IN 1985, worldwide production was a little over 60million barrels and yet there was about 10million bbls spare capacity. There was a real cushion in the market.
A year ago, global production was about 85million barrels and there appeared to be about 3.5-4million bbls spare capacity – most of it in Saudi Arabia.
While demand has been shrinking of late, so too has investment. There is a smugness afoot in the West as oil prices fall, but the Saudis are watching and worrying on their behalf.
Speaking in Vienna on March 18, Saudi oil minister Ali al-Naimi warned of a coming “catastrophic” shortfall in petroleum production.
“In years to come, if traditional energy supplies should prove inadequate because capital expenditure was curtailed due to unsustainable prices, unreliable indication of future demand or hopes for a substitute that oil cannot deliver, such a supply crunch would be catastrophic.
“The painful result would be felt sooner rather than later. It would effectively take the wheels off an already derailed economy.”
The situation is exacerbated by the fact that few mega-giant oilfields have been discovered in the past 20-25 years. That said, Kashagan was located offshore Kazakhstan a decade ago, and most recently, Jack, in the US Gulf, plus a string of huge sub-salt discoveries offshore Brazil, and successes offshore Angola and Ghana.
However, while deep sub-salt stunners such as Jack and Tupi just might lead to a rewriting of the oil resources book, delivering substantial wins to both IOCs and NOCs, for now at least, there is consensus that conventional oil resources are being consumed more rapidly than found, let alone developed.
Compared with conventional crudes, natural-gas resources are perceived as plentiful, and very large discoveries continue to be made – India’s Bay of Bengal sector offering a spectacular example in this regard.
However, from the Western perspective, whether it is oil or gas, most resources are held by national oil corporations such as Saudi Aramco and Gazprom and not by international oil companies such as BP, ExxonMobil and Shell.
And as resource pressure grows, so major producing countries such as Russia, Saudi Arabia and Venezuela, where NOCs clearly rule, are becoming increasingly disinclined to share their petroleum resources with the IOCs. This is likely to happen in Iraq, too, as the recovery programme advances, though there are already signs of this happening.
In some cases, notably in Russia, the majors are feeling the impact of re-nationalisations reminiscent of several decades ago.
The green shoots that appeared during the 1990s and early-2000s have clearly withered. Witness what Moscow has done to BP (through BP-TNK) and Shell (Sakhalin Island), and even its own IOC-style players, especially Yukos.
Moscow has, however, allowed Gazprom to take StatoilHydro (an IOC) and Total (strongly national) as minority partners in the Barents Sea Shtokman gas development. They have technologies and experience that Russia needs, hence the Kremlin’s willingness to let them into the project.
Oddly, even within industry circles, it continues to surprise that more than 90% of known oil reserves are controlled by NOCs, and more than 80% of oil&gas resources combined. It begs the question as to just how many heads are buried in the sand on this issue.
Energy readers reasonably familiar with Big Oil’s history will probably be familiar with the so-called “Seven Sisters” – Standard Oil New Jersey (now Exxon), Royal/Dutch Shell, BP, Gulf, Texaco, Mobil and Standard of California (now Chevron).
Some have disappeared through mergers and, today, all are eclipsed by seven new sisters: Saudi Aramco, Gazprom, CNPC, National Iranian, PDVSA, Petronas and Petrobras – all NOCs.
They are primarily state-owned and control some 30% of the world’s oil and natural gas production. They account for more than 33% of total reserves.
Compare this with the former Seven Sisters – now condensed to four through the late-1990s consolidations. They account for roughly 10% of the world’s oil&gas output, yet hold just 3% of reserves.