The population of the world continues to grow, as does the average
standard of living, increasing demand for food, water and energy and placing
increasing pressure on the environment. The population of the world doubled
from 3.2 billion in 1962 to 6.4 billion in 2005 and is forecast to grow to 9.2
billion in 2050.
Supplies of oil, gas, coal and uranium are forecast to peak as reserves
are depleted. At the same time, fear of climate change is putting pressure on
the energy sector to move away from carbon burning to nuclear, solar and other
environmentally friendly energy sources.
Oil accounts for between 34% and 37% of the world's primary energy.
Components of crude oil are feedstocks to the chemicals, plastics and
fertiliser industries.
Crude oil is extracted from the earth and refined to create a range of
gas (liquified petroleum gas - LPG), liquid (gasoline, diesel, jet aviation
fuel, paraffin, etc) and solid (bitumen) petroleum products. The most sought
after crudes are those that are "light" (i.e. contain a high proportion of
short chain molecules) and "sweet" (i.e. low sulphur content) as they are
easier and cheaper to refine.
The following are key events in the recent history of oil:
- 1951 Nationalisation of the Iranian oil industry
- 1959 Formation of OPEC
- 1972 Nationalisation of the Iraqi oil industry
- 1973 First oil price shock caused by Arab boycott of oil supplies to
USA because of Arab Israeli war; price rises from US$ 2.50 to US$ 10 per bbl "
- 1975 Nationalisation of the Kuwaiti oil industry "
- 1979 Nationalisation of the Saudi Arabian oil industry "
- 1979 Second oil price shock cause by fall of the Shah of Iran; price
rises from US$ 12 to US$ 30 per bbl "
- 1991 Third oil shock caused by Iraqi invasion of Kuwait; price rises
from US$ 15 to US$ 35 "
- 1999 Agreement between Saudi Arabia, Mexico and Venezuela
- 2003 Iraqi war; price rises from US$ 30 to US$ 70
According to the 2008 BP Statistical Energy Survey, the world had proved oil reserves of 1237.875 billion barrels at the end of 2007, while consuming an average of 85219.7 thousand barrels a day of oil in 2007. OPEC members hold around 75% of world crude oil reserves. The countries with the largest oil reserves are, in order, Saudi Arabia, Iran, Iraq, Kuwait, United Arab Emirates (UAE), Venezuela, Russia, Libya, Kazakhstan and Nigeria.
According to the 2008 BP Statistical Energy Survey, the world had proven natural gas reserves of 177.35 trillion cubic metres and natural gas production of 2939.99 billion cubic metres in 2007.
In November 2006, Wood McKenzie and Fugro Robertson reported that the
USGS had overestimated Arctic oil and gas resources. Also most would be gas so
that oil would amount to less than 25% of previous estimates in North American
/ Greenland basins.
Although the world has 3,600 billion barrels of unconventional oil
reserves, these require significant energy and water to extract. Wood Mackenzie
estimated the world's unconventional oil reserves as comprising heavy oil (107
billion barrels), extra heavy oil (457) and shale oil (2,800). The main sources
are Canada, Venezuela, Madagascar and Texas.
According to the 2008 BP Statistical Energy Survey, the world had a 2007 refinery capacity of 87913.34 thousand barrels a day.
In June 2007, OPEC announced plans to invest US$ 130 billion in
expanded production between then and 2012. Excluding Iraq, production is
forecast to increase from 35.7 million bpd to 39.7 million bpd in 2010. Between
2013 and 2020 OPEC plans to spend a further US$ 500 billion provided biofuels
doesn't change economics. Saudi Arabia alone is investing US$ 50 billion to
increase crude production capacity from 10.5 million barrels a day in 2007 to
12 million bpd in 2009 and 15 million bpd after 2025.
A Harrison Lovegrove study of 200 non state-owned oil and gas companies
found 2005 development costs rose 30% to US$ 159 billion, yet only yielded a 2%
increase in proved reserves and a 1% increase in production. Part of the reason
is that countries rich in oil are increasingly excluding foreign companies from
participation. A later study showed spending by 228 oil and gas companies
increased 45% in 2006 to US$ 400 billion but again only increased reserves by
2%.
A March 2007 report by Harrison Lovegrove estimated that state owned oil
and gas companies invested US$ 75 billion in oil and gas asset acquisitions in
2006, 33% of the total of US$ 166 billion. Average 2006 prices paid were US$
12.86 per barrel of proved oil / gas reserves, an increase of 34% on 2005.
Only three major fields have been discovered worldwide since 1969 and
none since 1976. A study by Simmons found that since 1980, only three fields
out of all of the new discoveries are producing over 200,000 barrels a day. In
the 1990's, over 420 fields were discovered, but only 11 have production that
exceeds 100,000 barrels per day. The largest fields discovered in the past decade or so are:
| Field |
Country |
Date
|
Reserves (boe billion) |
| Carioca |
Brazil |
2007 |
33? |
| Kashagan |
Kazakhstan |
2000 |
14.6 |
| Tupi |
Brazil |
2006 |
4.0 |
| Niban |
Saudi Arabia |
1999 |
4.0 |
| Azadegan |
Iran |
1998 |
3.5 |
| Yadavaran |
China |
2000 |
3.0 |
| Shah Deniz |
Azerbaijan |
1999 |
2.1 |
| Dolginskoye |
Russia |
1999 |
1.9 |
| North Samburgskoye |
Russia |
1998 |
1.8 |
| Nanpu |
China |
2005 |
1.3 |
| Dalia |
Angola |
1997 |
0.9 |
To put this in perspective, note that the world consumes 29 billion
barrels of oil per year.
Crude oil production averaged 82 million barrels per day (mbpd) in 2006,
a change of 413 tbpd compared to 2005, and 85.7 mbpd in 2007. In 2006, OPEC
crude oil production was 43.5% of the world total. Excess OPEC capacity dropped
from 6 mbpd in 2002 to 2 million barrels a day in 2006. The countries with the
largest 2006 oil production were, in order, Saudi Arabia, Russia, the USA,
Iran, China, Mexico, Canada, the UAE, Venezuela, Norway, Kuwait and Nigeria.
The Middle East and Russia are forecast to provide an increasing share of world
crude production as fields elsewhere mature.
The IEA reports that world crude oil production fell from 73.8 mbpd in
2005 to 73.2 mbpd in the first 10 months of 2007. Some of the fall can be
attributed to geological conditions and part to political instability,
particularly in Iraq and Nigeria.
According to Chevron, oil production is declining in 33 of the 48
largest oil producing countries. The CEOs of Total and Conoco Philips both
predict it will be difficult to ever reach production of 100 mbpd even though
the IEA is predicting production of 116 mbpd by 2030 and the US government 118
mbdp. At the beginning of 2007 Wood Mackenzie forecast conventional peak oil
taking place by 2020. The Association for the Study of Peak Oil (ASPO) predicts
that peak oil will take place before 2010.
Although Peak Oil is often mentioned in the press in the context of oil
supplies to the transportation industry, there is seldom mention of the
possible impact of Peak Oil on the chemicals industry and those industries,
such as agriculture, plastics and roadworks, further downstream.
On average, 52 mbpd of oil were moved internationally in 2006. The USA,
Europe and Japan were responsible for more than 60% of world oil imports, while
the Middle East, Africa and former Soviet Union accounted for more than 65% of
world oil exports.
The crude oil spot price averaged $US 72 per barrel in 2007, more than
triple the average price in 2002. Towards the end of 2007, the price of crude
oil breached US$ 100 per barrel and, in May 2008, US$ 120 per barrel.
According to the 2007 BP Statistical Energy Survey, world 2006 refinery
capacity was 87 mbpd and 2006 refinery throughput was 75 mbpd on average. The
countries with the largest oil refining capacity are, in order, the USA, China,
Russia, Japan, India, South Korea, Germany, Italy and Saudi Arabia. Saudi
Arabia is currently doubling its refinery capacity before 2012.
World demand for oil reached 85.7 mbpd in 2007, 1% up on the
84.9 mbpd in 2006. The major oil consuming nations were, in order, the USA,
China, Japan, Russia, Germany, India, South Korea, Canada, Brazil and Saudi
Arabia. Although US consumption has remained static over the past four years,
China increased its petroleum consumption by 5.5 percent in 2007. China and
India accounted for some 70% of the increase in oil demand during 2006 and
2007, with oil producing countries responsible for much of the balance.
Between 1996 and 2006, USA domestic production reduced from 45% to 33%
of demand. Net imports were larger than the combined production of Saudi Arabia
and Kuwait. The US government launched its 20 in 10 initiative to reduce
gasoline demand by 20% in 10 years, through improve engine emission standards
and the use of ethanol.
The IEA forecasts that oil demand will increase by 10 mbpd to 94.8 mbpd
in 2015. Demand for OPEC oil is forecast to increase from current 31 mbpd to
38.8 mbpd in 2015. It is not clear that the additional demand is going to be
met through a combination of new sources of conventional oil, gas to liquids,
unconventional oil and biofuels.
The annual revenues of the world's oil producing countries rose by US$
400 billion between 2003 and 2005. Oil producing countries and their sovereign
wealth funds are now investing more in hedge funds and private equity than, as
they traditionally did, in US banks and treasury.
In November 2007, it was forecast that crude oil revenues of OPEC
countries would reach US$ 658 billion in 2007. They made US$ 650 billion in
2006 compared to US$ 110 billion in 1998.
The net result is that finance is moving from oil consuming nations to
oil production nations who, for lack of enough local investment opportunities,
are investing their wealth in consumer nations. While oil sales have
traditionally been denominated in US$, depreciation of the US currency is
leading renewed interest in using a basket of currencies. Thus oil is having a
major impact on the global financial sector and, by extension, exchange rates.
As of March 2007, the national oil companies Saudi Aramco, Gazprom,
CNPC, NIOC, PDVSA, Petrobras and Petronas together controlled one third of the
world's oil and gas production and reserves. PFC Energy provides a different
picture with 7% of oil and gas reserves available to multinationals, 16% to
Russian companies, 12% to national oil companies allowing outside equity
participation and 65% to national oil companies allowing no outside
participation. ExxonMobil, Shell, BP and Chevron together produced 10% of the
world's oil and gas and controlled 3% of reserves. At the beginning of February
2008, ExxonMobil, Royal Dutch Shell and Chevron all reported declining
production when reporting results for 2007.
As of January 2008, the largest oil companies in the world by market cap
were Petrochina (US$ 723 billion), ExxonMobil (US$ 512 billion), Gazpom (US$
332 billion), Royal Dutch Shell (US$ 265 billion), Sinopec (US$ 250 billion),
Petrobras (US$ 242 billion), BP (US$ 231 billion), Total (US$ 199 billion), BHP
Billiton (US$ 198 billion) and Chevron (US$ 197 billion).
The revenues from the integated up and downstream operations of
ExxonMobil, Shell, BP and Chevron generate far higher returns than those of the
national oil companies. In November 2007, the James Baker Institute calculated
that ExxonMobil, BP, Chevron, Shell and ConcocoPhillips used 56% of increased
operating cashflow on share buybacks.
An August 2007 calculation showed international oil companies have
significantly increased their investments in R&D with Shell raising its
budget 50% in 3 years, Chevron by more than 100% over five years, ExxonMobil by
15% in 5 years and Conoco Philips by 50% over historic numbers, all in order to
optimise extraction from reserves and to gain access to the 80% of world oil
reserves held by national oil companies.
CERA estimates the oil industry will have a skills shortage of 10 to 15%
by 2010. More than 50% of currently employed oil industry engineers, whose
current average age is above 50, will have retired by 2015.
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