International Outlook:
World Trends

Global activity blossoms as demand climbs

In response to sustained growth in global oil demand, worldwide crude and condensate output has strained but still managed to maintain the pace. However, one would not know this by simply looking at global oil prices.

Futures prices have gone past a more appropriate $48-to-$55/bbl range to record levels above $60/bbl. As this issue of World Oil went to press, the NYMEX price for WTI crude had hit an all-time high of $67.10/bbl before settling between $64 and $66.

Reasons often cited by financial house analysts for this price run-up include geopolitical issues, low US gasoline inventories, restricted refining capacity, minor supply disruptions and strong demand for light, sweet crude. However, these analysts (and the general media) frequently fail to mention that $10-to-$15/bbl of crude prices are due to oil traders’ deliberate speculation and overreaction to minor events tied to the above factors.

Worldwide oil demand last year did rise 3.7%, to 82.1 million bpd, and it jumped to 83.9 million bpd in first-quarter 2005. Yet, global crude and condensate output also rose 3.8%, to 71.82 million bpd, after gaining 3.3% in 2003 to 69.19 million bpd. The remaining components of global oil production – NGL’s, “other liquids” and refinery processing gains – remained level or were up slightly.

To achieve this performance, wells drilled rose 11% worldwide, and they increased 4.5% outside the U.S. For 2005, the entire world is forecast to drill 4.5% more wells, although the number outside the US will gain only 2.3%.

High commodity prices continue to push Canadian drilling activity to new heights. Producers should drill in excess of 23,300 wells, which would be yet another new record. If not for flooding rains during early summer that shut down activity in southern Alberta, the total might hit 24,000. Set to post its first decline since 1999, Canadian oil production may drop 55,000 bpd, due to operational problems that caused outages at synthetic crude plants. However, Husky’s White Rose field will go onstream, offshore Newfoundland, before the end of 2005, with initial output of 50,000 to 75,000 bopd.

Like its northernmost neighbor, Mexico’s drilling rate remains at a record level, with work focused on the Cantarell heavy oil complex offshore, the Northern Burgos gas basin onshore and a set of 18 E&P gas projects called the Strategic Gas Program. While spending is historically high, there is no doubt, said state oil company Pemex, that expenditures need to go even higher, just to maintain output capacities. Unfortunately, Pemex is heavily indebted, as is the whole Mexican government. Thus, spending is unlikely to hit levels high enough to prevent declines – 2005 crude output should barely equal 2004’s level, and a national drop of 30,000 bpd is predicted for 2006.

In South America, exploration and development drilling are both on the increase, but results remain mixed. Brazil is expected to provide 2.3 million bopd out of 4.5 million bopd of regional production forecast for 2006. Elsewhere, output generally is forecast to decline, despite drilling efforts.

UK crude production losses are dragging down Western Europe, but some hopeful signs exist. High oil prices are encouraging operators to extend North Sea marginal field lives, and the UK’s 23rd Licensing Round garnered the highest number of applications in 30 years. Several British fields will go onstream and contribute 150,000 bopd or more, collectively, including Nexen’s Buzzard. In Norway, oil output has been hit by lower-than-expected supplies from several fields, as well as maintenance outages. Nevertheless, output will average 3.0 million bopd in 2005 and 2006, as gas liquids rise 100,000 bpd.

Within Eastern Europe and the Former Soviet Union, Russian operators use new well productivity as the factor for assessing performance rather than the number of meters drilled, which was the practice in Soviet times. Russian firms have not had enough incentive to invest in exploration, even with high oil prices. Consequently, drilling levels remain relatively stagnant. The situation is about the same in other FSU countries, where exploration is down, but production volumes are still growing.

Africa is the main challenger to the FSU in terms of output growth. However, beyond higher estimates for Angolan production, it appears that some increases expected in Egypt, Sudan, Tunisia and Cote d’Ivoire may be pushed from second-half 2005 into first-half 2006. Nevertheless, drilling remains healthy.

In the Middle East, the first decline after several years of drilling increases may be in the offing. A primary factor is a large drop predicted by Oman’s Ministry of Oil, coupled with smaller gains in other countries than those experienced last year. Infrastructure limitations (drilling crews and rigs) are partially to blame.

Far Eastern activity remains strong, as China has added rigs and crews to enable higher drilling levels. Chinese engineers have also managed to squeeze more oil out of aging fields, allowing output to ease above 3.3 million bpd. Meanwhile, some strong gains are anticipated by officials in Thailand, Malaysia, Myanmar and Pakistan.

Exploration is a driving factor in higher South Pacific activity. This is particularly true in Australia, where operators are struggling to stop a significant decline in output. New fields coming onstream offshore western and northern Australia should help to stabilize the situation. 

	Estimated Proven World Reserves, 2004 Versus 2003
	Forecast of 2005 World Drilling - Comparisons with 2004 and 2003
	World crude/ Condensate and Wells Actually Producing - 2004 Versus 2003