WORLD OIL PRODUCTION

Slowing economies clip demand

Slowing economic performance in the U.S., coupled with terrorist concerns and subsequent weakening of financial markets in other countries, contributed to slackening oil demand and a resultant drop in global oil production. Estimated worldwide crude and condensate output declined 1.4% in 2001, to 67.408 million bpd.

As a consequence, global oil prices fell from their loftier heights of $26 to $30/bbl, to a level of $18 to $22/bbl. The relatively quick, noticeably steep drop in prices prompted OPEC to react with multiple cuts in production quotas. The latest quota reduction agreement that began at the first of this year cuts output by 1.5 million bopd, in concert with five non-OPEC nations (Russia, Norway, Mexico, Oman and Angola).

Although several independent surveys of upstream executives collectively find them to expect lower prices and eventual economic recovery, they also worry about the security of oil and gas supplies. Furthermore, a solid majority expects global oil demand growth to exceed the 1.2% rate experienced during the 1990 – 2000 period. And while these individuals by an 80% majority do not expect oil prices during the next three years to exceed the 2001 average, they also believe that E&P expenditures will have to increase over the next three years to meet the expected demand growth.

Last year, six of eight regions registered oil production declines. The exceptions, oddly enough, were North America and Eastern Europe, particularly Russia in the latter case. Given OPEC’s latest agreement, the Middle East is not likely to hike output this year. The best candidates for production growth in 2002 are Eastern Europe/FSU, Africa, Far East and South Pacific.

North America

Regional crude and condensate output was up 4.3%, to 10.839 million bpd, mostly on the strength of gains in Mexico. Canadian and U.S. rates were essentially flat.

United States. Preliminary data from API and DOE’s Energy Information Administration indicate that U.S. oil production was relatively flat last year. There was a dip of less than 1% in output, to 5.823 million bopd. (For further details, see the U.S. production article on page 48.)

Canada. Production of conventional crude and condensate averaged 1.369 million bpd, a 0.1% rise from 2000’s level. Light and medium crude output slipped 4%, to 800,000 bpd, led by a 5% decline within Alberta. However, heavy crude production gained about 6.5%, to 569,000 bpd.

Output from the much-awaited, often-delayed Terra Nova oil field (operated by Petro-Canada) is finally coming onstream. The 2002 average is expected to be 80,000 bopd, compared to an eventual peak of 125,000 bopd. Producing oil wells increased 2.8%, to 54,791. Roughly 4% of these were flowing, including 15 offshore.

Mexico. Output jumped 14.7% higher, to 3.568 million bopd. Offshore production averaged 2,543 million bopd, or equal to 71% of the national total. Despite the higher output, early data from Pemex show that total producing oil wells fell 3.8%, to 2,904. The decline was strictly among wells on artificial lift, as flowing wells remained flat. Last month, Mexico said that it would trim 100,000 bopd, in concert with OPEC’s 1.5-million-bopd reduction.

Cuba. Improvement in the production rate from older fields along the northern coast continued last year. Crude output added 8.3%, to 52,000 bpd. Active producing oil wells edged upward to 264, including 206 on artificial lift. Further gains are anticipated this year, as foreign operators (mostly Canadian) continue to apply additional technologies.

South America

Regional output fell again last year, averaging 6.341 million bopd for a 6.1% decline. Three of the continent’s four largest producers experienced declines, including Venezuela, Brazil and Colombia.

Venezuela. A series of OPEC quota reductions is responsible for a 6.1% drop in Venezuelan output, to 2.995 million bopd. According to early figures from state-run PDVSA, active oil wells declined 56.1%, to 14,711. Energy and Mines Minister Alvaro Silva said last month, that he expects the Venezuelan crude price to recover to his budgeted price of $18.50/bbl, even though it was trading at about $16.50/bbl at press time. Petroleum revenues comprise nearly half of the government’s income and 75% of the country’s exports.

Brazil. Although still the continent’s second-largest oil producer, Brazil experienced a 12.4% decline in its production rate, to 1.28 million bpd. Offshore fields’ share of total production rose to 83.5%, from 82.6%. Nevertheless, Petrobrás’ oil output set a new daily record on Dec. 27, 2001, reaching 1.568 million bpd. Output from the Campos basin that day was also a record, at 1.274 million bopd. Three new platforms have been in operation since Dec. 16, 2001.

Argentina. Output is estimated to have edged up 2.5%, to 790,000 bopd, after several years of declines. A new hydrocarbons law has yet to be finalized and voted on. Officials believe such a new law will make Argentina’s oil and gas sectors more attractive to foreign operators. The law is expected to increase the regulatory power of provincial governments, shifting authority away from the central government in Buenos Aires.

Colombia. After a long series of annual output gains, the country has now experienced its second consecutive decline. Production fell nearly 12% last year, to an estimated 620,000 bopd. Colombia’s oil production was hit badly last year by an increase in attacks against the country’s second-largest oil pipeline, the 490-mi (780-km), 120,000-bpd Cano Limon line operated by Oxy.

Western Europe

Crude and condensate output was down in varying degrees for all three of the region’s largest producers – Norway, the UK and Denmark. Western European production slipped 6%, to 6.136 million bopd.

Norway. Preliminary figures show that Norwegian production slipped 1%, to 3.270 million bopd. However, Norwegian Oil Minister Einar Steensnæs told a London conference late last year, that he believes the country’s output will now remain stable at this rate until 2005. Furthermore, he said that Norway has the potential to produce oil for another 50 years and natural gas for another 100 years.

United Kingdom. Crude and condensate output recorded another double-digit slide, this time by 13.3%, to 2.250 million bpd. Production hit its lowest level in eight years, as some of the larger fields discovered in the 1970s and 1980s began to decline. Development and production enhancement projects are increasingly small-scale, high-tech affairs. One example is last month’s governmental approval of the Madoes, Mirren and Maclure subsea field developments.

Eastern Europe/FSU

Another strong showing was made by this region last year, as the countries combined to add nearly 700,000 bpd of production. Regional output was up 8.4%, to 8.64 million bopd.

Russian Federation. For a third straight year, combined crude and condensate output improved. Production rose 8.8%, to 7.02 million bopd. During the last two years, Russian operators have impressively restored nearly one million bpd of oil production. Among the individual larger operators, top producer LUKoil increased output 0.8%, to 1.56 million bpd. Number two producer Yukos boosted output 17.2% to 1.16 million bopd, while Surgutneftegas achieved an 8.4% gain to 877,000 bopd. Yukos said that it plans to increase output another 17% this year, to perhaps 1.35 million bopd.

Other FSU republics. A third straight improvement in oil production was collectively achieved by the FSU countries outside Russia. Their combined rate rose 7.8%, to 1.401 million bopd. Kazakhstan was up 13.4% while leading the pack at nearly 802,000 bopd. Azerbaijan was up slightly, at 179,500 bopd. Lithuania jumped 35% higher, to 8,513 bopd.

Africa

Despite OPEC’s quota reductions, two cartel members and leading regional producers – Nigeria and Algeria – registered small gains in output. Libya was the only OPEC member within Africa to reduce production. Thus, given a mix of small gains and declines in other countries, African output was off less than 1%, at 7.508 million bopd.

Nigeria. During the last few months of 2001, no other OPEC member strayed as far from quota compliance as did Nigeria. The country was a major source of quota leakage, to the level of about 300,000 bopd. For 2001 as a whole, Nigerian production averaged 2.15 million bopd, up 1.4%. Nigeria’s quota for 2002 is 1.787 million bopd.

Shell’s development of the EA oil field (Block OML 79) is still on track for production start-up in fourth-quarter 2002. Initial output should be 60,000 bopd. Agip is also developing Abo (Block OPL 316) with an FPSO. It should go onstream by year-end and eventually produce 70,000 bopd.

Egypt. According to Egyptian General Petroleum, combined crude and condensate output took a sharp dive last year, falling about 17%, to 701,000 bpd. Condensate accounted for about 12.5% of the total. At the same time, the number of producing wells increased 2%, to 1,325. Of that number, 13.7% were flowing. Given the government’s emphasis on gas development, the prospects for an improvement in oil production rates are not particularly bright.

Equatorial Guinea. Oil output rose 1.6%, to 190,000 bpd. Amerada Hess took over Triton Energy last year and inherited control of Ceiba oil field. The firm produced an average 33,243 bopd in 2001, but it already has plans to replace the existing FPSO, Sendje Berge. A new FPSO, Sendje Ceiba, has been converted from a VLCC and is due to go online in first-quarter 2002. Meanwhile, Marathon Oil acquired the Equatorial Guinea assets of CMS Oil and Gas. These include Alba gas field, which averaged 17,000 bopd during 2001.

Middle East

Due to deteriorating global economics and OPEC’s accompanying quota reductions, Middle Eastern production lost the entire increase gained in 2000. Output last year fell 5.4%, to 20.523 million bopd. With the exception of Yemen and Oman, output everywhere else was either down or flat.

Saudi Arabia. Reflecting OPEC quota reductions, oil production in the Kingdom dipped nearly 5% lower, to 7.65 million bpd. Given the current realities of global economics, Saudi output is bound to average lower this year. Officials already have set their 2002 budget on a $17/bbl oil price. They also factored into the equation an average output rate of 7.2 million bopd. Saudi E&P work this year will focus on maintaining productive capabilities but not adding to them.

Iran. According to data supplied by National Iranian Oil Co., the country’s production rate was level with 2000’s figure, at 3.661 million bopd. Within that amount, offshore output comprised 13.8%. Producing wells jumped 10% higher, to 1,416. Although Iran appeared to be producing near full capacity last year, that rate should drop lower this year, in accordance with OPEC’s latest quota schedule.

UAE. Output nose-dived 17% in Abu Dhabi, to 1.75 million bopd. Production also trended lower in Dubai, to 220,000 bopd. However, Abu Dhabi has plans to add additional capacity that eventually will be utilized when OPEC’s quotas return to higher levels. In the Upper Zakum field, state firm ADNOC intends to boost output 50%, to 750,000 bopd.

Far East

Sharp declines in Indonesia and Malaysia offset mild gains in the rest of the region. As a consequence, Far Eastern oil production was off 0.2%, averaging 6.652 million bopd.

China. Intensive drilling rates continue to squeeze out increases in Chinese oil production. Output was up 3% last year, at 3.29 million bopd. Together, state firms PetroChina and Sinopec account for 90% of production. The other 10% is produced offshore, where the greatest prospects exist for future output hikes. State firm CNOOC and its development partners plan to begin production at three additional offshore oil fields this year. Together, they will add 140,000 bopd by the end of this year.

Indonesia. The multi-year decline in output continued during 2001. Indonesian output fell 6.1%, to 1.372 million bopd. Some help in shoring up the production rate will come from Unocal’s ongoing development of the West Seno project. It will be Indonesia’s first deepwater production, featuring two platforms and 48 wells. Output is expected to begin in late 2002 at 45,000 bopd, ramping up to 60,000 bopd. Meanwhile, Conoco Phillips will spend $2.5 billion in Indonesia through the remainder of the decade, to double crude output and quadruple gas production.

India. A sharp drop in production from the country’s Mumbai High offshore fields was offset by higher output elsewhere. Production gained 15.7%, to average 620,000 bopd.

South Pacific

Holding true to the established pattern of alternating years of production increases and declines, the region saw its oil output drop last year. During 2001, production declined 7.5%, to 770,000 bopd. The loss was across-the-board, with all three countries contributing to the decline.

Australia. About half of the extra oil production gained during 2000 was lost last year. Output dropped 6.6%, to 675,000 bopd. About 93% of the output was offshore. Some of the loss should be recovered this year, thanks to several developments either onstream or set to go online. Last December, Apache Corp. began flowing 21,000 bopd from three wells. Great output will occur as soon as additional infrastructure is in place. Meanwhile, Woodside Energy said its gas / condensate production began at the end of 2001.