The Offshore Northern Seas conference heard a number of long term outlooks in Stavanger, Norway, last week, all with the same conclusion: the oil and gas industry needs massive investment if it is to match future demand.
Norwegian Prime Minister Gro Harlem Bruntland built her scenario on a doubling of world population every 40 years. By 2040 there will be 10 billion people if this trend continues, so a six fold increase in energy production will be required to maintain current living standards.
Mrs. Bruntland emphasized the growing dependence of the world economy on Middle East developments.
Two thirds of the world's oil reserves are in the Persian Gulf region, she said, but only 28% of production comes from there. As the rest of the world depletes its reserves, dependence on Persian Gulf oil will grow.
"If a few million barrels a day were withdrawn, we would face a very serious problem," she said, "even a disaster and a ruin of the world economy."
BP'S VIEW
David Simon, chief executive of British Petroleum Co. plc, took a less apocalyptic stance, even disagreeing on the effect of withdrawal of production from members of the Organization of Petroleum Exporting Countries.
"The market has been able to cope with the absence of supplies from Iraq and Kuwait over the last 2 years and simultaneously with the loss of 3-4 million b/d of production from what was the U.S.S.R.," he said.
"Demand outside the former Communist world is rising, but over the next few years supply capacity is likely to grow faster than demand.
"The best consensus estimate is that between 1993 and 1996, 2-3 million b/d of additional capacity will be brought on stream by Saudi Arabia and a small number of other OPEC member states."
Simon estimated that as much as 20% of the oil supply needed to meet demand in the mid-1990s is still to be developed. The figure will rise to 40% by 2000.
"Downstream," he said, "the industry has to respond to the changing pattern of demand with new upgrading capacity and to a changing geographical pattern of demand with a growing proportion outside Europe and the U.S.
"The best estimate I have seen is that in the U.S. alone the refining sector will have to spend $40-75 billion by the end of the century just to meet requirements of the Clean Air Act and other legislation."
Simon placed Persian Gulf states' share of world traded oil at more than 35% this year. By the end of the decade this will be up to 50%, but it could easily rise to 60% and beyond as U.S. production continues to slip.
OPEC SEEKS CAPITAL
OPEC members' efforts to attract foreign investment, particularly private capital, were outlined by M. Al Sahlawi, head of the organization's information department.
"Much has been done," he said. "Indeed, most OPEC states are preparing to adjust their oil licensing and tax regimes to attract more foreign investment."
Venezuela's decision last year to define foreign investors as contractors, who would be paid on a fee per barrel produced basis, is expected to bring $750 million into the country during the next 10 years.
Iran prefers using foreign credits and hopes to attract $3 billion in its current 5 year plan running to 1994. European companies are discussing funding of upstream joint ventures secured against the commitment of future production, Al-Sahlawi said.
Iraq has suggested that investments made by foreign companies may be repaid in the form of price discounts on future crude deliveries.
"Algeria has suggested that foreign investment in enhanced oil recovery may be compensated with a portion of that extra oil lifted at a discount," he said. "Other possibilities include joint venture arrangements with the national oil company, requiring the investor to commit 49% of the funds while paying taxes and royalties on equal terms."
In Gabon, a 25% ceiling on state participation has been introduced, where previously 25% was the minimum state share. Twelve deepwater blocks have been offered under the new terms.
Nigeria last year also changed its joint operation rules. Incentives include free use of port facilities, private ownership of refineries along with guaranteed oil feedstocks. A reduced government take for deep offshore exploration is also under consideration.
OPEC's reserves to production ratio of more than 100 years is four times that of the rest of the world, but the discrepancy may be greater because exploration has been less intensive.
"Regrettably, these massive reserves are not matched by production capacity," Al-Sahlawi said. "OPEC's present sustainable capacity is well short of the forecast supply requirement of 31.4 million b/d in 2000 unless additional investment is made in time.
"Some $80 billion will have to be invested in OPEC members during the next 5 years to enable them to meet projected world oil demand, and this does not include the cost of repairing Iraqi and Kuwaiti oil facilities."
Non-OPEC oil producers must invest about $170 billion, Al-Sahlawi said, yielding a total $250 billion without counting downstream needs, refinery modernization, and new environmental requirements.
"Stabilization of oil prices around OPEC's reference price of $21/bbl would...justify the heavy investment needed to raise production," he said. Estimates range from $2,000 to $30,000/bbl of new capacity."
RUSSIAN RECOVERY
Andrei A. Konoplyanik, deputy minister in the Russian Federation Ministry for Fuel and Energy, reiterated a three point plan to solve the problem of his country's declining oil production (OGJ, Aug. 10, p. 19).
The first phase calls for getting about 25,000 shut-in wells back on stream. Half of them may require outlays of $80,000-100,000/well for repairs.
Phase two is to start production from discoveries near infrastructure.
Phase three would be development of larger, more complicated oil fields in partnership with foreign companies.
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