The following was posted to an e-mail list I belong to. The person is a credible geologist who works for a major oil company. He is not anti-war so this is not a ruse to get out of Iraq. Very scary.
The recent crises in Venezuela, Nigeria and the potential crisis in Iraq has finally illuminated exactly what the excess oil roduction capacity is for the world. Lots of people who disbeleive that the world is about to peak oil production contend that there is lots of excess capacity in OPEC and that as other areas go down, they will go up. All future predictions of oil supply include this OPEC increase as part of their supply forecast.The strikes in Venezuela have had the effect of removing 1 million bbl/day from the world market which may never come back on stream. There is a threat of losing the Iraqi 2 million. For a while OPEC said that they would up production to cover the loss but it is obvious now that they can't. The Wall Street Journal notes:
"OPEC has been producing increasing volumes of oil in recent weeks, but prices continue to rise. Mr. Drollas said that in the short term, OPEC can increase its output by only 1.3 million barrels a day, or some 700,000 barrels less than Iraq's exports, assuming Saudi Arabia is producing at nine million barrels a day. "OPEC Officials Can't Suppress Rising Oil Prices," Wall Street Journal Fri. Feb. 28, 2003, p. A5
The Saudis say they can raise output to 10.5 million in 90 days. From rumors in the industry, the problem is that this claim is based upon the fact that 20 years ago certain wells, which are now shut in, produced 20,000 per day or something like that. Reservoir pressure is lower today than then and those wells may not be able to perform.
Now, having only a 1.3 million/day excess capacity means the price will now be uncontrolable. Over the long term the demand for oil rises at 2-3% per year. IN 2001 the world used 74 million barrels per day. We will exceed current excess capacity in a couple of years. Now, there will be some attempt to fill the gap and some partial successes. But we are in recession now so the world's economy is not drinking as much oil as it normally would.
Added to that the past fluctuations in demand are more than the current excess capacity. In thousands of barrels per day, here are the figures for world consumption from 1997-2001:
| 1997 | 1998 | 1999 | 2000 | 2001 | |71848 | 73280 | 71832 | 74482 | 74493 |One sees yearly swings of 3 million per day. That kind of demand volatility will eventually and suddenly overtake supply with consequent high rise of price.