The world seems headed for an oil production contest in 1993 after 2 years of tenuous balance in the petroleum market.
This year, worldwide average production of 60 million b/d remained only slightly below most estimates of accessible production capacity.
Oil & Gas Journal's annual estimate of worldwide production shows losses in the U.S. and former Soviet Union offset by gains by members of the Organization of Petroleum Exporting Countries and others.
Crude oil reserves, according to an OGJ survey and industry data, increased less than 1% to 997 billion bbl. Natural gas reserves jumped by nearly 12% to 4.89 quadrillion cu ft.
By early next year, production capacity will again exceed worldwide demand by enough to create problems for OPEC. Members will have to set a group quota reasonably in line with seasonally low second quarter demand and exercise discipline to keep from producing more oil than the market needs.
This year and last, pressures on OPEC were not as great as usual. Production from two members remained depressed-from Iraq by a United Nations export embargo and from Kuwait by damage sustained after the Iraqi invasion of August 1990. Production at near capacity levels from other OPEC members has about matched the market's need for oil from the exporters' group.
But Kuwaiti output, exempt from OPEC limits, grew steadily this year as war-damaged fields came back on stream. It reached a monthly average of 1 million b/d in August, nearly half its precrisis capacity, and averaged an estimated 845,000 b/d for the year.
Iraq managed to increase politically constrained flow by 48% to a 1992 average of 417,300 b/d. With heavy revenue needs and precrisis production capacity of 3.5 million b/d, the country will probably produce as much as it can once free of the UN embargo.
THE IRAQI FACTOR
Crude traders point to a potential Iraqi production surge as a reason prices did not increase by more than they did in this period of nearly full capacity utilization.
There is speculation that the Iraqi embargo will be lifted earlier with U.S. President-elect Bill Clinton in office than it would have been if President George Bush had been reelected.
With or without Iraq on stream, competition for share of the OPEC production total will intensify next year. In a likely indication of conflicts to come, Iran and Saudi Arabia jockeyed heatedly for quota postition at OPEC's ministerial meeting in Vienna late last month.
After at first insisting on a quota of 3.8 million b/d next year, Iran settled for a 3.5 million b/d ceiling, up 300,000 from its previous ceiling but below recent production.
Saudi Arabia refused to cut production to less than the 8.4 million b/d it was producing at the time of the meeting. The kingdom's output averaged 8.2 million b/d for the year.
The group-absent Ecuador, which resigned-settled on a quota of 24.582 million b/d for the first quarter. Although down more than 700,000 b/d from recent OPEC production, the new ceiling didn't immediately satisfy traders; crude prices slumped after the meeting.
Unless demand rises unexpectedly, OPEC will face even greater challenges in February, when it meets to allocate quotas for the second quarter. It will have to make deeper cuts in the group's total output than it did in November, Kuwaiti output will be well above 1 million b/d, and Iraq may be exporting again.
OFFSETTING DECLINES
Restoration of Kuwaiti flow and demonstrations of producing power by Iran and Saudi Arabia lifted average OPEC output by 1 million b/d during 1992.
But the surge did not totally offset large declines in the U.S. and Commonwealth of Independent States and other former members of the old Soviet Union.
U.S. production dropped by 280, 000 b/d to a year-long average of 7.14 million b/d in a trend not likely to be reversed under current federal leasing policies. C.I.S. output fell by 1.4 million b/d to 8.9 million b/d in a slump that eventually will end if enough foreign capital and technology can be brought to bear quickly on the region's mismanaged oil fields.
During the first half of the year, U.S. production set 30 year lows. And the C.I.S. seems likely to lose its No. 1 production ranking next year if Saudi Arabia continues to produce more than 8 million b/d.
Despite the combined 1.68 million b/d production drop from the U.S. and C.I.S., total average production worldwide barely declined due to OPEC's 1 million b/d gain and increases elsewhere. Western Europe output increased by 5% to an average of 4.49 million b/d, mainly on the strength of a surge in Norway. The Asia-Pacific region and Africa showed fractional gains, and production increases in Latin America and Canada helped keep the Western Hemisphere decline below 1% despite the U.S. drop.
RESERVES CHANGES
Reserves of both oil and gas increased in every region this year except the Middle East, where oil reserves were unchanged.
Venezuela's 3.6 billion bbl oil reserves hike amounted to more than one-half the total world gain of 6 billion bbl. The country's reserves estimate, now 62.7 billion bbl, has increased steadily in the past few years as state-owned Petroleos de Venezuela SA develops a huge heavy oil resource and adds to a string of light oil discoveries in the Eastern Venezuelan basin.
Norway added 1.2 billion bbl to its reserves estimate, bringing the total to 8.8 billion bbl. The government has approved a series of major development projects.
And Egypt added 1.7 billion bbl to its reserves following recent discoveries in the Western Desert and Gulf of Suez. The gain brings the country's total to 6.2 billion bbl.
Several countries with relatively small reserves made significant percentage additions this year that may signal future production gains.
Pakistan more than doubled its reserves estimate to 412 million bbl based on results of active exploration and development work in recent years. And new oil producer Papua New Guinea increased its reserves estimate by 70% to 340 million bbl.
The future of Philippines production brightened as the government pushed reserves to 147.5 million bbl from 38 million bbl. Alcorn International Inc. and Shell Philippines Exploration BY delineated separate, significant discoveries off Palawan Island during the year.
In the Middle East, Oman added 233 million bbl of oil reserves, a 5.5% increase, bringing the total to nearly 4.5 billion bbl.
Malaysia added 655 million bbl to its oil reserves, bringing the total to 3.7 billion bbl.
The year's biggest oil reserves decline came in the U.S.-1.57 billion bbl, a 6% drop. Reserves in Indonesia fell by 802.3 million bbl to 5.78 billion bbl.
The increase in total natural gas reserves was spread across all major regions. The Middle East scored the biggest percentage gain-15.2%. The region's gas reserves total 1.5 quadrillion cu ft.
OIL R/P RATIOS
An unsurprising disparity in ratios of oil reserves to production (R/P ratios) shows where most future output growth will occur: OPEC and the Middle East.
OPEC's collective R/P ratio is 87 years, compared with the world's ratio of 46 years. The higher R/P ratio indicates greater potential for development.
The Middle East leads regionally with an R/P ratio of 104 years. Major reserves holders with R/P ratios exceeding 100 years are Abu Dhabi and production-constrained Iraq and Kuwait. Saudi Arabia's R/P ratio is 86 years.
The mature, near fully developed producing regions, such as Western Europe, the U.S., and Canada, have R/P ratios of 9-10 years. The U.K., which increased its reserves 3.7% to 4.14 billion bbl this year, has an R/P ratio of 6.2 years.
The Western Hemisphere and Africa have regional R/P ratios of 26-27 years. The Asia-Pacific region's R/P ratio is nearly 19 years. The ratio for the C.I.S. and Eastern Europe is 18 years.
R/P ratios do not measure time remaining until reserves are exhausted. In most cases, reserves added via discovery or revisions at least partly offset withdrawals via production. And because of normal pressure declines, production rates shrink along with reserves over time, which can hold R/P ratios of mature regions nearly constant for many years.
ASIA-PACIFIC OUTPUT
Although total production changed little in Asia-Pacific during 1992, the area has some of the world's fastest growing producers.
An agressive exploration and development licensing program is beginning to pay off in Myanmar, where production gained 25% to 15,000 b/d. The country also is offering international companies licenses to restore old fields, which will help output in the future.
Philippines production tripled to an average of 11,900 b/d this year as Alcorn brought West Linapacan field on stream. First flow from the field was 16,500 b/d, so further gains are in store.
In addition, Shell and Occidental Philippines Inc. are studying Shell's Malampaya offshore discovery and Oxy's 1989 Camago gas/condensate strike on a separate Miocene reef to the south.
Papua New Guinea's first crude oil production came on stream this year from Chevron Niugini Pty. Ltd.'s Kutubu field. Production is expected to reach 100,000-140,000 b/d.
The country's first commercial hydrocarbon production started at the beginning of the year at BP Exploration's Hides gas/condensate field. The field's two wells are expected to produce 300 b/d of condensate. Sales gas, production of which will reach 10 MMcfd in 1994, fuels power generation in a nearby gold mine.
Late last year, a group led by Command Petroleum Holdings NL tested strong oil flows near Kutubu field in wells designated 1 and 2 Southeast Gobe.
Papua New Guinea's output averaged 40,400 b/d for the year.
Oil production in Thailand, once principally a gas and condensate producer with oil output confined to Thai Shell Exploration & Production Co. Ltd.'s onshore Sirikit complex increased 13% to 49,000 b/d in 1992. A reserves boost at Sirikit will sustain flow at 23,000-24,000 b/d for several more years. The rest of the oil production average is offshore condensate.
The Gulf of Thailand has yielded two oil strikes that may add to future production. Shell made one of them in the western part of the gulf near its short-lived Nang Nuan field. And Maerks Olie Og Gas AS made a promising oil strike with its 1 Tantawan wildcat near the gas producing trend of the central gulf.
Viet Nam's production increased to 102,700 b/d this year from 80,000 b/d as Vietsovpetro boosted flow from offshore Bach Ho field. The Vietnamese-Russian joint venture added a floating storage and offloading unit at midyear.
Exploration in the country has been active following an aggressive government licensing program.
China's production increased to 2.83 million b/d from 2.8 million b/d. The country is maintaining output in the mainstay Daqing and Shengli complexes through infill and deeper pool drilling and secondary recovery work.
The complexes account for two thirds of China's total oil production.
With other traditional producing areas at best holding steady or in decline, China's hopes for production growth focus on offshore prospects and the promising Tarim basin in the northwestern part of the country.
Production declined in 1992 in Asia-Pacific's other major producer, Indonesia. Output averaged 1.37 million b/d, down 3%, as exploratory successes tipped toward natural gas.
The government this year improved its production sharing contract terms in an effort to encourage activity. Among the year's oil start-ups was Conoco Indonesia Inc.'s Belida field in the South Natuna Sea, expected to flow as much as 100,000 b/d by 1994.
NORWAY LEADS EUROPE
Norway's oil production exceeded 2 million 6/d during most months of 1992, averaging 2.1 million b/d for the year to remain ahead of average U.K. production-down slightly at 1.82 million b/d.
Norway's No. 1 production ranking in Europe seems likely to hold for at least a few years. Development spending projections for the country have nearly caught up with those of the more-mature U.K.
But the U.K. has a long list of projects awaiting development, and a production rebound to 2.5 million b/d by 1995 is predicted by some analysts.
Among this year's Norwegian production highlights was a strong gain last March from Statfjord field to 760,000 b/d after an extended reach and horizontal drilling program.
Also, Snorre field, developed from the world's largest tension leg platform, began flow in August and was to be producing 100,000 b/d by yearend.
In the steadily busy U.K. North Sea, oil production start-ups this year include BP Exploration's Miller field, flow from which will peak at 113,000 bid, and Shell U.K. Exploration & Production's Gannet field, which will peak at 50,000 bid. Elf Enterprise Caledonia Ltd. hoped to restart Piper field at 75,000 bid by yearend.
Denmark's oil production set monthly records through most of the year and averaged 157,000 bid for all of 1992, up 10.3%.
The increase resulted from development drilling in Dan field and tying in of new production wells in Dan and Gorm fields. Development work is planned in several other Danish North Sea fields.
C.I.S., EASTERN EUROPE
The production slide of the C.I.S. shows little hope of turning around before 1995.
With economies of the old Soviet republics in turmoil and politics shaky, work can't begin as quickly as necessary under the many joint ventures signed this year and last between republic governments and international companies.
Contracts focus on revitalization of 20,000-25,000 idle oil wells, development, and exploration. But terms remain unclear in many cases, and Russia, the main producer of the C.I.S., has kept foreigners guessing about taxes.
Robert Ebel of the Center for Strategic and International Studies told a group of analysts last month that C.I.S. production might drop to 7.7 million b/d next year-6.7 million bid from Russia and 1 million bid from other republics (OGJ, Nov. 16, p. 34).
According to a draft plan in Russia, the federation's best hope is for a reversal of the oil production decline after 1995, when the average will be 6.5 million bid.
MIDDLE EAST
In the Middle East, 1992 Saudi production laid to rest petroleum industry doubts that the kingdom could maintain output of more than 8 million bid for more than a few months after the Persian Gulf conflict.
The big producer has plans to boost production capacity to 10 million bid, although timing is uncertain.
And Saudi Arabian Oil Co. (Saudi Aramco) plans to develop five discoveries of mostly light, sweet oil in the central province. The project will be Aramco's first development work outside the prolific Retained Area 1.
Iran claimed to have produced 4 million bid of oil during 1 week in October in what was widely regarded as a bid for a greater shire of total OPEC production. National Iranian Oil Co. wants to raise production capacity to 4.3 million bid by next April and eventually to 5 million bid.
Expansion of Iranian oil production capacity depends heavily on completion of planned natural gas injection projects.
In September, Italy's ENI announced that its subsidiary Saipem and another Italian company would begin work soon on development of South Pars gas field in the Persian Gulf under a contract from NIOC. It would be the first work to begin under a contract between NIOC and foreign companies in Iran's recent efforts to attract outside investors to its oil and gas projects.
Iraq continued to dodge UN demands that would have enabled it to resume oil exports on a limited basis but pressed work on export capacity in the meantime. It completed repairs on the 1.6 million bid Mina Al-Bakr oil terminal on the Persian Gulf and started work on the Khour Al-Omaiha port.
The Iraqi Oil Ministry reported plans to resume development of giant Majnoon oil field and wildcat drilling in the western part of the country. It said oil production facilities in the north have been fully repaired and can produce 1 million bid.
Kuwait hoped to be producing 1.5 million bid by yearend and to have restored its prewar production capacity of 2.3 million bid by the end of 1993.
The United Arab Emirates plans to spend $500 million to raise oil production capacity by 600,000 bid to 3 million bid by 195, with most of the increase coming from onshore fields.
In Abu Dhabi, the U.A.E.'s biggest producer, an offshore increase will come next year when Abu Dhabi Marine Operating Co. recommissions a four-platform complex in Zakum field, now capable of producing 330,000 bid.
Fast-rising Yemen reported lower average production in 1992 than in 1991 but expects to be producing 1 million bid by 2000. The country continues to encourage exploration and development by international companies, which reported several significant discoveries this year.
But companies with licenses from Yemen received warnings from Riyadh that they were operating in Saudi territory. the dispute stalled some work in the area.
In Syria, a group led by Royal Dutch/Shell has made a series of discoveries near the Iraqi border. The country continued to award production sharing contracts this year, although other international companies haven't matched Shell's success. In late 1991, Ste. Nationale Elf Aquitaine reported a discovery on a license adjacent to Shell's.
Oman planned to raise production to 750,000 bid by yearend. Production averaged 729,000 b/d for the year, up 4%.
The government approved Oman's first offshore project during 1992, International Petroleum Bukha Ltd.'s development of Bukha gas/condensate field.
AFRICA
Africa's biggest oil producer, Nigeria, remains a global hotspot for exploration and development activity but a political hotspot as well.
Postponement until June of elections that had been scheduled for yearend has raised doubts about the government's determination to complete its transition to democratic rule. Non-Nigerian companies active in the country have been watching the situation closely, although most say they think Nigeria's pressing revenue needs will keep whatever government emerges oriented to aggressive exploration and development.
The current production capacity target is 2.5 million bid by 1994, compared with 2 million bid at present.
Another African producer planning to raise production capacity, Libya, ran into UN sanctions this year for refusing to extradite two suspects in the 1988 bombing of an airliner over Scotland.
The country wants to raise capacity to 2 million bid from 1.7 million bid at present.
Algeria's political turmoil intensified this year following the assassination of its head of state and resignation of its prime minister. The new government has said it will continue to welcome foreign participation in exploration and production.
The country closed its first licensing round this year under terms intended to encourage exploration. It plans a second round in April.
Congo's production increase this year reflects build-ups from offshore fields brought on stream last year, including Amoco Congo Exploration Co.'s Yombo field and Elf Congo's Tchendo field.
Despite a 1992 production decline, Egypt is maintaining an active licensing program in the Western Desert and Gulf of Suez. Much recent interest focuses on natural gas. Gulf of Suez Petroleum Co., a joint venture of Amoco Egypt Oil Co. and Egyptian General Petroleum Co., has reported strong oil flows from offshore Badri and October fields.
WESTERN HEMISPHERE
Privatization and exploration and development incentives are paying off in Latin America.
Argentina's production jumped 11% to 544,300 b/d as activity surged under licenses granted to private companies in the past few years. The country is privatizing its state oil company, Yacimientos Petroliferos Fiscales, which produces 40% of its crude.
Colombia's production increased by 6% to 454,400 b/d despite occasional recurrences of the guerrilla attacks that have hampered pipelines and production operations in recent years.
BP Exploration Co. (Colombia) Ltd. and partners estimated reserves in Cusiana field, a Llanos basin discovery 100 miles northeast of Bogota, at as much as 1.5 billion bbl of crude oil and condensate. The group has made another discovery on the same block.
Political instability and financial problems hamper Venezuela's plans to raise production capacity to 3.3 million b/d by 1996 from 2.86 million b/d at present. The government is considering tax relief for financially strapped Petroleos de Venezuela SA the state oil company.
However, opponents to the administration of President Carlos Andres Perez claim the benefits of oil revenues aren't reaching enough of the population, which may make a tax break for Pdvsa difficult.
Pdvsa operating units, meanwhile, continue to score significant strikes of light oil in the Eastern Venezuelan basin. And the company is moving toward privatization, although steps so far have been limited to contracts for renovation of marginal oil fields.
Privatization remains on track in Peru, which wants to sell the offshore subsidiary of state-owned Petroleos del Peru. The country has been under a political crisis since April, when President Alberto Fujimori suspended Congress, charging corruption and failure to implement his economic reforms.
Fujimori supporters rallied, however, after the government captured the leader of the Maoist Sendero Luminoso guerrilla group that has been terrorizing the country and threatening oil and gas operations.
In Mexico, state-owned Petroleos Mexicanos is undergoing a major restructuring that will result in seven enterprises organized by operational function.
Although Pemex is not being privatized and the country refuses to offer foreigners equity interests in oil and gas reserves, the company is offering drilling contracts to outsiders. It recently was reported to be offering service contracts for 22 wells in Campeche Sound.
Ecuador's decision to withdraw from OPEC in part reflects its desire to raise production capacity to 600,000 b/d. Its OPEC quota was 323,000 b/d. The president of state-owned Petroecuador, however, thinks the country can produce no more than 400,000 b/d through 1996.
Brazil is privatizing state-owned Petroleos Brasileiro SA, which has been plagued by financial problems for several years.
The company continues to develop deepwater discoveries in the Campos basin off Rio de Janeiro, although its plans to raise production to 1 million b/d by 1995 appear doubtful.
Copyright 1992 Oil & Gas Journal. All Rights Reserved.
