More on Oil

From: Glenn Morton <>
Date: Fri Jun 18 2004 - 22:58:56 EDT

I just got back from Aberdeen Scotland where I ran into the following
quotes in the papers. It shows how rising reserves really are the
important issue. It is production which we must maintain and that is
where the problem is.

“But near the bottom of Chevron-Texaco's financial filings is a much
less promising statistic. For each of those years, Chvron-Texaco's wells
have produced less oil and gas than the year before. Even as reserves
have risen, the company's annual output has fallen by about 114 percent,
and the declines have continued recently despite a company promise to
increase production in 2002.
        “ChevronTexaco is not the only big oil company whose production
is falling despite rising reserves, though it has the largest gap. As
consumers, economists and governments around the world wonder if oil
suppes can keep pace with rising demand, production trends at the
inustry's publically traded companies are not promising." Alex Berenson,
"Oil Output Falls While Supplies Last" International Herald Tribune June
14, 2004, p.1

Speaking of a conference

"One unusual attendee was Faith Birol, the chief economist of the
International EnergyAgency,who gave a speech saying that everything is
fine,before admitting afterwards to a BBC reporterthat everything is
not. 'This is not for the press,'he said,after blurting out that the
Saudis need to increase supply by 3m barrels a day to avert an oil crisi
by the end of the year.
        If they don't or they can't there will be more at stake than the
cost of the school run." Simon English, "Take an Oil Price Over
$40--Then Quadruple it" Daily Telegraph , June, 12, 2004, p 31

Two statistics have come out while I was overseas. The BP Statistical
Review of world Energy was just published. It shows that oil production
is up 3.8% from 2002 to 2003. The rise has come from West Africa, Russia
and OPEC. But all the reports in the oil industry literature point to
the fact that spare capacity is now gone.

        "Amy Jafe of the Baker Institute, at American's Rice University
in Texas observes that in 1985 OPEC maintained about 15m bpd of spare
capacity--about one-quarter of world demand at that time. IN 1990, when
Iraq invaded Kuwait, OPEC still had about 5.5 m bpd of spare capacity
(about 8% of world demand). That, argues Ms. Jaffe, meant that the
cartel could easily and quickly expand output to absorb several
disruptions at once."
        "That is simply no longer true. Today's fast-shrinking spare
capacity of about 2 m bpd is less than 3% of demand--and it is entirely
in Saudi hands. ""What If?" Economist May 29, 2004p. 73

  In another report the EIA, a governmental agency, shows oil production
for first 3 months of this year is at a record world level. But the
price per barrel still went up. Why? At least part of the answer is
that demand has risen even faster. And this is straining the limits of
world wide production capacity.
Received on Fri Jun 18 23:28:50 2004

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