The International Energy Agency in Paris estimated in December the sustainable production capacity for the Organization of Petroleum Exporting Countries at 35.4 million b/d, with actual output at 29.05 million b/d, leaving a spare capacity of 6.35 million b/d. That spare capacity drops to 5.37 million b/d if less dependable producers such as Iraq, Nigeria, and Venezuela are eliminated.
The US Energy Information Administration put OPEC's spare production capacity in December at 5.03 million b/d, zeroing out Algeria, Ecuador, Iraq, Nigeria, and Venezuela. It estimates OPEC's maximum production capacity at 34 million b/d.
Using both the IEA and EIA numbers, Adam Sieminski at Deutsche Bank, Washington, DC, said, "We estimate that capacity utilization in OPEC is running at circa 85%. Both the IEA and EIA agree that the bulk of OPEC's spare capacity is in Saudi Arabia, with some 3.5-3.8 million b/d of incremental output available to the markets." Of course, Saudi crude is heavier and more sour than the frequently disrupted Bonnie Light crude of Nigeria. Nevertheless, Sieminski sees the spare OPEC capacity keeping a lid on crude prices this year, with West Texas Intermediate projected at $65/bbl vs. a consensus of $75-80/bbl.
Meanwhile, the US Geological Survey recently raised its estimate of heavy oil "technically recoverable" from the oil sands in Venezuela's Orinoco belt to 513 billion bbl, up from 235 billion previously (OGJ Online, Jan. 22, 2010). The estimate is based on published geologic and engineering data. USGS figures recovery rates from a minimum 15% for cold production using horizontal wells up to a median 45% and a maximum of 70%. "Some of the assumptions, notably the 45% median recovery factor, look quite aggressive," said analysts in the Houston office of Raymond James & Associates Inc., "but the more important point here is this: The reason for the 30%-plus meltdown in Venezuelan oil production since Hugo Chavez took power in 1998 is not a matter of geology but rather politics. With some of the world's worst policies towards foreign investment, Venezuela's oil industry is set to continue stagnating."
Pipeline factors
OPEC's production capacity isn't the only thing influencing the oil market, of course. Enbridge Inc. recently announced its Alberta Clipper pipeline from Canada to the Midwest will start operations in early April rather than in the third quarter as previously projected. "Combined with the start-up of the Keystone pipeline this means that we suddenly have 900,000 b/d of additional pipeline capacity from Canada to the US Midwest starting in the second quarter," said Olivier Jakob at Petromatrix, Zug, Switzerland.
The line fill is taking some crude off the market, and it will take some time before the increase in Canadian production matches the pipeline capacity increase. "But given that the Enbridge Southern Lights pipeline (carries diluents up north to increase the flow rate of the crude oil coming south) will also start ahead of schedule, we should nevertheless expect to see increased flows from Canada to the Midwest in the second half of 2010, and we maintain our estimate that the US Midwest will have cut to zero its dependency on non-Canadian foreign crude oil by the end of this year," Jakob said.
Meanwhile, other EIA data show pipeline imports of natural gas from Canada fell nearly 1 bcfd in 2009. But with US demand for gas down 1.5% because of the economic downturn, Sieminski said, LNG imports were kept near contract minimums. Now, he said, "With the economy reviving and the expectation of continued low Canadian pipeline supplies, the need for LNG should rise toward 1.75 bcfd from an estimated 1.25 bcfd level in 2009."
Sieminski reported, "The wave of new and ramped-up LNG projects around the globe is still building. Facilities streamed in 2009 include Tangguh, Qatargas 2, Sakhalin 2, Yemen, Ras Laffan 3, Snohvit, North West Shelf 5, and Atlantic LNG 4. Over the course of 2010-11, we expect significant increases from these projects, as well as Pluto, Algeria, Peru LNG, and [Nigerian] LNG come on line."
According to EIA estimates, Sieminski said, "Total [US] natural gas production increased by 3.7% in 2009 even though the rig count fell by almost 60% from peak to trough September 2008 to July 2009. The EIA believes that steep declines from existing fields and lagged effects of the lower rig count will contribute to a 3% decline in 2010 production, making more room for LNG despite the potential for lower gas demand from electric utilities. The surprise, if there is one, in this outlook is likely to come from stronger-than-expected shale gas production."
(Online Jan. 25, 2010; author's e-mail: [email protected])
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