bopd. For 1999, the agency has sliced its projection by 400,000 bopd, to 75.6 million bopd. However, that would represent a year-to-year increase of 1.3 million bopd, or more than twice this years anemic growth. IEA received surprisingly low demand data from the U.S., Mexico, China and South Korea. The agency notes that "while a portion of this apparent demand weakness may be attributable to drawing down inventories, the extended period of demand weakness is increasingly consistent with weakening underlying consumption, in response to the deteriorating economic situation." These projections will not be pleasant reading for operators, service / supply firms and major oil-producing countries. Operators and service / supply firms already have conducted sizeable layoffs to bring expenses back in line with revenue realities. One wonders what other measures they might resort to, if prices fail to recover in 1999. Similarly, oil-producing countries, particularly OPEC members, have implemented multiple output cuts to bolster prices, seemingly with little effect. Since many of these nations suffer from revenue shortfalls, their ability to remain resolute in holding down crude output is doubtful. A case in point is the Former Soviet Union (FSU), where oil exports from the republics are running at a record pace for the post-Soviet era. In October 1998, net FSU crude exports averaged 3.24 million bpd, while petroleum product exports exceeded 1 million bpd. Much was due to the Russian rubles latest devaluation. Extra quantities of Russian crude were diverted to Germany and Poland, in the wake of turmoil in Russias banking sector. IEA expected Russian exports to remain high through the end of 1998 to satisfy financial needs, despite higher domestic demand. Future reserves may be shaky. Meanwhile, a paper presented at the 19th North American Conference of the International Association for Energy Economics suggests that conventional oil reserves will not keep up with burgeoning transportation demand over the next 40 years. As argued by Dr. Mamdouh G. Salameh, director of the Oil Market Consultancy Service in London, near-term oil demand may suffer from temporary economic malaise, but long-term, sizeable demand growth continues to march on. Salameh calculated that with 811 billion bbl of oil already produced, "the worlds mid-point of reserve depletion will be reached sometime between 2002 and 2005." Even within OPEC, the average member-country will reach its mid-point of depletion by 2013. While technological advances made during the last 25 years have improved E&P efficiencies, new discovery rates continue to decline. The world is now consuming 26 billion bbl of conventional oil annually but only finding 6 billion bbl to replace them. It is possible that further industry innovation could improve non-OPEC recovery significantly, but Salameh cautions that it is naïve to think that this would be enough to stem the tide. Further, he contends that non-conventional oil sources cannot hope to satisfy more than a tiny percentage of current demand without huge investment. He calls this "an exceptionally daunting task." Salameh concludes that rising global oil demand and declining reserve discovery rates could lead to a "radical increase" in oil prices, with chronic shortages developing from 2010, onward. In the meantime, the industry cannot afford to invest heavily, in todays economy, to drill for new reserves, yet we are going to need substantially greater volumes of new reserves in coming decades.
CanOxy boosts Yemeni holdings. Canadian Occidental Petroleum has signed a memorandum of understanding with the government to acquire and operate four, large exploratory blocks in northeastern Yemen. The blocks 11, 12, 36 and 54 are contiguous, cover 12 million acres and are in an underexplored region. The company initially will identify prospective drilling locations. CanOxy has been gobbling up tracts in Yemen. Earlier this year, the firm acquired interest in Blocks 50 and 51. When these are combined with the four new blocks, plus a 52% holding in Masila Block 14, CanOxy now holds gross exploration territory in excess of 20 million acres, making it Yemens largest landholder. Since 1991, CanOxy has found 800 million bbl of oil in Block 14 and produced more than 300 million bbl. During the past 18 months, proved and probable reserves have increased 20%, while gross output has grown 11%, to more than 200,000 bopd. Copyright © 1999 World
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