Excitement continues to run at very high levels, over the rebound in US crude oil production. Coming out of the new, historic low of 4.95 mbpd (million barrel per day) in 2008, the annual average of US production in the first 4 months of 2012 is currently on pace at 6.156 mbpd. This new production has largely been made possible by the price revolution in crude oil, which finally broke through the long-term, $25 ceiling during 2003-2004, and which is now mostly sustaining marginal production around the $90 level. A question: has the US, since its own production peaked near 10 mbpd in 1971, seen this kind of production rebound before? Let’s first take a look at the past decade. | see: US Average Annual Oil Production mbpd 2001 -2012
If maintained, the current rebound would add back a little more than a million barrels a day to US production, compared to the 2008 low. Some analysts fervently believe that, despite ongoing declines from existing US fields, that production will go even higher into the end of this decade. Well, just leaving that issue aside for now, given that so much of this new production depends on sustained high prices, let’s briefly take a look at a previous rebound in US oil production. | see: US Average Annual Oil Production mbpd 1972 -1985
Coming out of the 1976 low, at 8.136 mbpd, US production rebounded over the following 9 years by 800 kbpd–not quite a million barrels per day. However, a volume comparable to the current rebound. Afterwards, the 40 year decline in US production resumed its decline.
The course of US production into 2020 will be more dependent than usual on price. An increasing portion of total global production is crowded into the marginal price band of $80-$100 a barrel, and yet the world economy appears to struggle–on the demand side–at that very same level. Thus, new marginal production in the US and elsewhere is fated to continually pass back and forth, in and out of the domain of economic viability, as the world economy chokes, recovers, and chokes on high oil prices.
World oil production surpassed 75 million barrels per day for the first time ever in December 2011, at 75.45 million barrels, and went even higher in January of this year at 75.58 million barrels, setting a new monthly production record, according to data recently released by the EIA. The red line in the graph shows the upward linear trend in world oil production from 1973 onward, with daily production increasing by almost 600,000 barrels per day on average every year since 1973.
Thanks to Walter Olson for the inspiration for the post title.
- What Happened to Peak Oil? (wallstreetpit.com)
- Texas Oil Production increased 50,000 barrels per day from January to February (nextbigfuture.com)
- Texas Oil Commissioner talks about possible 4 million barrels of oil per day in 2016 from Texas (nextbigfuture.com)
With strong oil prices persisting, major energy companies are increasingly reinvesting their earnings in exploration and development of offshore oil and gas basins. Visiongain calculates capital expenditure in the MODU market will total $48.1bn in 2012.
According to the International Energy Agency, global oil demand will rise from 88 million barrels today to around 99 million barrels in 25 years time. Over this period the cost of extracting oil will be higher and production from offshore resources will not be as expensive as it was relative to development of onshore hydrocarbons.
Although new technological improvements mean fewer people will be needed on offshore oil and gas drilling rigs, the construction industry behind MODUs and assembly of related technologies is providing employment for thousands of people. For example, the Brazilian marine construction industry has emerged on a vast scale to enable its offshore industry to provide MODUs and technologies for Petrobras to meet its vast oil production targets from its offshore resources.
Most super-major oil and gas companies as well as independent oil and gas companies have each secured a share in the hydrocarbon-rich offshore regions across the globe and demand for MODUs is strong. Meanwhile, health and safety standards and technology have both improved across the industry, leading to a backlog of orders for new-build MODU.
The Mobile Offshore Drilling Units (MODU) Market 2012-2022 report includes 144 tables, charts and graphs that analyse quantify and forecast the MODU market in detail from 2012-2022 at the global level, four submarkets and for 7 regional markets. The analysis and forecasting ahs been reinforced by extensive consultation with industry experts. Two full transcripts of exclusive interviews are included from Friede & Goldman and Maxeler Technologies. The report also profiles 55 leading companies involved in the MODU market.
- Odfjell Offshore Raising up to $500M to Develop Fleet (mb50.wordpress.com)
- Offshore Drilling Industry to 2016 – Rapidly Rising Demand for Hydrocarbons Expected to Boost Offshore Drilling in Ultra-Deepwater and Harsh-weather Environments (prnewswire.com)
- UK: Ensco Ranks 1st Among Offshore Drillers by Costumer Satisfaction (mb50.wordpress.com)
- USA: Hercules Offshore Secures Contract for Newly Bought Rig (mb50.wordpress.com)
- Atwood Beacon to Drill Offshore Israel (mb50.wordpress.com)
- USA: Mr. Charlie Initiated the Modern Offshore Oil & Gas Industry, ASME Says (mb50.wordpress.com)
- ExxonMobil, OMV Petrom Strike Gas Offshore Romania (mb50.wordpress.com)
- Alaska champions $40bn pipeline plan (mb50.wordpress.com)
Peak oil theories over the last few years are now not in the spotlight that rules over oil prices this year as the new king of market movers, the “global economic uncertainty” looks set to be a game changer in the coming months ahead.
IEA Oil Report 2012
The latest Monthly Oil Market Report from the US IEA (International Energy Agency) forecasts the call on OPEC crude in 2012 at 30.2 million barrels per day. It also forecasts global oil demand will average 90.3 million barrels per day in 2012, an increase of 1.3 million over 2011.
However, the crude oil markets are expected to remain volatile throughout 2012, with the fundamentals of oil supply and demand continuing to take a back seat to the debt situation in Europe and tensions in the Middle East, with Iran in the driving seat.
“Given already very low European crude inventories, a spate of precautionary buying and escalating tensions surrounding the Iranian issue could sustain prompt prices at levels higher than otherwise, amid the growing concerns about the euro zone and weaker global economic activity for 2012.” the IEA said on 12th December.
Iran and Oil Supplies
Turning to oil supplies, the Iranian oil issue remains unclear, as the USA and its allies along with the EU are considering new sanctions on the Iranian oil as we know which increase fears that it will curb the oil supply, which will push oil prices to the upside strongly, and from the Iranian side, it said that if any sanctions happened, it will stop oil passing from the Strait of Hormuz.
Back to Europe which remained for the past year the main factor that drive global markets, as the crisis is deepening and contagion risks are appearing, where many negative consequences can be noticed, however, hopes increased at the beginning of the year that serious measures would be implemented to halt the crisis’ train.
US Dollar and Oil Prices
On the other hand, the US dollar is encouraging crude oil to continue this upside journey, as it declined at the beginning of the year due to different factors. The ICE US Dollar Index opened the session at 80.27 and recorded a high of 80.29 then it declined to reach so far a low of 79.88, and is currently trading around 79.95.
In general, trading volumes remain mightily low, which give space for any minor factor to affect crude heavily and give it momentum, where fluctuations may be evident ahead of the American data which may add positive signs for the world’s largest economy.
- Where is Oil Price Heading in 2012? (ibtimes.com)
- Peak oil review – Jan 2 (energybulletin.net)
- Iran threatens to stop Gulf oil if sanctions widened (mb50.wordpress.com)
- Peak Oil is a Myth (socyberty.com)
- IEA warns high oil prices threaten global economy (thehindu.com)
- Too many wild cards cloud 2012 oil price outlook (business.financialpost.com)
- Case for a sustained $100 oil price (investmentpostcards.com)
While Ghana has just started making money from its offshore oil, civil society advocates and economists are warning not enough is being done to make sure oil wealth is a benefit and not a curse to Ghanaians.
At a Washington event late Thursday, they said Ghana’s government needs to have more planning and transparency to avoid a repeat of the massive corruption and violence that has plagued other oil-rich African countries.
The World Bank country director for Ghana, Ishac Diwan, said the stakes were high for Ghana’s new oil reality, as more and more offshore fields are discovered in West Africa’s Gulf of Guinea.
“Can Ghana do it is a big question. It would be a premiere actually and it would show the way to the Sierra Leones, the Liberias and Guineas, new democratic Guineas. So it is an extremely important experiment if I may say,” Diwan said.
A report gave a grade of C to all involved in Ghana’s oil quest
At an event organized by the non-governmental organization Oxfam America, Ghanaian civil society groups presented a report called “Ghana’s Oil Boom: A Readiness Report Card.”
It gave a mark of Cs, or fair, to all involved in the process, including donors like the World Bank, and civil society groups themselves.
Mohammed Amin Adam said civil society was trying hard but so far failing to get new laws signed and put into effect to force full contract disclosures between the government and oil companies as well as make the government show how it spends its oil revenue.
Adam said this transparency is necessary given the huge expectations Ghanaians have. “If you are transparent of how much you are receiving, how much you are spending, where you are spending it, those expectations will be moderated by themselves. And so the key here is transparency,” Adam said. “And this is why I will even build more expectations back in Ghana to put pressure on our government to invest this money well and transparently so that everybody knows where the money is going to and they can tell realistically what oil can offer and what oil cannot offer.”
He also expressed disappointment Ghanaian delegations had been sent to far away Trinidad and Tobago and Norway to learn from their oil experiences, rather than going to nearby Nigeria, to find out more about the difficult lessons learned there.
Another civil society representative, Nana Ama Yirrah, said Ghanaian villagers in western coastal areas nearest to the oil fields were already complaining about higher prices, pollution, fishing restrictions, and a lack of opportunities in the oil sector.
“The skills required for the oil industry is nowhere found within the communities, the kind of businesses that people are managing today in Ghana, the standards within those businesses are not the type that can fit into the oil industry. So it has become a very dicey issue that production has started and yet people are not seeing what they thought they would see,” Yirrah said.
Production started in December, and should reach output of 120,000 barrels per day within the next few months. Estimates are that Ghana could earn more than $1 billion a year from its existing Jubilee offshore oil field, and that further discoveries could boost these numbers.
Peter Allum, the chief of the Africa department at the International Monetary Fund, said it was essential Ghana’s government started making longer budget planning to figure out what to do with this money, and extend the current year to year approach.
“The budget ought to have a medium term vision so there is a clear relationship in the budgetary process between the medium term revenue stream or wealth associated with oil and what is envisaged to be done with that in the way of financing projects over a multi-year timetable,” Allum said.
Ghana’s ambassador to the United States Daniel Ohene Agyekum said it was important to focus on the positives, and the vibrant debate that is taking place to make sure Ghana’s oil is a benefit.
“There is no need to apportion blame to any particular group. We all recognize the good work that as a collective we have done to move the oil industry much ahead of time. And I am proud to say this as a Ghanaian,” Agyekum said.
The ambassador also agreed with other panelists that while a lot of focus is being put on oil, this should not mean Ghana’s important agricultural sector should be diminished.
By Nico Colombant (VoA)