Wednesday, May 28, 2008

Yeah Peak Oil!

This shit is about to get really expensive....cool chart at the bottom

Oil Exporters Are Unable
To Keep Up With Demand
Domestic Needs,
Sluggish Investment
Crimp Shipments
By NEIL KING JR. and SPENCER SWARTZ
May 29, 2008; Page A8

The world's top oil producers are proving unable to put more barrels on thirsty world markets despite sky-high prices, a shift that defies traditional market logic and looks set to continue.

Fresh data from the U.S. Department of Energy show the amount of petroleum products shipped by the world's top oil exporters fell 2.5% last year, despite a 57% increase in prices, a trend that appears to be holding true this year as well.

There are several reasons behind the net-export decline. Soaring profits from high-price crude have fueled a boom in oil demand in Saudi Arabia and across the Middle East, leaving less oil for export. At the same time, aging fields and sluggish investments have caused exports to drop significantly in Mexico, Norway and, most recently, Russia. The Organization of Petroleum Exporting Countries also cut production early last year and didn't move to boost supplies again until last fall.

In all, according to the Energy Department figures, net exports by the world's top 15 suppliers, which account for 45% of all production, fell by nearly a million barrels to 38.7 million barrels a day last year. The drop would have been steeper if not for heightened output in less-developed countries such as Angola and Libya, whose economies have yet to become big energy consumers.

For all the attention paid to China's increasing energy thirst, rising energy demand in the Middle East may pose the greater challenge. Last year, the region's six largest petroleum exporters -- Saudi Arabia, United Arab Emirates, Iran, Kuwait, Iraq and Qatar -- curbed their output by 544,000 barrels a day. At the same time, their domestic demand increased by 318,000 barrels a day, leading to a loss in net exports of 862,000 barrels a day, according to the U.S. Energy Information Administration.

Demand in the Middle East is a major factor right now, said Adam Robinson, an oil analyst at Lehman Brothers in New York. Mr. Robinson predicts the region will constitute more than 40% of increased demand next year.

Saudi Arabia in particular has become a major energy consumer as the country pushes to put its oil riches to greater use. The kingdom is in the middle of a major investment campaign to become a world player in petrochemicals, aluminum and fertilizers, all of which will require huge amounts of oil and natural gas.

Since 2004, Saudi oil consumption has increased nearly 23%, to 2.3 million barrels a day last year. Jeffrey Brown, a Dallas-based petroleum geologist who studies net export numbers, said that at its current growth rate, Saudi Arabia could be consuming 4.6 million barrels a day by 2020.

That would cut significantly into Saudi exports even as the world looks to its largest oil supplier to help manage rising demand. Saudi Arabia has nearly a quarter of the world's proven reserves and supplies around 12% of the 86 million barrels a day that the world now consumes.

One reason Middle Eastern nations are using more oil is a shortage of natural gas, said Bill Farren-Price, director of energy at Medley Global Advisors. This is particularly troublesome during the summer, when governments scramble to keep the lights on and air conditioners cranking.

Some producers, such as the U.A.E., are easing back at times on the crucial industry practice of injecting natural gas into crude oil fields, which is done to boost reservoir pressure and increase crude recovery rates. Halting the injections ends up undercutting oil production, further reducing exports.

As top exporters hit trouble, historically marginal players such as Brazil and Kazakhstan are likely to play a greater role. Three of the four non-OPEC players among the top 15 oil exporters -- Russia, Norway and Mexico -- are reporting declines in production this year. Kazakhstan is showing slight net export gains.

No big exporter is struggling more than Mexico, where net exports dropped 15% in 2007. Mexican officials announced Monday that output from the country's once-mighty offshore Cantarell field had plunged by a third in less than a year.

Analysts said there are reasons for optimism. Russia's government is scrambling to alter the tax rates that many say have put a lid on new oil development. Mr. Robinson said 65 new ultra-deepwater drilling rigs are expected to arrive over the next three years, following a five-year stretch in which the industry gained only 10 such rigs.

Those additional rigs will help companies tap some of the most promising, but now inaccessible, waters off Brazil, Australia, West Africa and in the Gulf of Mexico.

"The sense in the market is that peak oil is here and that things will only get worse," says Mr. Robinson. "But the verdict is still out on that."


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