Not sure anymore who follows the iVillage threads but thought I would post this one here. From Golf_2, BRY thread.
In response to msg 30926 by rodv1938
Recs: 15
Re: What Price Should Crude Trade At? And OPEC
Hi Rod,
The problem with spare capacity is that it may not be there again when needed. Spare capacity erodes with time in a low investment environment and what looks like a 4 mbd readily available may not be there in the future or at least a great part of it.
The reason for that is the way OPEC manages quotas. Let me explain.
When a country decides to impose quotas, the NOC sends an order to all operators with new production targets. At the same time we get another order to cut expenses by x% mainly opex. Capex is cut directely through governemt announcements. The NOC usually , for the sake of fairness, imposes the same quotas equally among its international partners and that's where the problem lies for spare capacity.
Last year we were managing 230 mbd and we had a 5 year program to sustain that 230 mbd and create a safety margin. This year target is 200 mbd which we can easily deliver. That plan to maintain the 230 mbd and its safety is no longer economical nor avaialble for that matter. Many operations are cancelled and a planned additional rig never made it. Service companies are hardly doing half of their normal load. As a result that additional capacity I thought I had is being eroded to balance the production decline from the 200 mbd. By next January if the NOC askes me to produce 220 mbd again, I will not be able to deliver it without braking goverment rules or at the expensive of some serious reservoir damage. That spare capacity is simply being eroded away due to lack of necessary operations to combat depletion from current production. Should the NOC askes for it back, it will be panic time again to raise production and a new "boom" is born.
These are bust times and in such times production targets are cut and so is everything that goes with it and that used to feed it; work-overs, new wells, surface upgrades, pipeline extensions, new towers,...everything is cut and the only way to sustain the new lower targets is to eat up that spare capacity which is vanaishing fast.
So don't be fooled by the 4 mbd spare capacity; The more they tink they have it the faster is it disappearing. it is easily imho being eroded by 50%/year. In a a year time when OPEC will be called to deliver 30 mbd again, I will not be surprised to see them rushing to hire every availbale rig in the market to catch up, because they will not (with the possible exceptions of SA and Angola) be able to deliver their last August production levels.
In the spare capacity world, it is a use it or lose it game simply because operating costs get slashed with production cuts. What NOCs sould do today instead of being all brothers and sisters with their partners, is to identify their worst offending fields (highest operations and costs for lowest returns) and shut them all together. They should not care whether that is unfair to BP, Total or XOM because they will bear most of the production cuts. That is the only way to insure operations are not cut in other fields because frankly this is one case where fairness to your partners can be bad for business!
Regards, |
