WORLD OIL PRODUCTION

OPEC learns output management

Showing remarkable discipline, OPEC continues to confound Western analysts and governments with its relatively tight management of the global oil market. Having just finished its second year of controlling world oil supplies by default, OPEC has shown the type of cohesion that many observers in the West insisted would never happen.

In sharp contrast to previous decades, the group has demonstrated that it finally is learning how to "titrate" its output to keep oil prices within a desired "band." In late 1998 and early 1999, OPEC used three separate quota reductions among its members to bring their collective output down to 22.976 MMbopd, and boost crude prices from historical lows (in constant dollars).

However, once it became clear that prices were staying well above the group’s desired $22 – $28/bbl price band – threatening global economic health – OPEC acted decisively and consistently to correct the situation. In four separate actions between March 2000 and September 2000, oil ministers returned 3.724 MMbopd to the world market. After the fourth quota increase, prices finally came down below $30/bbl.

Nevertheless, it became apparent by last month that the production increase was working too well. Fearing that prices would plunge back toward 1998 levels, OPEC members agreed on Jan. 17, 2001, to a 1.5-MMbopd quota reduction, to 26.2 MMbopd. Prices improved immediately and, at press time, ministers pondered whether to cut additional output later in the first quarter to sustain prices during a traditionally slow period for oil demand.

Whipsawing back and forth between OPEC’s additions and reduction, global production of crude and condensate managed to increase 2.8% last year, averaging 67.779 MMbopd. Led by the Middle East, six of eight regions posted production gains. Where global output will head this year depends on future OPEC moves, although the best guess is that production will remain closer to second-half 2000’s level than to 1999’s average.

North America

Regional crude and condensate output reversed two years of declines, gaining 1.5%, to 10.563 MMbopd. Increases in Mexico and Canada were enough to offset yet another U.S. decrease.

United States. Early data from API and DOE’s Energy Information Administration indicate that U.S. oil production fell again for an eighth straight year. Output averaged 5.80 MMbopd, a 1.3% drop from 1999’s figure. (For further details, see the U.S. production article on page 65.)

Canada. Conventional crude and condensate output averaged 1.577 MMbopd, a 1.6% gain from 1999’s level. Onshore production – overwhelmingly concentrated in Western Canada – actually slipped 1.4% lower, to 1.434 MMbopd. By contrast, offshore production jumped 45% higher, to 143,000 bopd. That figure reflects output coming solely from Hibernia oil field (offshore Newfoundland), which went onstream in 1997, and now produces 150,000 bopd.

A second project in the area, Terra Nova field, is running behind schedule and probably will not begin output by the target date of first-quarter 2001. White Rose field is slated to be the third Grand Banks development. It could go onstream as soon as 2004. Canadian producing wells rose 3.5% last year, to 52,402. Within the total, there were 5,051 flowing wells. There were nine offshore wells (all flowing) onstream, compared to seven in 1999.

Mexico. After 1999’s decline – brought by the country’s informal agreement with OPEC to reduce output to boost prices – Mexican oil production grew 7% last year, to 3.11 MMbopd. Offshore output comprised 79% of national crude production, up from 77% in 1999. That figure should go higher in the next two years, as output from Cantarell field increases. Mexico still produces three grades of crude: heavy Maya (22°, 51% of output); low-sulfur Isthmus (34°, 30% of output); and extra-light Olmeca (39°, 19% of output).

Cuba. Output from Cuba’s aged oil fields has staged a dramatic comeback, thanks to production rehabilitation programs run by mostly Canadian operators. Crude production improved another 5.3% last year, to 49,500 bopd. Producing oil wells (all onshore) edged 7% higher to 260, including 194 on artificial lift. Cuba hopes to boost its oil and gas output further, to enable the island nation to become self-sufficient in electricity generation by 2005.

South America

Venezuela’s sudden adherence to a reduced OPEC quota had caused South American output to decline in 1999, for the first time in 16 years. That result was not completely reversed last year, despite OPEC quota increases. Regional production slipped 0.1%, to 6.428 MMbopd.

Venezuela. As a leading architect of OPEC cohesion, President Hugo Chavez adheres steadfastly to his country’s oil production quota. Accordingly, Venezuelan output grew only 0.8% last year, to 3.025 MMbopd. According to state firm PDVSA, producing wells jumped 21% higher in 2000, to 15,549. Thanks to recent drilling, flowing wells grew 29%, to 1,358. Wells on artificial lift also increased 21%, to 14,191. Some of these wells have been added by various of the four extra-heavy crude development projects in the Orinoco Belt.

Brazil. As the continent’s second-largest oil producer, Brazil saw its output jump 9.5% higher, averaging 1.205 MMbopd. Offshore fields’ share of total production rose to 82.6%, from 81%. On December 30, 2000, Brazilian oil production set a new daily record, hitting 1.531 MMbopd. State firm Petrobrás predicts that output will increase to 1.42 MMbopd during 2001. Regulatory agency ANP said last month that it plans to sell 26 additional oil fields to private operators this year, adding to the 73 mature fields that already are planned for sale in March.

Argentina. Output fell again last year, losing 3.5%, to 835,500 bopd. Oil wells actually producing increased 1.6%, to 13,960. Output per well fell to 59.8 bopd, down from 63.0 bopd in 1999. Repsol-YPF remains the runaway production leader, followed by Perez Companc (100,000 bopd) and Chevron’s Petrolera Argentina San Jorge (80,000 bopd). Despite these firms’ stated intentions to boost their Argentine oil output, it appears that the country will not realize its goal of 1-MMbopd output. Natural gas continues to gain stature as Argentina’s future fuel of choice.

Colombia. A long string of annual production increases came to a screeching halt last year. Analysts’ predictions were realized, as output averaged only 702,000 bopd, down 15% from 1999’s level. Output from BP’s Cusiana and Cupiagua fields is believed to have peaked in 1999 and begun declining last year. Meanwhile, Occidental’s Caño Limón oil field is nearing depletion. Without sufficient new discoveries, Colombia could become a net oil importer as soon as 2004.

Western Europe

Regional oil production could not sustain the increase that began in 1999. Good-sized gains in Norway and Denmark were not quite enough to offset a sizeable loss in the UK. Thus, output eased less than 1% lower, to 6.288 MMbopd.

Norway. With OPEC adding production steadily last year, Norway no longer felt compelled to limit its own output. Norwegian production rose 8.6%, accordingly, to 3.17 MMbopd. Statoil remained the largest producer, operating 42% of all output. Two field developments – Oseberg South and Sygna – went onstream last year. Three more developments – Snorre II, Gullfaks satellites phase II and Huldra – should begin production this year.

United Kingdom. Crude and condensate output fell 12.2%, to 2.483 MMbopd. Despite the large decline, the UK Offshore Operators Association (UKOOA) believes that production levels on the UK Continental Shelf (UKCS) could rise during the next three years, if investment plans for 2001 and beyond are achieved.

This belief is based on a UKOOA survey of British operators’ investment intentions that was conducted last October. In that survey, operators collectively intended to increase investment on the UKCS by more than 33% over 2000 spending levels. The survey shows that spending could amount to more than £4 billion (US$5.88 billion) this year, even before exploration expenditures are included.

Eastern Europe/FSU

Building on 1999’s small increase, regional oil output rode the tide of high prices to a 5.9% gain last year, averaging 7.928 MMbopd. The most significant increases were in Russia and the other former Soviet republics.

Russian Federation. Combined crude and condensate output improved for a second straight year, rising 5.6% to 6.416 MMbopd. The country’s oil companies put 3,300 new oil wells onstream last year, compared to only 2,180 in 1999. Operators’ capital spending totaled $537 million in 2000, or three times greater than the previous year’s figure. Sibneft was particularly aggressive, boosting output to 368,000 bopd in December 2000 from 307,000 bopd in January 2000. The firm plans to hike output another 11% this year, to 375,000 bopd.

Other FSU republics. After chalking up a 4.1% increase in crude output during 1999, the FSU countries outside Russia staged another rebound last year. Collective output jumped 8.8% higher, to 1.292 MMbopd. In percentage terms, the most significant increases were tallied by Kazakhstan (up 15.9%), Turkmenistan (up 6.0) and Lithuania (up 45.5%).

Africa

Due primarily to quota increases given to its three OPEC members, Africa’s oil production increased 1.6%, averaging 7.298 MMbopd. The gains offset minor losses in Angola, Egypt, Gabon and Tunisia.

Nigeria. As OPEC restored production cuts last year, Nigerian output slowly recovered, improving 1%, to 2.12 MMbopd. That figure might have gone even higher, had it not been for numerous disruptions to operations caused by unhappy citizens. Last September, youths disrupted production at 10 of TotalFinaElf’s installations, forcing the temporary shutting-in of 20% of the 124,000-bopd output.

Then, in November, Shell had to cut production by 250,000 bopd, due to technical problems and civil unrest. The company also had to shut-in 46,000 bopd last month, when a pipeline in southern Nigeria spilled crude. Meanwhile, the federal government restated its intention to halt the flaring of associated gas at oil fields. About 62% of associated gas produced in Nigeria is flared. The remaining 38% is re-injected for EOR usage and other purposes.

Egypt. Crude output was off 1% in 2000, while condensate production rose 7%. The number of producing wells slipped 1.7%, to 1,296. Flowing wells accounted for 14% of that total. Officials hope that exploration work in the Western Desert and Upper Egypt will yield enough new reserves to keep output at 800,000 bopd or higher. This would prevent Egypt from becoming a net oil importer by 2010.

Libya. In line with OPEC’s multiple quota increases, Libyan output gained 6.8%, averaging 1.41 MMbopd. Development of giant Elephant oil field has been delayed, while operator Lasmo awaits approval from the U.S. government. Lasmo was acquired by a U.S. firm (Amerada Hess) last November, thus subjecting Lasmo to potential American prohibitions on commercial transactions with Libya. Meanwhile, TotalFinaElf last month said that it has begun development work on the B structure of offshore Block 137. The firm expects to start production of up to 35,000 bopd in early 2003.

Middle East

The 3% production decline suffered by Middle Eastern oil production during 1999 was more than made up in 2000. Spurred by OPEC’s multiple quota increases, regional output gained 4.7%, to 21.872 MMbopd. Except for Syria and Turkey, every significant producer was able to hike production.

Saudi Arabia. Oil production in the Kingdom rose 3.2% last year, to 8.05 MMbopd. That figure reflects OPEC’s quota increases, as well as the Kingdom’s unilateral move last July to curb prices by throwing 500,000 bopd extra on the market. Satisfied with the status quo on the oil front, Saudi Aramco continues to favor natural gas expansion over oil development.

Meanwhile, in the Divided Neutral Zone (DNZ) shared with Kuwait, Japan’s Arabian Oil Co. failed to reach agreement with Saudi officials and lost that portion of its 40-year concession. The Saudi portion of the DNZ was taken over by a division of Aramco.

Iran. The small output loss sustained in 1999 was recovered last year. Output improved 1.8%, to 3.661 MMbopd. Within the total, offshore production remained steady at 505,000 bopd. Producing wells increased 11.7%, to 1,287, of which 212 were offshore. In matching its OPEC quota, Iran appeared to be producing at full capacity.

Kuwait. Production exclusive of the emirate’s 50% share of the DNZ jumped 11.7% higher, to 1.785 MMbopd. Kuwait Petroleum last month contacted foreign oil companies to formally commence its $7-billion plan to double crude output at northern oil fields. Service contracts are to be awarded to some of these firms, to raise production at these fields to a combined 1.0 MMbopd. However, the plan appeared to be bogging down in the national assembly.

Far East

Oil output rose again, albeit ever so slightly, to 6.614 MMbopd. Chinese and Thai production increased just enough to offset small losses in Indonesia, India and Malaysia.

China. A very small decline in crude output sustained in 1999 was reversed last year. Chinese production averaged 3.23 MMbopd, up 1.8%. Xinjiang Oilfield Corp. said that an oil field that it discovered in the Junggar basin of the Xinjiang Uygur Autonomous Region would begin producing sometime this year. Ten exploratory wells in the field already have been tested, and another 20 wells are being drilled for additional output. Meanwhile, the country’s largest field, Daqing, continues to produce about 1 MMbopd, equal to 31% of all Chinese output.

Indonesia. Although OPEC increased its members’ quotas, Indonesian output continued to fall last year. This indicates that the country is producing at its full capacity, a figure that continues to shrink. Production averaged 1.461 MMbopd, down 2.3%. Offshore output was 364,760 bopd. Producing oil wells totaled 9,341, of which 1,614 were offshore. Several new field developments remain on hold, as firms wait for the government to shove a new liberalized oil and gas law through the House of Representatives.

South Pacific

This region’s pattern of alternating years of production increases and declines continued last year. During 2000, oil output was up 25.3%, at 789,100 bopd. Australia’s large gain compensated for declines in New Zealand and Papua New Guinea.

Australia. There was a significant jump in Australian oil production last year. Output rose 35.8%, to 680,000 bopd. About three-quarters of the increase can be attributed to much higher production levels in the Northern Territory. A roughly 132,000-bopd gain was registered offshore in the Timor Sea. The cause can be traced to the ramping up of production at the new Laminaria and Corallina fields. Elsewhere, output was up in Western Australia, while other states remained relatively steady.