2003 04 28 FINLEY

The medium-term oil market outlook: Implications for the demand for OPEC oil: 

The medium-term oil market outlook: Implications for the demand for OPEC oil Mark Finley California Energy Commission Sacramento, CA April 2003

Slide2: 

Will the demand for OPEC oil rise? Yes…eventually Distribution of world proven oil reserves Total: 1050 billion barrels But remember what Keynes said about the long run…

Outline : 

Outline History Challenging the conventional wisdom: US case study A different (potential) path for the oil market Conclusions

Slide4: 

OPEC Share Of World Oil Production, 1979-2002 (with and without Iraq)

Slide5: 

World oil production changes 1992-2002 Growth Decline Changes > 100,000 b/d over 5 yr Note: OPEC members underlined

Slide6: 

Russian Oil Rebounds Production Mb/d World Market Share

Slide7: 

The conventional wisdom: forecast of global oil supply Source: IEA WEO 2002 38% 40% 48% 54%

Challenging the conventional wisdom: US case study: 

Challenging the conventional wisdom: US case study

US Oil Production 1965-2002: 

US Oil Production 1965-2002 Million b/d 2002 Production: 7.7 Mb/d All-time peak 11.3 Mb/d 1970 Interim peak 10.6 Mb/d 1985

US Oil Production 1975-2002: 

US Oil Production 1975-2002 Million b/d

US Oil Production 2000-2001 : 

US Oil Production 2000-2001 Change in US Oil Production 2000-2002 Thousand b/d

Conventional Wisdom on US (1):Oil Supply: 

Conventional Wisdom on US (1): Oil Supply Alaska…ongoing decline Onshore L48…declining fast Gulf of Mexico (deepwater)… ramping up, but peaking quickly Growing Dependence on Imports

Conventional Wisdom on US (2):Import Dependence: 

Domestic Feedstocks Imported Feedstocks Imported Products Processing Gain Total Petroleum Product Demand, Mb/d { 53% } 60% Source: EIA, Annual Energy Outlook 2003 (19.73) (22.97) Conventional Wisdom on US (2): Import Dependence Import Dependence

Challenging the Conventional Wisdom (1):Alaska: 

Challenging the Conventional Wisdom (1): Alaska Development profile suggests plateau (at least) for some years Alaska State projects 1 Mb/d+ for next 5-6 years Production supported by advances in drilling technology – lowering costs Average Well Cost ($ million)

Slide15: 

Alaska: Recent and potential developments on the North Slope Alpine (largest onshore US discovery in more than a decade) onstream 2000. Future developments of satellites (Fjord, Nanuq). Kuparuk (2nd largest producing field in N America). Development of EOR project to keep production flat through decade. New field development: Meltwater (2002), Palm (2003). Development of West Sak heavy oil field. NPR-A: limited area opened for exploration in 1999. Discoveries already made. Cascade discovery. Schrader Bluff development. Northstar onstream 2001: peaking at 65,000+ b/d this year Prudhoe Bay (largest producing field in N America). EOR expansion project 2003. Aurora and Borealis satellites onstream 2000/2001. Orion under development. Point McIntyre EOR project began 2000/2001. Sourdough discovery. Liberty discovery

Challenging the Conventional Wisdom (2):Lower 48 onshore: 

Challenging the Conventional Wisdom (2): Lower 48 onshore In decline…but not as steep as many think Decline rate has slowed to 2-3% pa Technology (EOR) is continuing to improve recovery rates Energy policy (access to Federal Lands) could make a difference Mb/d

Challenging the Conventional Wisdom (3):Deepwater Gulf of Mexico: 

Challenging the Conventional Wisdom (3): Deepwater Gulf of Mexico Producing/Under Development Discovered (unsanctioned) YTF? Short-life fields, but finds to date suggest continued growth at province level Production set to more than double 2000-2005 Discoveries, YTF (+stretch) support significant expansion beyond ‘base’ Technology and infrastructure allowing access to ever deeper water Million b/d

Deepwater Gulf of Mexico:BP projects: 

King Mars Europa Ursa Aspen Crosby Ram Powell Marlin Nakika Pompano Troika Mica Neptune Mad Dog King’s Peak King Deepwater Gulf of Mexico: BP projects Amberjack Nile Horn Mtn Princess MC764

Challenging the Conventional Wisdom (4): Reserves support continued production growth: 

Challenging the Conventional Wisdom (4): Reserves support continued production growth Discoveries maintaining the reserve base… Reserve replacement exceeds 100%… Discoveries per well trending up… Million Barrels Million Barrels

Forecast Comparisons: 

Forecast Comparisons US Liquids Production Forecasts: Mb/d 2000-2010

Putting It All Together:A more optimistic scenario: 

Domestic Feedstocks Imported Feedstocks & Products Processing Gain Total Petroleum Product Demand, Mb/d { 53% } 53% (19.73) (22.17) Import Dependence Putting It All Together: A more optimistic scenario Based on 1.2% pa growth

 A different (potential) path for the oil market: 

A different (potential) path for the oil market

Slide23: 

Incremental Non-OPEC Oil Production Thousand b/d Forecast

Slide24: 

OPEC’s medium term challenge FSU Other Cond/NGL Iraq Change 2002-2007 (Mb/d) Supply exc. OPEC crude Other OPEC (range)

Slide25: 

OPEC Share Of World Oil Production

Conclusions: 

Conclusions Production must eventually follow reserves But reasonable probability that medium term non-OPEC production will exceed expectations Deep-water is a major, technology-driven play Will demand growth continue to falter? OPEC to continue struggling to maintain market share