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Megaprojects October 2005 Update

Over the last two years Petroleum Review has regularly updated its listing of the upcoming so-called ‘megaprojects’. The aim of the listing is to attempt to answer the question as to whether sufficient oil is being developed to meet likely requirements going forward, writes Chris Skrebowski.

This latest update – based on public sources of information – identifies a total of 16.65mn b/d of new capacity due onstream by 2010. This, in turn, is made up of 6.34mn b/d of incremental Opec capacity and 10.31mn b/d of non-Opec capacity additions (see p2 for basis of tabulation). This is directly comparable with the 16.5mn b/d identified by the consultant CERA in its recent report. However, CERA’s happy conclusion that potentially price depressing
excess supply was about to emerge does not appear to take project slippage and depletion fully into account and, therefore, appears highly optimistic.

Experience shows that between 10% and 20% of projects slip from one year to the next. As no company intends this to happen and there is no way it can be anticipated, the only way to deal with it is to continuously update the database. A recent example of this phenomenon is the BP-operated Thunder Horse project, where, following storm damage to the platform, start-up has moved from late 2005 to 1H2006. Project slippage does not mean that the capacity is lost, but merely postponed. This, however, will reduce the actual capacity increments each year going forward. The exact magnitude cannot be determined in advance – although 10% to 20% would be a reasonable rule of thumb. ...

[ Discussion of depletion modelling, table of megaprojects. See orginal PDF for these. ]

...In 2004, effectively all the world’s spare capacity was used up in meeting unexpectedly rapid demand growth. It is not at all clear if the world’s oil companies can provide an incremental 3mnplus b/d from all the small, untabulated projects and infill drilling going forward year after year. The world has now reached the point where the volumes lost to depletion are much larger than the levels of likely new demand. This means total increments required (new demand plus depletion) are running at around 7%/y, while the largest supply increments in 2006 and 2007 are contributing 3.6% and 3.5%.

It would seem most unlikely that small projects and infill drilling could account for the remaining required 3.5%. The inescapable conclusion is that oil prices will have to remain high enough to destroy demand, bringing supply and demand back into balance.

[ emphasis added ]

Editorial Notes: The Megaprojects analysis is the 'polar melt' of oil supply, providing corroborating evidence and similar-enough conclusions to those of the quite different analysis from ASPO and other Hubbertians. Thanks to Sydney Peak Oil for the pdf. The website for the Energy Institute is http://www.energyinst.org.uk/ and Petroleum Review can be found at http://www.energyinst.org.uk/index.cfm?PageID=9

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