Several leading oil experts, gathered in London yesterday for an annual energy conference, sketched a near-term future in which mounting global demand and shrinking supplies push oil prices well past the US$100-a-barrel mark. Consuming countries, they argued, will simply have to deal with the fact that new pockets of oil are getting far harder and more expense to tap. That, combined with years of underinvestment by the industry, has led to a tapering off of new oil supplies that will continue for years, despite rising energy demand in Asia, the Middle East and some industrialized countries. Yet on a day when US benchmark oil prices retreated from Monday's record high, closing down US$3.15 a barrel, or 3.4%, to $90.38 on the New York Mercantile Exchange, two OPEC ministers at the same gathering insisted that the immediate problem is not too little oil. Prices have jumped nearly 40% since early this summer, the oil ministers of Qatar and the United Arab Emirates said, because of the slumping dollar, widespread Wall Street speculation and bottlenecks in the refining process. "Please don't blame us" for record oil prices, said Abdullah al-Attiyah, Qatar's minister of oil, expressing a sentiment that is widely held among major oil-producing countries. "You have blamed us for 50 years."
The debate over what is driving the current surge in oil prices is sure to get more spirited if prices continue to soar and oil executives, consumers and politicians seek to assign blame. But the feuding theories at this year's Oil & Money conference also show how hard it is to pinpoint a cause. Sadad Al-Husseini, an oil consultant and former executive at Aramco, Saudi Arabia's huge national oil company, gave a particularly chilling assessment of the world's oil outlook. The major oil-producing nations, he said, are inflating their oil reserves by as much as 300 billion barrels. These amount to hypothetical reserves that are "not delineated, not accessible and not available for production." A lot of production in the Middle East is from mature reservoirs, and the giant fields of the Persian Gulf region, he said, are 41% depleted. Global oil and gas capacity is constrained by mature reservoirs and is facing a "15-year production plateau," Husseini said. He predicted that supply shortages will continue to add $12 to the price of oil for every million barrels a day in additional demand. Global demand, now at some 85 million barrels a day, was on average 10 million barrels a day lower in 1999.
Nobuo Tanaka, the new executive director of the Paris-based International Energy Agency, which is funded by the world's leading industrialized consumer nations, said he sees little likelihood that the world's spare capacity for oil production will increase notably in the near future, partly because so many oil-rich countries continue to shun outside investors. IEA analysts insist that a sufficient resource base exists to supply demand through 2030, but Tanaka said he isn't confident there will be enough investment, skilled workers and technology to actually get to that oil "in a timely manner." Andrew Gould, the chairman and ceo of Schlumberger, the huge oil-services company, expressed similar concerns, noting that 70% of the oil fields that now quench world demand are more than 30 years old. The growth in global demand since 2003, he said, has been roughly the equivalent of the daily output from two of the world's larger suppliers: the North Sea and Mexico. "Our industry simply cannot cope with these kinds of increases," Gould told the assembly. OPEC countries now supply about 40% of world production. But that slice is expected to grow in coming years as output decreases in non-OPEC countries such as Mexico and Russia. Saudi Arabia, the world's largest single supplier, is looking to increase production
substantially into the next decade.
But with oil prices now flirting with $100 a barrel, OPEC officials have been aggressive in batting aside talk that they are to blame. "The market is increasingly driven by forces beyond OPEC's control, by geopolitical events and the growing influence of financial investors," said Mohammed bin Dhaen al-Hamli, the United Arab Emirates' oil minister, who also serves as OPEC's president. Hamli noted that prices are still "far below" the all-time inflation-adjusted high of $101 a barrel, set in the spring of 1980 after the 1979 Iranian revolution shocked oil markets. His Qatari counterpart, al Attiyah, pointed out that gold prices have been also skyrocketing. "Why are people concentrating on oil and closing their eyes on gold?" he asked, adding later that he is "fed up" with people blaming OPEC for fluctuations in oil prices. Both ministers said the cartel will not formally consider whether to increase supplies to the world market during a heads-of-state meeting in Saudi Arabia next month. The group agreed last month to add about 500,000 barrels a day to world production, effective Nov. 1.
(Globe and Mail 071031)