Steve Kopits, in his recent presentation at Columbia University, ridiculed the IEA’s often used term a “Call on OPEC“. That is, the IEA looks at the world oil supply and if they see a supply shortage looming on the horizon they then issue a “Call on OPEC” to supply x number of extra barrels and fill that gap. But the next time the IEA issues such a call can OPEC deliver? Or, is OPEC already producing every barrel they possibly can.
One thing for sure, there are eight OPEC countries that are definitely producing every barrel they possibly can, those countries are Algeria, Angola, Ecuador, Iran, Libya, Nigeria, Qatar and Venezuela. The chart below is the combined production of those 8 nations.
All charts in this post are “Crude Only” in kb/d with the last data point Jan. 2014.
There can be no doubt that all eight of these OPEC countries are producing every barrel they possibly can. While it is true that Iran and Libya have political problems that is holding their production back, but political problems in that part of the world are likely to get worse rather than better.
But what about the other four OPEC nations. The chart below shows the combined production of Iraq, Kuwait, Saudi Arabia and the UAE.
It is my contention that not only are these four OPEC nations producing every barrel they possibly can but that they have little prospect of producing much more. I will examine each country one by one.
Iraq has not been subject to OPEC quotas since the the beginning of Mr. Bush’s war and make no bones about producing every barrel they can and hope to produce more, a lot more.
But their production has been relatively flat for almost two years. They may be able to squeeze out a few more barrels in the future but any increase will be very slow in coming.
But what about the other three. First Kuwait.
Kuwait initiated Project Kuwait in 1997 in hopes of slowing the decline of Burgen and increasing production in their northern fields. The project was delayed by political bickering about bringing in outside contractors but finally got underway in early 2007 only to be delayed a year later by the crash. But the project, really a massive infill drilling program, got underway again in early 2011 and has managed to increase their production by some 200,000 bp/d over their 2008 peak. That simply means more infill drilling. But they are clearly at peak right now.
However their production has been flat for almost two years. Recently they announced an effort to increase their “Production Capacity” by another 150 kb/d. Like all other OPEC countries they claim to be able to produce a few more barrels than they are actually producing.
The United Arab Emirates?
The UAE has learned the same trick as every other nation with tired old fields. That is if you drill new horizontal wells that run along the length of the top of the reservoir, they can increase production slightly or at least slow the decline rate. They are looking toppy right now and can expect decline to set in soon.
That leaves Saudi Arabia.
Saudi Arabia was among the first nations in the world to initiate new infill drilling programs. Before they they did this their decline rate of their old fields was averaging 8% per year. They claimed, with that drilling program, they got that decline rate down to almost 2% per year. But that was over eight years ago. I suspect that the decline rate has increased considerably since then.
Saudi has however, been able to keep from declining in net production by bringing on new fields, or rather old mothballed fields back on line. The most recent being Khurais which was brought on line in 2009 and Manifa which came on line last year with 500,000 bp/d and is ramping up to its full capacity of 900,000 bp/d this year. The spike you see in 2013 is Manifa ramping up.
Saudi may be able to produce a few more barrels but not very many. But as, Sadad Al Husseini a former executive at Aramco, said in 2012 “Saudi is producing flat out”. If they did manage to squeeze out a few more barrels it would be only temporary. Saudi is about to go into decline, or at least that is my opinion.
Any “call on OPEC” by the IEA would likely produce about as much new oil as a call on their grandma.
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