OGPSS - The Pope, Poverty and Power

The new Pope Francis comes from Latin America and has an understanding of the true depths of poverty that is not that common in the United States and Western Europe. Outside the very Western urban part of downtown Buenos Aires lie the barrios and the shanties of the Argentinian poor. Life is more transient in neighborhoods where there is a lack of water, food and opportunity, and where sanitation is a sometime thing. Government programs do not extend far enough, or help many at the bottom of the ladder and government statistics seem to hide much of the problem.

This holds true in many parts of the world. I was struck, at the time of my first visit to China in 1987 by the contrast between the opulence of the walled community in which the “Western” hotels were located in Shanghai and the desperate poverty of the communities just the other side of that wall. Move forward some fifteen years and the cities of China are much different, across much of the landscape. It is a transition that has been effected through large-scale industrialization and the vast quantities of power that is expended in the growth and continuation of that industry. Such a transition is the vision for many countries in the world, but the role of power in that change, and the increasing costs that it imposes, must be recognized. Just having a nominal power available is not, in itself, enough. Consider the case that India, a potential challenger to the Chinese in the market place, now finds itself in. As with China the country has desperate poverty, but it also has a developing industrial base that is driving change. But the rate of that change has, for some time, been limited by the amount of power available.

Power cuts in India are so commonplace that the Times of India recently ran an article detailing some things to do during these “incessant” cuts. And while it is only the major blackouts, such as the power failures at the end of last July that garner global headlines because of the scale, some 600 million people being without power in that event, it is the daily, smaller scale events that are making it increasingly difficult to run a business. In Coimbatore, for example, a city of some 3.5 million people, power outages can last up to 14 hours a day, and “load-shedding”, where power outages are rotated around the neighborhoods is an accepted part of daily life in the country. The ubiquity of these cuts mean that many folk have purchased stand-by generators, which in turn drives up the demand for fuel. But it is difficult to run a business – whether it be a factory or a restaurant, if you don’t have a reliable source of power. And if cuts are frequent enough, and the alternative power costs are too high, then business either closes or moves somewhere else. It is such a decision that is apparently facing small business owners in places such as Coimbatore, but it has the potential to spread to the larger, and now more dependant communities such as Bangalore, the third largest city in the nation, and the Silicon Valley of India.

The city consumes some 2,300 MW a day which it draws from the state grid. About 1,000 MW is generated in the state from nuclear power stations, with the majority of the rest coming from coal, gas and diesel power plants. Because of the prestige of the community it is likely that the city won’t see the worst of the anticipated power shortages this summer, which already have the state trying to buy an additional 1,500 MW. Current supply shortage is around 180 MW but is expected to grow as the weather warms into summer. And since overall Indian supply is challenged by a greater demand, the state can only hope to acquire 1,000 MW to meet the expected demand. They hope that this will be enough to keep the lights and power on in their “Valley.”

This is one of the drivers, expanded to a national scale, that is facing India as it decides what to do over sanctions on Iranian oil. Earlier in that debate India switched out of paying for the oil with US dollars to paying in gold. Given the volumes involved, India imported around 285 kbd from Iran in January, this does nice things (if you are a gold miner) for the price of gold, in dollars. But that can only go so far, and there are suggestions that the payments are becoming more about barter. As a result India has become Iran’s top customer and it is a difficult relationship to change, since some of the Indian refineries are designed only to take Iranian crude. However, as sanctions are growing to include insurance companies, Indian refineries that process the Iranian crude are threatened with the loss of coverage. Whether this will force a change in source of supply, or whether the Indian Government will find a way around the dilemma is an ongoing debate, complicated by the “good deal” that India is getting as a price.

The other fuel on which India is critically dependent is coal. And although the country has large reserves of coal, it is not developing them fast enough to meet demand, and thus must increasingly import both thermal and metallurgical coal.


Figure 1. Indian Coal Statistics (Energy Export Databrowser )

By 2017 imports are anticipated to rise to some 266 million tons of coal, in total. And while much of the press has focused on the Chinese development of new coal-fired power plants, India is planning some 455 new plants, while China has only 363 on the books. This comprises the majority of the 1200 plants currently being planned around the world.

Apart from challenging the opinions of those who suggest that coal demand has, or will soon peak, this speaks to the burgeoning need for fuel sources as nations struggle to bring their poor into a better standard of living. It may well be a debate that now acquires a religious overtone.

OGPSS - Iranian potential and the Caspian disputes

As we come to the end of the year, Leanan continues to point to the many stories that now fill the media reporting on the perception that the time to worry about peak oil is over. However, as Darwinian perceptively points out the global supply of oil (crude and condensate) is not going up with the celerity that most commentators are envisaging.

Figure 1. EIA reported global crude and condensate production through September 2012, (Darwinian at The Oil Drum)

The global balance between available supply and demand is in a balance, where the amount of oil remaining available to meet a surge in market demand is quite small. OPEC (and largely Saudi Arabia), by adjusting their production, ensures that the balance is maintained and prices remain at a level with which they are comfortable.

In the December 19th TWIP, the EIA has explained, without endorsing the statement that the US might surpass Saudi Arabia in global fuel production, why that is a less important statistic than folk are generally making it out to be.

The EIA note, in their review, that this balance is predicated on a sustained production from the Middle East. Yet, for several years now, reliance on maintaining current supplies, and guaranteeing adequate supplies in the future has assumed a steadily growing production from Iraq. The EIA notes that it is in the combined production from Iran, Iraq and Saudi Arabia that contains the additional oil needed for significantly greater production. (Venezuela is also mentioned, though there are more obstacles to overcome before their oil production can increase).

There is, unfortunately, a down-side to the glee which many commentators have greeted the news of potential US production gains. With the assumption that North America (and for this Mexico and Canada are included) can reach the higher targets projected, there is less concern with ensuring that alternate supplies remain available, as world demand continues to rise. This failure to ensure “insurance” may well cause some significant changes in the global market in the non-too-distant future, should the existing projections prove overly optimistic. (And Leanan referenced Kurt Cobb’s more realistic assessment, on Friday).

China, for example, is aware of the Iraqi potential to increase production and is moving to take over Exxon’s stake in the West Qurna oilfield, as part of their ongoing program to increase the reserves available to China in coming years. This comes as relations between the US and Iraq seem to be cooling, as Iraq becomes more friendly with Iran. Iranian exports are continuing to increase, despite the sanctions, although there are some problems arising with repatriating the payments to Tehran. The EIA note that Iran has some 137 billion barrels of proved reserves, some 9.3% of global reserves, and over 12% of total OPEC reserves. However, as with many countries, its internal consumption is keeping pace with or growing faster than overall production.

Figure 2. Iranian Production and Consumption (EIA )

In a recent post on Iraqi oil, Euan included a map showing the main distribution of fields in Iran.

Figure 3. Map showing the oil and gas fields of the Zagros fold belt. (Greg Croft via Euan Mearns)

Nevertheless Iran has significant potential reserves outside of this strip, as well as further discoveries within it. As the EIA notes:

There were a number of new discoveries in Iran over the past couple of years. In May 2011, NIOC announced a discovery of a deposit of light oil (35° API gravity) in the Khayyam field, offshore in the Hormuzgan province. The field had been discovered in 2010 but was originally classified as a gas field. According to the NIOC, the volume of in-place oil at this field is 758 million barrels, of which around 170 million barrels are recoverable. Also in May 2011, Iran announced the discovery of new onshore oil fields in its south and west with an estimated half a billion barrels of reserves. In late 2010, Iran claimed the discovery of new crude finds near gas reservoirs in the Persian Gulf, holding total in-place reserves of more than 40 billion barrels of oil, however recoverable reserves could be less than 10 billion barrels.

And just this year a significant discovery was announced in Iranian waters in the Caspian. The field promises a 10 billion barrel resource, which could add around 7% to the Iranian reserves.But there is a dispute over the location of the field, with Azerbaijan claiming that the region belongs to them.

Figure 4. Location of the discovery off Iran (Eurasia net)

Exploration in the southern end of the Caspian has been somewhat sporadic, given the territorial disputes as to who owns which part of the seabed, and this discovery is not likely to ease those tensions. Azerbaijan and Turkmenistan are both concerned over their individual territories, and are now in dispute over the Kyapaz (Serdar) field. And as the size of the field becomes more evident the dispute is continuing to raise tensions in the area.

Figure 5. Sunset over an Iranian drilling rig in the Caspian (rashidi4u on Google Earth).

And so, as we come to the end of 2012 disputes seem to be the order of the day in this part of the Middle East. Not forgetting the conflict in Syria, the disputes in Iraq over who gets to control what part of their oil future continues to evolve. Increasingly in the North the Turkish government is dealing with the regional government in Kurdish Iraq instead of the Government in Baghdad. These actions do not fill one with confidence that any of the predictions for future production are likely to come through in the time frame projected. Which will, unfortunately, tighten supplies in the non-too distant future.

Oh, and just in case you thought that Gazprom had changed its spots, it turns out that with the current cold spell in Kyrgyzstan, Gazprom has found the opportunity to take over the state gas company Kyrgyzgaz. The company has so many problems that the price will be nominal, given the amount of debt that comes with it. But it also gives Gazprom access to some of the Kyrgyz gas fields.

OGPSS - Iranian oil and the global future

There is a lot going on in the Middle East at the moment. There is the revolution in Syria which seems now to be entering some form of end game, and there are the riots in Egypt. There are some signs that these events might move on to countries such as Jordan. Increasing levels of turmoil in the Middle East do not help stabilize the future flow of oil and natural gas around the world, and there are underlying tensions, brought about in part by the need to sustain sanctions against Iran.

Turkey, for example, which is caught up in dealing with Syrian refugees and the adjacent civil war is also largely dependent on Iranian fuel to get it through the winter. In October Turkey is reported to have imported 75 kbd of Iranian oil with larger portions of the total 417 kbd import coming from Iraq (105 kbd) and Russia (103 kbd). The volumes that continue to flow are now becoming a source of friction, since US law demands that countries continue to lower their imports every six months . While Turkey continues to work to lower their need for Iranian oil (and may increase imports from Russia) in the interim the U.S. Government is not increasing pressure but apparently moving to extend the waiver of sanctions not only to Turkey, but also to a total of 21 countries, a list that includes China, India and South Korea.

Two officials said an announcement of the six-month extensions was expected from the State Department on Friday. The officials spoke on condition of anonymity because they were not authorized to publicly preview the step.

In addition to China, India and South Korea, the waivers will apply to Malaysia, Singapore, South Africa, Sri Lanka, Turkey and Taiwan. All nine were originally granted six-month renewable exemptions from the sanctions in June.

The exemption means that banks and other financial institutions based in those places will not be hit with penalties under U.S. law enacted as a way of pressuring Iran to come clean about its nuclear program.

A total of 20 countries and Taiwan have been granted the waivers. The others—Belgium, Britain, the Czech Republic, France, Germany, Greece, Italy, the Netherlands, Poland, Spain and Japan—will come up for review in March.

Yet Turkey, which gets some 20% of its natural gas from Iran, taking roughly 90% of Iran’s natural gas exports is resisting pressure to lower its gas purchases, since the fuel is the primary source for most Turkish electricity. And further, with estimates of Turkish needs estimated as rising to 655 kbd by 2016, the ability of the country to sustain an adequate supply of power supply may become more difficult without reliance on Iran.

There is a somewhat similar argument made in South Korea, who, while they have cut demand by some 30%, continue to import around 186 kbd of Iranian oil as of October, though the volume varies, depending on who is doing the counting. Similarly one sees that both China and India are reported to be lowering their purchases so that there is a projection that Iran might not ship more than 834 kbd in December. Some of the problem in sustaining even this level of supply is apparently coming from the lack of available tankers, and with Iran now being willing, apparently, to use false shipping transponders in co-ordination with Syria rather than just changing names; events seem moving toward some form of a Bond movie.

Oil is a recognized critical component in building energy supply and the current ongoing effort to contain Iranian exports seems to take much of the headline, relative to overall supply questions. But the game is being played in the margins of balance of overall oil supply and demand. The arrival of significant supplies of natural gas, whether real – as in the United States – or potential – as in most of Europe – has moved the focus away from concerns over oil supply as an issue.

Yet China does not seem to be cutting back on overall oil use, demand rose 6.6% in October 2012, over that in October 2011, and averaged 9.76 mbd. If that continues, then China must find an additional source for 644 kbd next year, over and above current suppliers and volumes. And so, with the country still growing, that demand will also continue to grow. But there are not a lot of places that can provide for that increased need. The slow economies of the United States and Europe have dropped demand from where it could have been. And while the European economy is likely to struggle on through next year, that of the United States (lunatics no longer being allowed in Washington) is on the path to recovery, which may well swell energy demand more than anticipated, and absorb any increased domestic supply without much further change in import needs.

And thus one comes back to the aggressive nature of the Chinese in regard to the hydrocarbon resources of the China Seas. The ASEAN nations seem powerless, whether by inclination ore real power, to do much to protest the Chinese position. The Chinese are also working to minimize the American presence, and treaty obligations, that involve them in these discussions. China has just authorized seizure of foreign vessels in their waters (which they, disputedly, claim include most of both China Seas). At the same time India has taken notice, and is more than just expressing concern.

Although India doesn’t have any direct territorial claim in the area, the waters are strategically important to New Delhi for three reasons. First, like for any trade-dependent country, the South China Sea represents an important global shipping route and freedom of navigation must be maintained. Second, India’s state-run Oil and Natural Gas Corporation (ONGC) owns a stake in waters claimed by Vietnam. And third, and perhaps most importantly, the South China Sea represents an opportunity for an Indian riposte against China’s ‘string of pearls’ naval encirclement of the Indian subcontinent.

Overall the world does not seem to be heading in the direction of a peace-filled future. The underlying imperative of energy supply to meet national needs has brought the world to war before now, remaining unconcerned about the situation means that we remain unwilling to learn the lessons of history.

OGPSS - Global oil demand and Iranian production

One of the headlines this week has come from the IEA Report that suggests that the United States will be the top global oil producer in five years. Yet back in DeSoto Parish in Louisiana where the Haynesville Shale discovery in 2008 started the bonanza, revenues are now falling and school board budgets are being tightened as the end of the glory days are now beginning to appear.

Just this week Aubrey McClendon has said that Chesapeake’s prospects for oil in Ohio, where Chesapeake had high hopes for the Utica Shale, are now dim. It is easy to look at one of the large maps that the Oil and Gas Journal include in their print editions, showing all the shale deposits in the United States, and to be carried away (as the IEA apparently are) with the vast acreage that is shaded on the map. Unfortunately, as we are seeing, reality tells another story. The size of the resources have been measured in the past, and with the best plays being given preference, the recognition of decline rates, and unprofitable wells have not yet been given the prominence in the popular press that they will ultimately draw.

Figure 1. Shale Plays and Basins in the United States (Oil and Gas Journal)

It seems unrealistic to anticipate the levels of production that are now being projected for future North American production of oil. But, nevertheless, these do tend to crowd other stories on the subject out of the spotlight. And further, if the predictions for American production gains, even in the short term, turn out to be optimistic, then the impacts may be more exaggerated than is currently appreciated. Consider that OPEC now expect that North America will continue to provide the greatest y-o-y increase in supply over other nations, and there are, in fact, very few other nations that will be contributing that much more in the next year.

Figure 2. Non-OPEC supply growth expressed as a year on year change. (OPEC November MOMR)

The MOMR notes that UK oil production has fallen below 1 mbd, for the first time since 1977, while Norway’s production has fallen to levels not seen since 1990. These numbers are part of an overall revision of non-OPEC production for 2013, which OPEC now sees as coming in, as follows.

Figure 3. OPEC projections of non-OPEC production for 2013. (OPEC November MOMR)

In regard to OPEC production, the MOMR has, again, two tables for their production, with the first showing that based on secondary sources.

Figure 4. OPEC production based on other sources ((OPEC November MOMR).

The tables show that Iranian oil production continues to decline, by around 47 kbd from September to October. Yet other sources are now reporting that both China and South Korea may have been helping Iran increase oil exports. As a result production may have increased 70 kbd, instead of declining, though the overall volume remains at around 2.7 mbd, of which exports rose from 1 mbd to 1.43 mbd.

When the “as reported directly” table is compared, Iran is shown to be still producing at around 3.7 mbd.

Figure 5. OPEC production based on direct communication with the producing country ((OPEC November MOMR).

Within Iran the government has partially reduced the subsidies that it was providing for gasoline, which initially reduced demand by about 50 tb/d, and flattening internal demand. But, as we enter the colder months OPEC is estimating that demand will again start to rise.

Concurrently Turkmenistan has stopped exporting natural gas to Iran. Normally Iran would increase imports, over the winter months to around 1 billion cu.ft/day (bcf/d), although this import is partly for geographic reasons, and Iran has, in the past, exported about 80% of the equivalent volume to Turkey. Iran has, apparently, suggested that Turkmenistan increase the delivery to 1.4 bcf/d, but since Turkmenistan can now get a good price for its gas from China, there is more of a debate this year over price, without agreement at the moment. Iran also swops around 35 mcf/d of natural gas with Armenia, in return for electric power.

As a way to try and work around the current sanctions, Iran has been changing to a scenario where it can move more of its oil using its own tankers. The country had been storing millions of barrels in part of this fleet, but that volume is being sold so that the vessels can, instead, haul oil. And there is the possibility that the insurance on these vessels has been “fiddled” to get around the burden imposed by sanctions.

Internally the sanctions are having considerable effect.

Although the government maintains that the official inflation rate is 25 percent, . . . with some analysts claiming that actual figures are double the government rate. In addition, unemployment has soared, with estimates stating that between 500,000 and 800,000 Iranians have lost their jobs. . . . . ."Business is drying up, industry is collapsing. There's zero investment," said an Iranian businessman in September. . . . .the government has attempted to shield the lower classes by offering them cash handouts and subsidizing certain imported staple goods, making them relatively affordable for poorer segments of the population. But even these efforts have had a limited effect, as the price of goods such as Barbari bread went from 1,000 rials to 5,000 rials last week.

There are even suggestions that the economy could “essentially explode” by next spring. On the other hand there are ways of getting around sanctions, and these may allow the crisis to continue to simmer for some time.

All of would suggest that exports of Iranian oil will not be easily available for some time, although, with a new regime in China their commitment to maintaining current levels of trade is now not clear. China will open two new refineries one for 240 kbd in Quanzhou that is scheduled to start next June, and one for 300 kbd that is to be located in Zhanjiang, with oil for the latter anticipated to come from Kuwait. Nevertheless it may be that China, which is currently taking about half the Iranian exports might find it possible to accommodate more.

OGPSS - Global crude oil and Iran

There has been a little stir in the news on Energy lately, as folks have begun to extrapolate the growth in American oil and gas production to the point that they predict that the United States may out-produce Saudi Arabia, in terms of the totality of hydrocarbon production. Of course, in some cases, it has been North American oil independence that is featured, rather then that of the USA. And the reason for the generalization is that by broadening the geography so that the region also includes Canadian and Mexican production then the US imports from those countries magically disappear (which does not mean that they don’t have to be paid for. The US imported around 2.5 mbd from Canada and 1 mbd from Mexico in July). The stories also don’t dwell on the comparison of apples and apples. Consider the following quote from NPR. It is that easily missed sentence at the end of the first paragraph that is critical.

In 2011 the U.S. produced 5.66 million barrels of crude oil a day, according to the Department of Energy's Energy Information Administration. By next year the agency projects that will increase 21 percent to 6.85 million barrels a day. Add in things like natural gas liquids, biofuels and processing gains at refineries and that number increases.

"By 2013, we'll probably be a little over 11 million barrels a day," says EIA administrator Adam Sieminski. "That puts you pretty close to Saudi Arabia's" production of more than 11 million barrels a day, he says.

In which regard it might be pertinent to note that some of the crude produced in the Kingdom of Saudi Arabia (KSA) will be refined in the US, providing refinery gains here, and further distorting the comparison. Ah, well!

The current production gain in the US has resumed, after a short plateau, although the gains following the shut-ins for Hurricane Isaac seem to be leveling off.

U.S. Crude Production through mid-October 2012 (EIA TWIP)

The information in the October Monthly Oil Market Report from OPEC, show that crude oil production from KSA is running at 9.85 mbd, as reported by other sources.

Figure 2. Reported production from the OPEC nations through September 2012, as reported by others (OPEC MOMR)

When one looks at the production that KSA itself is reporting the numbers are slightly reduced.

Figure 3. Reported production from the OPEC nations through September 2012, as they reported to OPEC (OPEC MOMR)

While the comparison of the two levels of crude suggest that the US has a long way to go in matching KSA crude production, the two sets of figures also point to the answer to another question.

Looking at the figures for Iran, it is clear that the sanctions which have been imposed on that country by the West are having a serious impact. Not only is this seen in the fall in oil production, likely around 1 mbd, but in the more consequential cut to exports this fall is reflected in a $7 billion reduction in income. Iran has just started to admit that this bite in their export market is hurting production. And it is only now that they recognize that this will further fall, though they are now also threatening to carry this drop to its ultimate conclusion, and to stop exports entirely. An immediate impact to this would fall on Turkey, which has cut oil imports from Iran by about 20%, but which has a six month exemption from the full impact of the sanctions. It is currently importing around 200 kbd of crude. Some of the value of that oil is apparently returning to Iran as gold bullion, which can be easier to spend.

However the primary question might well be, if world oil markets are so tight, how come taking a million barrels out of production hasn’t had a more significant impact? And the answer to this comes in part because of the increase in production from KSA (Note that a year ago the country was producing around 500 kbd less than it currently is), and also from the gains in production from the United States. (As shown in Figure 1).

Further, given that the global economy, though regenerating from the depths of recession, is still not operating at levels sufficient to bring unemployment to more normal levels, overall demand also remains below what it might be.

Since we live in a global economy the problems of Europe and America are reflected in a reduced demand for goods from China and other Asian countries, which impacts the energy demand from factories. China has been taking some 40% of the Iranian export. OPEC has noted that Chinese demand has declined, and that part of this decline has been through an 18% reduction in imports from Iran. Interestingly this was partially made up through an increase in imports from Iraq.

Figure 4. Change in Chinese petroleum imports over the past year (OPEC MOMR )

One of the threats that Iran has made it that it will shut down its exports completely. The country was initially exporting some 2.3 mbd before sanctions occurred, and sanctions have dropped this already to around 860 kbd. Of this 200 kbd are going to Turkey, but this is a country with pipeline connections that give it options. There is a pipeline running from Iraq, the Kirkuk- Ceyhan connection which carries 300 kbd, and was briefly damaged by fire in August; and, more famously, there is the Baku-Tiblisi-Ceyhan pipeline from the Caspian. This can carry 1 mbd of crude, and having run 190 mb through September this year, it is running not quite full.

Figure 5. Oil and Natural gas pipelines through Turkey (Journal of Energy Security )

In short, as with the suggestions mentioned the other week, that Iran might seek to challenge Qatar in going into the natural gas LNG market, the threat this week that it might shut off exports of crude seems to be likely only geared for domestic consumption.

The global demand at present is not such that the Iranian supply is critical to ensuring a balance at an acceptable price between supply and demand. It would seem that the global economy would need to regenerate further, and for North American and KSA to reach some form of current peak in production against that potential of rising demand before this balance is threatened. But, in consolation to Iran, resting oilfields can sometimes help in terms of their longer-term production (as KSA have practiced for years).

OGPSS - A recap with some updates on North American production

This series of posts has just completed a review of the different regions of Russian oil production, with the conclusion that while Russia may maintain current production levels of around 10.4 mbd for a short while, it faces rising domestic consumption levels at the same time that it is not replacing existing production at a fast enough rate to be able to sustain exports. Without more investment than is likely available, the rate of new field development (given the harsh and remote nature of the sites) means that there will be a slow decline in available oil to the market starting fairly soon. (Given the large supplies of natural gas that are coming available, this series is going to focus a bit more on oil as we continue the review).

As the series continues, and moves slightly down the list to consider the future of the oil and gas fields in Saudi Arabia, it is worth noting that while there is little that Russia can do to significantly raise production in the short term, that does not hold for the desert kingdom. However, before moving on to KSA in detail, this week is a pause to consider some contextual changes in the overall picture.

One of the questions that has been raised many times relates to the reality of the true maximum production levels that Saudi Arabia can achieve. As oil prices have continued to rise politicians are calling for the Saudi’s to increase oil production, so that the price may fall. (This is a rather odd and unrealistic request when the KSA needs all the income it can get to help domestically.) The EIA, in considering the global oil flow as sanctions begin to bite on Iran have projected that OPEC has a spare capacity of 2.5 mbd, most of which comes from KSA. At present the KSA is producing at around 9.7 mbd up some 600 kbd from this time last year, according to the EIA, although there is a little question as to how accurate that number is. (The IEA is reportedly saying that KSA is already producing at 11.5 mbd.. However the IEA counts all liquids, as Gail has pointed out, while EIA values are for the crude and condensate, which add up to 9.7 mbd, so that while there appears a discrepancy there really is not). The debate is likely to see some harder numbers in the months ahead. Iran is already having problems marketing their oil, since after January 23rd the European Mutual Protection and Indemnity Club is no longer covering shipping contracts. This is making it difficult for consumers such as India to maintain supply, and they are already considering the use of sovereign guarantees for its shipping lines. At the same time the EU is not calling for coverage to be phased out until July 1.

The EIA report notes that Iran is currently the 5th largest producer of liquid fuels at 4.1 mbd, although it consumes 1.8 mbd of that internally. Thus the threat to the global market runs at around a 2.3 mbd reduction on current overall demand of around 88.1 mbd. The series will discuss Iranian production, and its prospects somewhat later, but before getting into an analysis of Saudi Arabia, it might be worth just a quick glance back at a couple of countries that have been covered earlier.

Estimates of future production are only that, and, as has been noted in comments on recent posts, not all anticipated production or plans work out as anticipated. To give but a few examples pointed out in comments, and elsewhere:

The Russian oilfield at Yuzhnoye Khylchuyu was initially estimated to hold 505 million barrels of oil, but has now been reported as only having reserves of 142 mb.. (Noted by voiceinyourhead) On the other hand the Sarmatskoye field in the Caspian is now considered to have double the original estimate, and is estimated as just under 1 billion barrels of oil equivalent in natural gas and condensate. It is anticipated to come on stream in 2016. And, while on the topic of natural gas, both toolpush and RayRay have noted that the natural gas from Sakhalin Island is not going to see the 3rd LNG train that I mentioned in the post on that topic, and that the natural gas will instead feed into a pipeline to the mainland.

In regard to the posts that were written to cover the United States and Canada, the February monthly flow of oil through the Alaskan pipeline has fallen to an average of 609,805 bd. This is down from an average of 624,716 bd in January and gets the flow closer to the point where solidifying wax and water start to cause problems.

In the time since the posts were written on North American production and promise (politically including Canada with the United States makes the overall change in production figures look better than if the figures were based solely on US production, particularly as oil from the Albertan oil sands rises to production levels of 3 mbd by 2015) the Canadian National Energy Board (NEB) released their “Canada’s Energy Future: Energy Supply and Projections to 2035” report. In seeking to predict future production the NEB anticipated that the price of a barrel of oil would rise relatively modestly over the next 20-years. Even in their high estimate they do not see the price rising to more than $160 a barrel by 2035 (who would bet that the estimate is exceeded this year or next?).

Canadian estimate of the future of crude oil prices (NEB )

The report estimates that in the Reference case, oil production from the oil sands will reach 5.1 mbd in 2035, which is three times 2010 production. This will be mainly from in-situ methods.

Canadian crude oil production (NEB )

Over the ten years from 2010 to 2020 in-situ production is anticipated to grow at 9% p.a., while mining production will rise at 5% p.a. The North West Upgrader is anticipated to come on stream in 2014, with an initial 50 kbd of throughput. Carbon dioxide produced during the process will be used in Enhanced Oil Recovery (EOR) locally. If the price rises to the highest levels anticipated, then production might be estimated to rise to just under 7 mbd in total for Canada by 2035.

Canadian production for different case estimates of price, as above (NEB

However the NEB do recognize that domestic consumption will affect overall supply, but consider that it will likely only significantly impact the lighter crudes, and that the difference between the roughly 4 mbd of heavy crude produced and the 3.8 mbd available for export in 2035 will reflect a relatively constant 0.2 mbd of internal consumption.

Canadian light oil future predictions (NEB

With considerably more oil, therefore, being available from Canada, albeit there remain concerns over how much will be shipped to the USA, there is somewhat less pressure on domestic producers. Which is likely good news since the likelihood of US production remaining at current levels is still doubtful.

One of the hopes for the future comes from the wells being drilled in the Gulf of Mexico, with DoE projecting that gulf production will rise to some 2 mbd by 2020, from 1.3 mbd at present.

One concern that remains however, lies in the actual levels of production that will be achieved. As Jean Laherrère has noted the wells in the deep water have not all held up their promise, peaking on average within a year of coming on line. Jean notes that the production decline with the Mars and Ursa fields are at about 9% per year, which he notes is less than half the decline rate at Thunder Horse. Darwinian is also tracking production, and although he notes that Tahiti is performing relatively consistently at 110 kbd, Atlantis is not coming close to the 185 kbd projected.

Atlantis production (Darwinian )

Exploration and development in the Gulf are, apparently now back to pre-Deepwater Horizon levels, one can only hope that future developments will be less dramatic and more successful.

The speed of that recovery is encouraging, though the results to date have been a little less promising than anticipated. But, as with operations in the Arctic, investment costs are going to be high for any new finds that are viable, and will take a number of years to develop, at a time when demand is going to continue to increase. The Gulf discoveries, for example, will likely start to come ashore about the time that the Bakken and Eagle Ford plays start to fall in production, and thus, overall, may not give the boost to American volumes that are currently being projected.