CAMBRIDGE, Mass., August 8, 2006 – Global oil and liquids supply capacity could increase as much as 25% by 2015, with unconventional sources, including  gas-related liquids and extra-heavy oils accounting for a major proportion of  net capacity growth, according to Cambridge Energy Research Associates’ (CERA) July, 2006 benchmark field-by-field analysis of worldwide hydrocarbon liquids production capacity.

“This capacity growth would accommodate rising world oil demand so long as there are no major disruptions in the actual flow of oil, for political or other reasons,” said CERA Chairman Daniel Yergin in releasing the study.  “The current worldwide aggregate disruption in production of 2.3 million barrels/day (mbd) is about 2.6% of total world capacity.  That disruption, along with geopolitical risk, has driven prices into the mid-$70s.  In this very high oil price environment, companies are diversifying into unconventional assets.  These unconventional liquids will loom increasingly large in the world’s oil supply – going from less than 25 percent today today to almost 40 percent by 2015.”

CERA’s examination of actual activity and production data covered existing fields and 360 new projects -- 250 new non-OPEC and 110 new OPEC development projects -- expected to start production by 2010. The analysis points to global productive capacity rising from 88.7 mbd in 2006 to 110 mbd in 2015 (Figure 1).  CERA’s “reference case” analysis projects strong potential growth in both the OPEC (7.6 mbd) and non-OPEC (5.7 mbd) sectors to 2010, with continued expansion of OPEC capacity by 5.3 mbd between 2010 and 2015.  Non-OPEC growth is projected to be 2.7 mbd in the 2010 to 2015 time frame, lower than recent high expansion rates.

“These levels of growth depend on continuing high rates of investment,” write CERA Director of Oil Industry Activity Peter M. Jackson and CERA Director of Global Oil and Gas Resources Robert W. Esser in Expansion Set to Continue, Global Liquids Capacity to 2015.   “The reference case includes assessments of the 10-year consequences of current disruptions, and assumes that disruptions over the next 10 years will average more or less the same magnitude as the current level with a similar impact.  Our focus is on physical capacity, not actual production which can fluctuate for political, economic, or technical reasons,” they explain.

Despite the “aggregate disruption” of 2.3 mbd of production because of disruptions in the Gulf of Mexico, Nigeria, Venezuela, Iraq and on the North Slope of Alaska, total productive capacity continues to grow, according to the report.  “The ability of E&P companies to collectively grow global production capacity at a rate allowing a comfortable supply-demand buffer that will absorb supply disruptions and manage these risks will be a critical factor in ensuring global energy security,” Jackson and Esser observe.

The aggregate disruption – and its impact on capacity as well as production – has been factored into the current CERA projections, as along with the more rapid capacity increases registered in for example, Angola, China and Equatorial Guinea, and new gas-to-liquids (GTL) capacity.  Updated activity and investment tracking indicates the some capacity additions shifted out of 2005 will move to a 2006-2008 timeframe, according to Jackson and Esser.

Jackson and Esser’s 2006 analysis found that productive capacity is still rising globally, with expectations for strong continued growth and a gradual improvement in the supply-demand balance.  They identified five primary factors affecting strong capacity growth:

• High oil prices and strong competition for access to reserves and pressures on the service sector
• The search for new sources of conventional crude and non-traditional supply
• Increasing global gas productive capacity driving up the volumes of associated liquids
• The pace and scale of deepwater discoveries and development
• E&P company diversification

“During 2000, unconventional liquids represented 16% of global capacity, and by 2006 this had grown to 24% of the total,” they write.  “We expect this strong growth to continue to over one-third of total global capacity (38%) by 2015, especially if E&P companies believe that the oil price will remain high.”

The CERA report also anticipates a geographic shift in the distribution of liquids capacity by 2015.   “By 2015 approximately 66% of global productive capacity will be sourced from only 15 countries that are largely outside the traditional markets of North America and northwest Europe, and in some cases distant from the rapidly expanding markets in India and China.  This compares to 59 % today.”

CERA’s 2006 update projects a short-term rate of capacity growth in 2005/2006 which is slightly lower than its May 2005 report as a result of slower Canadian oil sands expansion, a lack of capacity growth in Iraq, new project delays in Iran, political difficulties in Venezuela, lower growth in Russia, lower North Sea performance levels and hurricane-related difficulties and project delays in the Gulf of Mexico.  These were partially offset by faster capacity growth in Africa and Asia.  “We see much of the lost ground being made up by 2010, along with an increase of about 4 mbd in our global estimate by 2015, with the inclusion of GTLs in the outlook along with new discoveries and existing field reserve upgrades in non-OPEC areas,” Jackson and Esser observe.

Major Projects

The 2006 CERA report, drawing on CERA databases and those maintained by CERA ’s parent company IHS, identifies 250 non-OPEC and 110 OPEC projects expected to start producing in the next five years with plateau rates in excess of 10,000 barrels/day (bd). 

CERA projects potential capacity growth of 13.3 mbd in the five years from 2006 through 2010, followed by 8 mbd in capacity growth from 2010 through 2015, producing a total of up to 21.3 mbd in new capacity over the next ten years.  These are projects which are either approved and under development or very likely to be approved, according to Jackson and Esser.  Just over 60% of the additions are expected to occur in OPEC countries.  

Based on the report’s extensive field-by-field analysis, Jackson and Esser conclude that the data reinforce CERA’s view that the specter of “peak oil” is not imminent, nor is the start of an “undulating plateau” pattern of supply capacity. 

Light vs Heavy Crude

Contrary to what seems to be a common belief, the overall proportion of lighter liquids is expanding faster than heavy and extra-heavy crudes, according to the CERA report.  Although the market seems to be very focused on heavy and extra-heavy crudes, there is a strong trend toward an expanding stream of light crude, condensates and natural gas liquids (NGLs).

Jackson and Esser’s analysis indicates that extra-heavy oil productive capacity will more than double from approximately 1.9 mbd in 2006 to 4.7 mbd in 2015.  However, this increase in dwarfed by a four-times-larger rise in gas-related liquids capacity, from 15 mbd to 26 mbd during the same time frame.

About CERA

Cambridge Energy Research Associates (CERA), an IHS Company, is a leading advisor to energy companies, consumers and industrial companies, financial institutions, technology companies, and governments. CERA (www.cera.com) delivers strategic knowledge and independent analysis on energy markets, geopolitics, industry trends, and strategy. CERA is based in Cambridge, Massachusetts, and has offices in Bangkok; Beijing; Calgary; Dubai; Johannesburg; Mexico City; Moscow; Mumbai; Oslo; Paris; Rio de Janeiro; San Francisco; Tokyo; and Washington, DC.

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