Non-OPEC peak looms

David Knott
London
[email protected]

One characteristic of the petroleum industry is that, if one sector is happy with the price of something, another sector will be equally unhappy.

The crude oil price is now low and expected to remain so in the near term. Mergers and acquisitions are announced almost every week, and the industry looks a poor risk for investors.

With this in mind, Mark Moody-Stuart, chairman of Royal Dutch/ Shell, told a group of investment fund managers in San Francisco on Sept. 18 how the company sees the future.

Moody-Stuart said that the Asia-Pacific economic slowdown seems to be spreading to other parts of the world. While the price for Brent crude oil averaged $18/bbl for the past 10 years, Shell reckons it will remain at $12-16/bbl for the next 2-3 years.

"In the light of the more depressed outlook," said Moody-Stuart, "we will be considering the need to write down some of our assets this year. We are actively pursuing a restructuring of our portfolio of assets."

Gloomy outlook

Environmental campaign group Greenpeace, which recently set out a list of challenges for the next 10 years, also sees the low oil price as a problem.

Among Greenpeace's key targets is preventing further oil exploration, but it said, "Currently, oil and other fossil fuel prices are very low in real terms, and there is no shortage of supply to push the price up.

"While there remains oversupply of fossil fuels, it seems unlikely that the market will, on its own, find ways of reducing their use." Ironically, a low oil price makes development of renewable energy technologies less viable.

Meanwhile, Centre for Global Energy Studies (CGES), London, has reviewed its expectation of oil production outside the Organization of Petroleum Exporting Countries, in the light of recent market changes.

CGES starts its review with the comforting thought that oil production was once expected to peak in the late 1980s, but that has been successively pushed back into the first decade of the next century. However, CGES concludes that the peak may not be pushed back much further.

Open question

Conventional analysis, said CGES, shows that worldwide non-OPEC production will rise from 42 million b/d last year to a peak of 46.1 million b/d in 2005, falling away to 43.4 million b/d in 2010.

Using a technique called logistic curve analysis, however, CGES created one scenario in which, even if non-OPEC countries discovered a further 500 billion bbl of oil, production would peak in about 2002 at 50 million b/d and decline more rapidly than under conventional analysis.

"Future non-OPEC production decline appears inevitable from both methodologies," said CGES.

"Such a decline could only be averted if discoveries and reserves additions are taken as an open-ended process, to be continued successfully well into the future. The present technical information cannot support such a process."

CGES said that the size of remaining reserves and how much oil can be recovered are open to individual judgment: "The judgment, however, will become a philosophical question of believing the world is running either into or out of oil."