Forecast sees excess supply on horizon
By DAVE EBNER
theglobeandmail.com
Wednesday, June 22, 2005 Updated at 6:15 AM EDT
From Wednesday's Globe and Mail
Calgary — An oil glut is coming. That's right, a glut, way too much oil -- and the bold prediction is being made by one of the energy industry's top consultancies.
Even more bold is the prediction's timing, just as the benchmark price of oil is on the verge of cracking $60 (U.S.) a barrel and futures contracts suggest oil will remain higher than $55 for the rest of the decade.
Cambridge Energy Research Associates Inc., based near Boston, is skeptical, and yesterday released highlights of a report that concludes the world's capacity to produce oil will likely easily exceed the world's voracious demand for the product that fuels cars, ships and planes.
Increasing oil production capacity "will comfortably meet volatile and expanding demand in the next five years and beyond," Peter Jackson and Robert Esser, the authors of the report, write in their introduction.
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Total capacity will surge by almost 20 per cent to 101.5 million barrels a day by 2010, the widely respected and closely followed consultancy predicted, basing its assessment on field-by-field research. In 2010, capacity could be seven million barrels or so higher than demand -- a huge surplus.
The surplus is tiny now. Current demand, by most estimates, is within a million barrels of current capacity of about 85 million barrels a day.
The significant capacity gain is expected to come on the back of a long slate of massive development projects, including Canadian Natural Resources Ltd.'s Horizon oil sands project, among the 10 biggest on the go anywhere.
The spare capacity could drive the price of oil far lower. The present panic surrounding oil is based largely on the world's lack of spare capacity and the seeming inability to handle a situation where a major source of supply was cut off.
But Cambridge Energy Research doesn't see the current price as ridiculous or irrational, noting that the price is a direct response to the strong surge in demand last year, coupled with numerous geopolitical worries. By 2007 and 2008, the consultancy says the price could drop as demand begins to fall short of supply, though it wasn't so bold as to make a precise prediction.
More than half of the additional oil will come in the form of light oil, the most valuable kind that is the easiest to turn into gasoline and jet fuel. The consultancy also said "unconventional" oil supplies -- such as those in the Alberta tar sands -- will be much more important than people think, as will output from ultra deepwater oil wells, more than 700 metres below the seabed. Other positive factors include getting more oil out of existing fields.
Still, the argument that there's plenty of oil around is somewhat academic as Canadians and people around the world face record prices for gasoline. The average price of gas in cities across the country this week is about 92 cents (Canadian), just a couple of pennies below the record of about 94 cents set in late April, according to M.J. Ervin & Associates Inc. in Calgary.
There is little relief in sight, say oil analysts, including Martin King of FirstEnergy Capital Corp. in Calgary. "The world may be effectively tapped out in terms of spare capacity for 2005 and 2006," Mr. King said in a report on Monday. He was among the first forecasters to predict oil would average $50 (U.S.) a barrel this year and has said oil will average $52 next year.
The authors of the Cambridge report looked at two scenarios, one positive and one negative, and found that, even in the negative outlook, the world will have more oil than needed.
The report also took aim at peak-oil theorists, who espouse the view that the world's oil production will hit a high, possibly as early as this year, and then decline rapidly. While no one argues that oil is anything but a finite resource, Cambridge Energy Research doesn't see a peak at all.
Instead, it projected an "undulating plateau," extending for several decades. |
