OUTLOOK 2003: International
Worldwide Oil Production

Global output waits on war and economics

 Last year’s shaky global economy and political instability in several regions led to a second straight decline in worldwide oil and condensate production. Estimated output fell 1.0%, to 66.9 million bopd. Since averaging 68.3 million bopd during 2000, global production has lost 1.4 million bopd.

 In a classic “domino effect,” higher production will require greater demand. Yet, to achieve higher, sustained demand, a number of key economies must begin to show healthy recovery from the last two years’ doldrums. This recovery process, however, has been held hostage in recent months by uncertainties among companies, investors and consumers, alike, as to when and how the Bush administration will wage a war against Iraq. Throughout the last year, OPEC has tried mightily to balance the highs and lows with quota adjustments, both higher and lower, with mixed results.

 Furthermore, as Venezuela’s political crisis deepens, it is no small irony that some US companies have rushed in to import extra quantities of Iraqi crude oil before any war does occur. As of mid-January, the US had lost roughly 1.5 million bpd of Venezuelan crude imports. Taking advantage of a window between geopolitical episodes, several US major companies have replaced the Venezuelan shortfall by doubling their imports of Iraqi crude. Those imports jumped from 500,000 bopd in November to more than 1 million bopd in December. Essentially, US companies diverted half-a-million barrels per day that were headed to Europe and Asia. 

 Last year, despite the overall trend downward, four of eight regions achieved production gains. They included North America, Western Europe, Eastern Europe/FSU and Africa. This year, likely candidates for production growth are Africa, Eastern Europe/FSU and the Middle East, the latter due primarily to Venezuelan shortfalls.

 NORTH AMERICA

 Regional crude and condensate output rose 1.4%, to 11.142 million bpd. Canadian production accounted for 58% of the gain, and Mexico contributed 19%. Even the US squeezed out a small gain of 20,000 bopd.

 Canada. Production of conventional crude and condensate gained 5.7%, to 1.637 million bpd. Total producing oil wells rose 1%, to 54,312. Nevertheless, producers are worried that commodity prices – particularly oil – may experience a sharp decline once tensions ease in the Middle East. They are equally apprehensive that the Canadian energy sector may again be specifically targeted by the federal government, under the guise of Kyoto, now that officials signed the Kyoto Accord. Nor are they comforted by information from Canada’s National Energy Board that the country’s gas output peaked in 2001. 

 Mexico. Output was up about 1%, to 3.589 million bopd. Offshore production was 2.6 million bopd, or equal to 74% of total output. As regards one of state firm Pemex’s key projects, the further expansion of gas production in the onshore Burgos basin, one new development has occurred. Pemex officials said that they intend to begin seeking bids next month from private and foreign contractors to produce non-associated gas. If these contracts are signed successfully, on schedule, the first gas output from such contractors could begin flowing by the end of this year.

 Others. Cuba continues to make good headway in expanding its crude production. Output increased 34% in 2002, averaging 69,560 bopd. A further increase this year to 79,725 bopd is anticipated by state company Cubapetroleo.

 Meanwhile, Guatemala’s oil production declined 10%, to 24, 671 bpd. The Ministry of Energy & Mines said that producing oil wells increased by three to 36, all on artificial lift.

 SOUTH AMERICA

 For the third year in a row, South American oil production declined. Output averaged 5.945 million bopd, down 5.1%. Among the four largest producers, only Brazil managed to post an increase. Venezuela, Argentina and Colombia were all lower.

 Venezuela. The situation surrounding this country’s producing oil fields since early December is unprecedented. Never before has there been such a prolonged, general strike, with so much production shut in for so many weeks and now months. Although Venezuelan output averaged 2.425 million bopd for 2002, the level trailed off to less than 900,000 bopd in December, and the January rate was even less.

 Once the country’s political situation is resolved, there are still great fears among industry professionals about the E&P sector’s future productivity. No matter who eventually controls the government, officials are not likely to restore production and exports quickly. As it regains control of production facilities, PDVSA will face a shortage of qualified technicians to restart fields, pipelines, refineries, etc.

 Furthermore, the prolonged shut-in of wells will have lasting effects on oil fields’ productivity and lifespan. The latest strike is without precedent, because the army has not been able to step in this time and maintain production. There is no way to gauge how individual wells will react, either. Generally speaking, low-pressure reservoirs like the ones in Venezuela tend to suffer more from being shut-in than high-pressured fields. Some installations may face a permanent reduction in capacity.

 Brazil. The continent’s most populous country solidified its position as second-largest producer, boosting production 12%, to 1.5 million bopd. A further increase is expected this year, as several more development projects progress. State firm Petrobrás also began production at its Jubarte offshore field, a large find discovered last year. Output was running 16,500 bopd and 3.5 MMcfgd from one well. In all, five wells are planned for Jubarte.

 Argentina. The region’s third largest producer saw output fall nearly 3%, to 760,660 bopd. Producing oil wells increased 6.1%, to 15,000. Of that total, about 98% are on artificial lift. The Argentine Institute of Petroleum and Gas estimates that oil reserves have risen 12%, to 3.24 billion bbl.

 Colombia. For a second consecutive year, Colombian production declined, losing 5.2%, to 578,100 bopd. This occurred in spite of the fact that the number of producing oil wells rose 4%, to 2,770, including 45 flowing wells. State firm Ecopetrol said that oil reserves also took a tumble, falling 14% to 1.59 billion bbl.

 Ecopetrol estimates that Colombia still has 47 billion bbl of potential oil reserves. In fact, just six of 12 oil basins have been explored. Ecopetrol warns that if new reserves are not found soon, the country will lose net oil exporter status in 2005.

 WESTERN EUROPE

 Oil production results last year were mixed for the region’s three largest producers – Norway, the UK and Denmark. Overall, Western European output improved 2.9%, to 6.459 million bopd.

 Norway. Figures supplied by the Norwegian Petroleum Directorate show that the country’s output rose 6.4%, to 3.33 million bopd. Just how much higher that rate can go will depend on world demand, as well as the ability of operators to wring out greater productivity from older fields. No one argues that new discoveries are smaller, while production at older, major fields is in noticeable decline. As Statoil executive vice president Henrik Carlsen wrote in World Oil’s December issue, “There is a big difference between producing a million barrels of oil with a low water cut, and a million barrels of water with a small crude content.” 

 United Kingdom. British production declined yet again. Operators collectively lost 2%, for a 2.48-million-bopd average. If there was any doubt that major companies are re-evaluating their stakes in the UK North Sea, BP’s recent deal with Apache Corp. should put that to rest. BP sold its 96.3% stake in Forties oil field as part of the $1.3-billion deal. Analysts said the sale of Forties, BP’s fifth-largest UK asset, signifies that some North Sea assets no longer can provide the superior return that BP and other large producers will increasingly demand to go along with their status as so-called super-majors.

 EASTERN EUROPE/FSU

 The revitalization of the Former Soviet Union’s oil output that began in 1999 continues. Crude and condensate production throughout Eastern Europe rose 7.5%, to 9.35 million bpd. Nearly all of the increase came from FSU countries.

 Russia. For a fourth consecutive year, the impressive re-building of Russian oil production continued. Nationwide, output was up 9%, averaging 7.56 million bopd. All three of the largest producers achieved significant gains. LUKoil produced 1.56 million bopd (up 2.2%), Yukos averaged 1.39 million bopd (up 19.8%), and Surgutneftegas achieved 980,000 bopd (up 11.8%). All three firms have set higher targets for this year.

 Other FSU countries. Just like Russia, the other FSU republics also improved collectively for a fourth straight year. Kazakhstan was up 5%, at 837,345 bopd, while Azerbaijan produced 302,751 bopd for a 1.3% improvement. Turkmenistan was virtually unchanged at 179,459 bopd.

 AFRICA 

 Production throughout the continent gained 2.1% last year, averaging 7.333 million bopd. Collectively, the biggest increase came from non-OPEC countries. Among OPEC members, Algeria was up, Nigeria was unchanged, and Libya was down.

 Nigeria. Oil production remained steady in 2002, at 1.95 million bpd. The outlook this year is for a net gain, depending on how many new fields go onstream and at what rates. Already, several projects have just come onstream within the last three months, including Shell’s EA field offshore, ExxonMobil’s Yoho field in offshore Block 104 and the third module of Shell’s Bonny Island LNG Complex, which began operating three months early.

 Angola. Output took a 25% jump higher in 2002, averaging 920,000 bopd. Principal reason for the increase was the ramping up of production at TotalFinaElf’s Girassol field in Block 14. Output at Girassol is running at 200,000 bopd. The outlook over the next several years is nothing but positive. Several fields from ChevronTexaco, ExxonMobil and TotalFinaElf will be coming online. State firm Sonangol is predicting a 1.0-million-bpd rate later this year, with a 1.3-million-bopd capacity in late 2004.

 Other countries. Sudan’s Ministry of Energy and Mines is planning an increase in oil output to 270,000 bpd this year, as opposed to the 240,000-bpd rate at the end of 2002. For all of last year, Sudanese production averaged 232,875 bopd, up 4.4% from 2001’s level.

 In Chad, development work continues. First oil is now slated for July 2003, with eventual output hitting 225,000 bpd. 

 MIDDLE EAST 

 To maintain oil prices in the face of slumping economies, OPEC kept quotas lower last year. As a result, the dominance of OPEC members in the region forced Middle Eastern oil production to drop 6.5%, to 19.597 million bpd. Only Qatar and Yemen achieved increases. Qatar’s gain can be traced to condensate, which is not subject to OPEC quotas.

 Saudi Arabia. In line with lower quotas, the kingdom produced 7.25 million bopd (down 6.5%), exclusive of its 50% share of the Neutral Zone. Given the shortfall caused by Venezuela’s political problems, plus the likelihood of an Iraqi output gap if a US-led war occurs, the call on Saudi oil supplies may go much higher in 2003. Saudi Oil Minister Ali Naimi has personally pledged that plenty of capacity exists on the market to take care of anticipated shortfalls.

 Iran. Data supplied by National Iranian Oil Co. show that the country’s production rate dipped 6.6%, to 3.42 million bopd. As is the case with other OPEC members, the decline was due to adherence to a cut in group quotas. The number of oil wells actively producing also declined about 6%, to 1,331. Some of these doubtlessly will be reactivated, if the need for greater output returns. Oil reserves have now crept up to about 100 billion bbl.

 UAE. Output was off about 7% in Abu Dhabi, to 1.65 million bopd. Production was also down in Dubai, losing 5.9% for an average 207,000 bopd. There are some signs that declines may not last much longer. Abu Dhabi Onshore Oil Co. is about to embark on an expansion project, with a goal of producing 1.4 million bopd by 2005. That would be a third greater than last year’s 1.05-million-bopd rate.

 FAR EAST

 Despite another production management miracle in China, regional output was off 1.8%, at 6.369 million bopd. The decline can be traced to a lower production rate in Indonesia, which is having problems finding enough new reserves to maintain output capacity.

 China. The People’s Republic continues to squeeze oil out of existing fields with remarkable results. Output gained 2%, to average 3.12 million bopd. The country’s largest field, Daqing, just completed its 27th year of high output, at nearly 1 million bopd. In the desert area of northwestern China, Luliang became the area’s first oil field to produce more than 7 million t, or more than 140,000 bpd. Offshore, CNOOC put the largest field to date onstream late last year. This year, CNOOC expects to have 12 offshore development projects underway.

 Indonesia. It was another disappointing year for authorities at the Ministry of Energy and Mines, as well as state firm Pertamina. New discoveries again failed to keep up with extraction, and reserves dwindled farther. Output was off 11.6%, at 1.265 million bopd. A small glimmer of hope comes from Unocal. The firm will begin production from West Seno oil field in May. Phase 1 at Seno will provide 40,000 bopd. When Phase II goes into operation later on, Seno output will hit 60,000 bopd.

 India. Production rose 4%, to an estimated 610,500 bopd. As was true in 2001, gains from newer fields offset the sharp decline at Oil & Natural Gas Corp.’s Bombay High (a.k.a. Mumbai High) field. ONGC is launching a major EOR project at Bombay High that is designed to bring field output back to 280,000 bopd by 2007. Output at the field fell to as low as 195,000 bopd last year. ONGC is drilling 200 new wells in addition to the 500 producers already operational. Waterflooding and gas injection will be introduced on a widespread basis.

 SOUTH PACIFIC

 Output was off 1.4%, averaging 749,500 bopd. The decline comes entirely from a drop in Papua New Guinea’s production rate. That country’s output was down 26%, at only 50,000 bopd. 

 Australia. A small increase was registered last year, with production running 665,000 bopd. Western Australia was the leading state producer, followed by Victoria. Offshore Western Australia, the Harriet Joint Venture’s Victoria Area oil fields have gone online and are producing 13,000 bpd. Total JV output is now 29,500 bopd. Santos reported its highest-ever quarterly production and sales volumes during the third quarter of 2002. The company reported its highest quarterly condensate and gas output from the Cooper Basin, due to ongoing production optimization efforts and improved field management.