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www.cera.com - Cambridge Energy Research Associates

Oil & Liquids Capacity to Outstrip Demand Until At Least 2010: New CERA Report

June 21, 2005 | Press Release

Complete Press Release

CAMBRIDGE, Mass., June 21, 2005 – Despite current fears that oil will soon “run out,” global oil production capacity is actually set to increase dramatically over the rest of this decade, according to a new report by Cambridge Energy Research Associates (CERA). As a result, supply could exceed demand by as much as 6 to 7.5 million barrels per day (mbd) later in the decade, a marked contrast to the razor-sharp balance between strong demand growth and tight supply that is currently reflected in high oil prices hovering around $60 a barrel.

In a rigorous new field-by-field, bottom-up analysis of the world’s capability to produce hydrocarbon liquids, Worldwide Liquids Capacity Outlook To 2010— Tight Supply Or Excess Of Riches, CERA indicates that worldwide capacity could rise by as much as 16 mbd between 2004 and 2010 -- a 20 percent increase over the period.

This significant expansion in liquids productive capacity will meet volatile and expanding demand later in this decade and beyond, according to the CERA report. “We expect supply to outpace demand growth in the next few years, which would take the pressure off prices around 2007–08 or thereafter and even lead to a period of price weakness,” observe the report’s authors, Peter M. Jackson, CERA’s Director of Oil Industry Activity and Robert W. Esser, CERA’s Director, Global Oil and Gas Resources. “Following development of the current worldwide inventory of major discoveries, we also foresee far more capacity expansion in the medium term from field upgrades than through exploration.”.

“Today’s high prices are the result of an exceedingly tight and precarious supply-demand balance,” says Daniel Yergin, CERA Chairman. “Yet significant new capacity will be coming on stream – much of it launched a few years ago on price assumptions much lower than today’s market prices. The addition of that new capacity is what is required to improve the supply demand balance.”

The full report will be presented and discussed in a special forum next week at CERA’s “East Meet West” International Energy Conference in Istanbul, Turkey, June 28-30.

Unconventional Oils

Jackson and Esser argue that “unconventional” oil will play a much larger role in the growth of supply than is currently recognized. These unconventional oils include condensates, natural gas liquids (NGLs), extra heavy oils (such as Canadian oil sands), and the ultra-deepwater (greater than 2,500 feet deep). By 2020, they could be almost 35 percent of supply.

The CERA analysis indicates the pace of new major projects coming onstream worldwide will be sustained to 2010, with fewer giant projects going forward after that. “We have some concerns as to whether the deepwater and Russian “miracles” can continue to shore up non-OPEC liquids capacity expansion past 2010, when non-OPEC capacity growth will start to slow significantly,” say Jackson and Esser. “This rate of growth will be closely related to the emergence of new deepwater plays in existing and new areas, and also the rate at which the huge potential of Russia is unlocked. However, OPEC can continue recent rates of capacity expansion after this time.”

“The main risks to our Supply Expansion scenario,” comments Yergin, “are above ground, not below ground – changes in the political and operating climate that could delay expansion.” In CERA’s downside “Delay and Disruption” scenario, the lower boundary in the analysis, capacity increases by 11.5 million barrels between 2004 and 2010.

Peak or Undulating Plateau?

The CERA analysis rejects the current fear that a near-term “peak” in world oil production and a coming exhaustion of supply are near. The report indicates that the “inflexion” point will come in the third or fourth decade of this century. Moreover, rather than a “peak,” it will be an “undulating plateau” that will continue for several decades.

“In the years ahead, the scale of the business will continue to grow, as long-term, multi-billion dollar projects become more and more common – and more and more necessary, and an expanding effort is put into upgrading existing fields,” say Jackson and Esser. “One of the most biggest challenges will be to find the giant projects of the next decade, which will put great pressure on the search for high-quality, significant opportunities that in themselves meet the criteria of ‘big’.”

Primary findings of the report include:

OPEC Outlook – Total OPEC liquids capacity will expand significantly to 45.6 mbd in 2010 from 36.8 in 2004, with the proportion of condensates and NGLs rising to almost 18% of total capacity. Post-2010, OPEC has the hydrocarbon resources to continue expanding capacity at a slightly lower rate than the current decade’s 10.9 mbd growth. CERA believes OPEC will accelerate key projects in anticipation of a non-OPEC slowdown in capacity growth.
Non-OPEC Outlook – Non-OPEC capacity will expand rapidly for the balance of the decade, adding 7.5 mbd to reach 55.8 mbd by 2010, with the increase dominated by contributions from Russia, the Caspian, Brazil, Angola and Canada. Beyond 2010, the rate of increase for non-OPEC liquids capacity is expected to slow dramatically to as low as 2 mbd by 2020. A step change would be needed in investment in exploration to stimulate more rapid expansion of non-OPEC liquids capacity.
Specific countries – The report expects Saudi Arabia’s liquids productive capacity to rise by 1.5 to 2.0 mbd by 2010, to about 12.5 mbd, and observes that the country is still “underexplored.” It describes “reduced near-term expectations” for output in Russia, reflecting “the slow development of the export infrastructure and political uncertainty.” Capacity in the United States will decline from 7.55 in 2005 to 7.15 in 2010 – about a 5% percent decline.
Supply sources -- A large number of major, new projects are approved and under development or looking highly likely to proceed, especially in the deep water, the Caspian, in extra heavy oil, and gas-related liquids from the gas boom. There are approximately 20–30 new major (greater than 75,000 barrels per day) projects coming onstream every year to 2010, and these are contributing between 3 and 4 mbd of new liquids capacity annually.
What Kind of Capacity? – Of the 17.7mbd of gross capacity expected to be added to the world production stream between 2005 and 2010, more than half (10 mbd) will be light liquids and almost 20% (3.2 mbd) will be heavy. Much of the impetus for high oil prices and increasing spreads between WTI and heavy crude in 2004 was that there was there was no ready refining capacity to absorb the growing quantities of heavy, sour oil. Given the time needed to build additional refinery capacity, this will not change in the short to medium term and, as Saudi Arabia, Venezuela and Canada step-up heavier crude production in the longer term, the prospect of wider light-heavy spreads will encourage either investment in refinery conversion capacity or upgrading capacity nearer the wellhead.
Unconventional liquids – Condensates, natural gas liquids (NGLs), extra heavy oils, and the ultra-deepwater (greater than 2,500 feet deep) will be the key component of the increase to 101.5mbd in 2010 when they will represent 30% of the total – compared with 22% today and less than 10% in 1990. Also by 2020 unconventional liquids will account for 34% of the total liquids capacity in 2020, compared with 22% percent today and less than 10% in 1990.
Supply balance -- The balance of supply over demand has the potential to expand significantly over the next five years, and this could drive oil prices to the downside. If demand growth averages a relatively strong 2.2% through 2010, prices could weaken from recent record highs and slip well below $40/bbl as 2007-08 nears. If demand growth were notably weaker, a steeper price fall would be conceivable; however such a fall would likely slow capacity expansion and bring a market rebalance within two to three years.
Peak or Plateau? -- CERA believes there will be no “peak oil” problem before 2020. However, sometime beyond 2020 an inflexion of sorts will occur, but it will not be followed by a precipitous decline in productive capacity At this time CERA believes that the worldwide capacity profile will track an “undulating plateau” for a number of decades before starting to decline more slowly than might be thought today, as a step change in investment occurs and new technology is pumped into exploration, field upgrades, stranded gas, and heavy oil projects in a manner quite unlike any other period in the history of the oil industry.
Methodology -- CERA’s methodology “for liquids production capacity forecasting adopts a bottoms-up in which the overall profile is the sum of the outlooks for fields in production, fields under development, and fields under appraisal, all of which is built into a national outlook. A component of capacity from future exploration investment, yet-to-find, is also included. For some countries, we include data from every producing field and upcoming major project, while in others the data is less comprehensive.”

Cambridge Energy Research Associates (CERA), a subsidiary of IHS Inc., is a leading provider of independent analysis to energy and power companies, consumers, financial institutions, governments, and technology companies. CERA (www.cera.com) delivers strategic knowledge and independent analysis on energy markets, geopolitics, industry trends, and strategy. CERA is based in Cambridge, Massachusetts, and has offices in Beijing; Calgary; Mexico City; Moscow; Oakland, California; Oslo; Paris; Rio de Janiero; and Washington, DC.

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TOP

Media Coverage

NPR

All Things Considered

Predicting the Future of Oil Prices

June 21, 2005

Robert talks with Daniel Yergin, chair of the Cambridge Energy Research Associates and author of The Prize: The Epic Quest for Oil, Money, and Power, about the widely varying predictions on the future price of oil.

Associated Press

Report: Oil 'peak' not coming anytime soon

June 21, 2005

WASHINGTON (AP) — Global oil production is not likely to peak anytime soon, contrary to talk that has helped propel prices to $60 a barrel, although lower prices may still be a few years away, a prominent energy consultancy said Tuesday.

Cambridge Energy Research Associates said that, instead of a crest being reached sometime this decade, an inflection point in world oil output will occur sometime beyond 2020, after which production will plateau for several more decades.

In a report that builds upon earlier analyses by the Cambridge, Mass.-based consultancy, CERA said it believes that between now and 2010 there will be a substantial increase in worldwide oil production capacity. It said that "as a result, supply could exceed demand by as much as 6 million to 7.5 million barrels per day later in the decade" that will lead to an extended period of lower prices beginning as early as 2008.

MarketWatch

CERA: Capacity to meet, beat demand

Potential for prices to fall below $40 a barrel

By Lisa Sanders

June 21, 2005

DALLAS (MarketWatch) - Cambridge Energy Research Associates on Tuesday did its part to debunk the view that capacity won't be adequate to meet demand, saying supply could outstrip demand by as much as 7.5 million barrels per day toward the end of the decade.

The energy research group said its analysis indicates that worldwide capacity could increase by up to 16 million barrels a day by 2010 - up 20% from 2004 levels.

But don't expect this to lead to an immediate impact on crude prices.

"We expect supply to outpace demand growth in the next few years, which would take the pressure off prices around 2007 to 2008...and even lead to a period of price weakness," said Peter Jackson and Robert Esser, the authors of the report entitled "Worldwide Liquids Capacity Outlook to 2010 - Tight Supply, or Excess of Riches," in a statement.

Bloomberg

Commodity Strategists: Yergin Sees Higher Oil Supply

June 21, 2005

Oil producers will boost supplies fast enough to meet global demand over the next five years, Daniel Yergin's Cambridge Energy Research Associates said in a report that counters the arguments that have pushed prices to an all-time high.

``Today's high prices are the result of an exceedingly tight and precarious supply-demand balance,'' Yergin, winner of the Pulitzer Prize for ``The Prize: The Epic Quest for Oil, Money & Power,'' said at a press conference. ``New capacity will be coming on stream, much of it launched a few years ago on price assumptions much lower than today's market prices.''

Prices will stay around $50 a barrel for the next year, then slip to the $40 range in the next three to four years as new oil production projects are completed, according to the report.

http://www.bloomberg.com/news/markets/energy.html

Wall Street Journal

Oil Capacity to Rise, Not Peak, Report Says

June 22, 2005; Page C4

NEW YORK -- Dismissing fears that world oil production is peaking, Cambridge Energy Research Associates forecast global capacity will increase sharply for the rest of the decade.

The consulting firm predicted an oversupply of six million to 7.5 million barrels a day and prices of well below $40 a barrel.

CERA said in a report that global production capacity could rise by as much as 16 million barrels a day by 2010, easing the "razor sharp" global oil balance and driving prices well below their current record levels of about $60 a barrel.

The report challenged the notion that production is peaking as reserves continue to dwindle. While the report doesn't forecast a "peak oil" problem before 2010, it said that sometime after 2020 a reversal will occur, but it won't be followed by a precipitous decline in productive capacity.

Meanwhile, if demand grows by an average 2.2% annually through 2010, prices could slip well below $40 a barrel by 2007 or 2008, the report said.

It predicted more capacity expansion from field upgrades than through exploration. Much of the extra production capacity will be in "unconventional" oils, including condensates, natural gas liquids, extra heavy oils and the from ultradeepwater sources, the report said.

The Wall Street Journal

The Morning Brief

June 22, 2005

An Oil Forecast Improves for Long Term

A Cambridge Energy Research Associates field-by-field analysis of global petroleum finds that despite current fears that oil will soon run out, world-wide oil production capacity is actually set to increase dramatically over the rest of this decade. As a result, supply could exceed demand by as much as six million barrels to 7.5 million barrels a day later in the decade, "a marked contrast to the razor-sharp balance between strong demand growth and tight supply that is currently reflected in high oil prices hovering around $60 a barrel," CERA says. Global capacity could increase by as much as 16 million barrels a day, or 20%, between 2004 and 2010, according to CERA, which has a strong record of forecasting where the petroleum market will go. Its report says "unconventional" oil will play a much larger role in the growth of supply, including condensates, natural gas liquids, extra heavy oils such as those from Canadian oil sands, and oil pumped from deepwater wells. By 2020, such sources could contribute almost 35% of supply, CERA predicts, up from 22% today.

The Globe and Mail

How's this for contrarian: World now facing oil glut

June 22, 2005

CALGARY -- An oil glut is coming. That's right, a glut, way too much oil -- and the bold prediction is being made by one of the energy industry's top consultancies.

Even more bold is the prediction's timing, just as the benchmark price of oil is on the verge of cracking $60 (U.S.) a barrel and futures contracts suggest oil will remain higher than $55 for the rest of the decade.

Cambridge Energy Research Associates Inc., based near Boston, is skeptical, and yesterday released highlights of a report that concludes the world's capacity to produce oil will likely easily exceed the world's voracious demand for the product that fuels cars, ships and planes.

Increasing oil production capacity "will comfortably meet volatile and expanding demand in the next five years and beyond," Peter Jackson and Robert Esser, the authors of the report, write in their introduction.

Christian Science Monitor

One energy forecast: Oil supplies grow

June 22, 2005

NEW YORK – According to the Association for the Study of Peak Oil & Gas, the end is near - when the earth's oil reserves start to run dry and scarce petroleum will go to the highest bidder. Seers have written books detailing that time, and websites such as EnergyShortage.com forecast a steady rise in prices - such as Tuesday's oil price of more than $59 a barrel.

Not so fast, maintains a new report issued Tuesday by the widely respected group Cambridge Energy Research Associates (CERA). Instead of the wells running dry, CERA says petroleum supplies will be expanding faster than demand over the next five years, according to an analysis oil field by oil field. In good news for the SUV set, the new oil will be light, sweet crude - ideal for making gasoline. And since supply will grow, CERA forecasts prices will fall, possibly below $40 a barrel.

"We expect supply to outpace demand growth in the next few years, which would take the pressure off prices around 2007-2008 or thereafter and even lead to a period of price weakness," says Peter Jackson, a coauthor of the report.

Dallas Morning News

Putting a cap on oil supply worries

Research firm predicts production will increase sharply by decade's end

June 21, 2005

Oil prices are hovering around $60 a barrel due to persistent anxiety about supply shortages in the face of surging demand.

But worries about an oil crisis in the coming years may be unwarranted, a prominent consulting firm said in a report Tuesday.

Using a field-by-field analysis of oil projects around the world, Cambridge Energy Research Associates found that global oil-production capacity should increase dramatically by the end of the decade.

"What really strikes us is the difference between the current mood and expectations and what we see when we do our analysis," CERA chairman Daniel Yergin said.

Global oil supplies could exceed demand by as much as 7.5 million barrels a day by the end of the decade, a cushion that's at least five times larger than what exists today, the industry research and consulting firm said.

Seattle Post Intelligencer

Business Digest

June 22, 2005

Later peak for oil production?

Global oil production is not likely to peak any time soon, contrary to talk that has helped propel prices close to $60 a barrel, although lower prices may still be a few years away, a prominent energy consultancy said yesterday.

Cambridge Energy Research Associates said that, instead of a crest being reached sometime this decade, it will occur sometime beyond 2020, after which production will plateau for several more decades.

In a report that builds upon its earlier analyses, the Cambridge, Mass.-based consultancy said it believes that between now and 2010, there will be a substantial increase in worldwide oil production capacity, providing a supply cushion of 6 million to 7.5 million barrels per day that could cause oil prices to "slip well below $40 a barrel as 2007-08 nears." Because of surprisingly rapid demand growth, especially in China, the global oil supply cushion right now is only about 1.5 million barrels per day.

Houston Chronicle

No consensus on future of oil

While some see expansion, others bearish on supply

June 23, 2005

Every Wednesday it's the same.

At 10:30 a.m. Eastern Standard Time, energy market watchers tune in to hear CNBC's Melissa Francis announce the Energy Department's inventory report from the floor of the New York Mercantile Exchange.

Even though it should take time to thoroughly digest the petroleum stock numbers, it takes mere seconds for crude oil prices to start moving.

This Wednesday was no different. At 10:30 — sharp — Francis broadcast that U.S. crude inventories at refineries, terminals and other sites were down 1.6 million barrels for the week and the amount of heating oil, diesel and other distillates grew by a "disappointing" 1.3 million barrels.

Within 30 seconds of her report, the price of light, sweet crude jumped 23 cents. Ninety seconds later the price hit its high for the day — $59.55 — and then sank 95 cents to close at $58.09. Wholesale gasoline dropped 1.49 cent to $1.6125 a gallon.

Some market watchers had thought Wednesday might be the trading session when oil would jump the $60-a-barrel hump that bullish analysts have been projecting for so long. It didn't. Maybe that's because traders are taking the latest report by Cambridge Energy Research Associates to heart.

The energy consultancy's worldwide liquids capacity report says the world is not running out of oil and that crude production is not peaking. In fact, according to CERA, oil production will significantly expand between now and the end of the decade. Many of those projects were started years ago and take the better part of a decade to come to fruition.

The Economist

Hotting up again

June 23, 2005

THE verdict of experts at the Centre for Global Energy Studies, a London think-tank, is pretty damning. “OPEC”, it declares, “has lost credibility as a guarantor of stable oil prices.” Back in the spring, the influence of OPEC—the Organisation of Petroleum Exporting Countries—looked plain, as Saudi Arabia, the cartel's kingpin, said that OECD countries' stocks should be allowed to build up. Supply increased, inventories swelled, and prices dropped—to $48 a barrel a month or so ago. Yet this week the price of West Texas Intermediate (WTI), a benchmark crude, was at a new record, flirting with $60.

Why, then, have prices shot up in the past few weeks? There is no shortage of crude oil: the market seems well supplied for now. Look ahead a few years, say optimists, and there is little cause to worry. A provocative new report by Cambridge Energy Research Associates, a consulting firm, even says that there could be a glut. Having carried out a field-by-field assessment of investment already paid for and coming online, its boffins conclude that global production capacity may rise by 16m barrels per day, from roughly 85m now, by 2010.