On Tuesday, Cambridge Energy Research Associates (CERA) said in a press release announcing a report by CERA analysts Peter Jackson and Robert Esser:  “Despite current fears that oil will soon ‘run out,’ global oil production capacity is actually set to increase dramatically over the rest of this decade. . . . As a result, supply could exceed demand by as much as 6 to 7.5 million barrels per day (mbd) later in the decade, a marked contrast to the razor-sharp balance between strong demand growth and tight supply that is currently reflected in high oil prices hovering around $60 a barrel.”[1]  --  The report contests the now widespread “peak” metaphor, arguing that global oil production will resemble, rather, an “undulating plateau” that will last for decades, but only beginning “sometime beyond 2020.”  --  As for prices, they “could weaken from recent record highs and slip well below $40/bbl as 2007-08 nears,” CERA said.  --  The full CERA analysis will be released next week. - -  The report and its assumptions are sure to be scrutinized closely.  --  It is already clear, though, that CERA’s analysis includes a Micawber-esque (“Something will turn up,” says the ever-optimistic Mr. Micawber in David Copperfield) speculative factor, with Tuesday’s press release indicating in a remark concerning the study’s methodology that “A component of capacity from future exploration investment, yet-to-find, is also included.”  --  CERA was founded and is still chaired by Daniel Yergin, the 58-year-old author whose 900-page history of the global oil industry, The Prize, is still considered the best one-volume treatment of the subject, fifteen years after it was published.  --  Mainstream media’s reception of CERA’s announcement was mixed.  --  AP business writer Brad Foss welcomed the news, calling CERA’s report “a counterweight to the predictions of some energy experts, who in recent years have been publishing books filled with charts and graphs that aim to prove that world oil production is about to peak, if it hasn't already”; he cited Matthew Simmons’s Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy as an example.[2]  --  The Christian Science Monitor took a mocking town toward Peak Oil Cassandras, though reporter Ron Scherer did note that Kjell Aleklett, the Swedish physics professor who is president of the Association for the Study of Peak Oil & Gas, said one of his students had been able to examine a draft of the CERA report and believes the report is “overly optimistic.”[3]  --  A Philadelphia Inquirer article by reporter Harold Brubaker treated the CERA report dismissively, focussing instead on the arguments of petroleum geologist Ken Deffeyes, the author of two recent books on Peak Oil, and whose views run directly counter to the CERA study.[4]  --  The Dallas Morning News was non-committal, reporting the study’s conclusions without examining its assumptions, but also noting:  “Some prominent investors, such as Boone Pickens of Dallas, say that world production is already maxed out.”[5] ...


Complete Press Release


Cambridge Energy Research Associates
June 21, 2005


CAMBRIDGE, Mass. -- Despite current fears that oil will soon “run out,” global oil production capacity is actually set to increase dramatically over the rest of this decade, according to a new report by Cambridge Energy Research Associates (CERA). As a result, supply could exceed demand by as much as 6 to 7.5 million barrels per day (mbd) later in the decade, a marked contrast to the razor-sharp balance between strong demand growth and tight supply that is currently reflected in high oil prices hovering around $60 a barrel.

In a rigorous new field-by-field, bottom-up analysis of the world’s capability to produce hydrocarbon liquids, Worldwide Liquids Capacity Outlook to 2010 -- Tight Supply or Excess of Riches, CERA indicates that worldwide capacity could rise by as much as 16 mbd between 2004 and 2010 -- a 20 percent increase over the period.

This significant expansion in liquids productive capacity will meet volatile and expanding demand later in this decade and beyond, according to the CERA report.

“We expect supply to outpace demand growth in the next few years, which would take the pressure off prices around 2007-08 or thereafter and even lead to a period of price weakness,” observe the report’s authors, Peter M. Jackson, CERA’s Director of Oil Industry Activity and Robert W. Esser, CERA’s Director, Global Oil and Gas Resources. “Following development of the current worldwide inventory of major discoveries, we also foresee far more capacity expansion in the medium term from field upgrades than through exploration.”

“Today’s high prices are the result of an exceedingly tight and precarious supply-demand balance,” says Daniel Yergin, CERA Chairman. “Yet significant new capacity will be coming on stream -- much of it launched a few years ago on price assumptions much lower than today’s market prices. The addition of that new capacity is what is required to improve the supply demand balance.”

The full report will be presented and discussed in a special forum next week at CERA’s “East Meet West” International Energy Conference in Istanbul, Turkey, June 28-30.


Jackson and Esser argue that “unconventional” oil will play a much larger role in the growth of supply than is currently recognized. These unconventional oils include condensates, natural gas liquids (NGLs), extra heavy oils (such as Canadian oil sands), and the ultra-deepwater (greater than 2,500 feet deep). By 2020, they could be almost 35 percent of supply.

The CERA analysis indicates the pace of new major projects coming onstream worldwide will be sustained to 2010, with fewer giant projects going forward after that. “We have some concerns as to whether the deepwater and Russian ‘miracles’ can continue to shore up non-OPEC liquids capacity expansion past 2010, when non-OPEC capacity growth will start to slow significantly,” say Jackson and Esser. “This rate of growth will be closely related to the emergence of new deepwater plays in existing and new areas, and also the rate at which the huge potential of Russia is unlocked. However, OPEC can continue recent rates of capacity expansion after this time.”

“The main risks to our Supply Expansion scenario,” comments Yergin, “are above ground, not below ground -- changes in the political and operating climate that could delay expansion.” In CERA’s downside “Delay and Disruption” scenario, the lower boundary in the analysis, capacity increases by 11.5 million barrels between 2004 and 2010.


The CERA analysis rejects the current fear that a near-term “peak” in world oil production and a coming exhaustion of supply are near. The report indicates that the “inflexion” point will come in the third or fourth decade of this century. Moreover, rather than a “peak,” it will be an “undulating plateau” that will continue for several decades.

“In the years ahead, the scale of the business will continue to grow, as long-term, multi-billion dollar projects become more and more common -- and more and more necessary, and an expanding effort is put into upgrading existing fields,” say Jackson and Esser. “One of the most biggest challenges will be to find the giant projects of the next decade, which will put great pressure on the search for high-quality, significant opportunities that in themselves meet the criteria of ‘big.’”

Primary findings of the report include:

* OPEC Outlook -- Total OPEC liquids capacity will expand significantly to 45.6 mbd in 2010 from 36.8 in 2004, with the proportion of condensates and NGLs rising to almost 18% of total capacity. Post-2010, OPEC has the hydrocarbon resources to continue expanding capacity at a slightly lower rate than the current decade’s 10.9 mbd growth. CERA believes OPEC will accelerate key projects in anticipation of a non-OPEC slowdown in capacity growth.

* Non-OPEC Outlook -- Non-OPEC capacity will expand rapidly for the balance of the decade, adding 7.5 mbd to reach 55.8 mbd by 2010, with the increase dominated by contributions from Russia, the Caspian, Brazil, Angola and Canada. Beyond 2010, the rate of increase for non-OPEC liquids capacity is expected to slow dramatically to as low as 2 mbd by 2020. A step change would be needed in investment in exploration to stimulate more rapid expansion of non-OPEC liquids capacity.

* Specific countries -- The report expects Saudi Arabia’s liquids productive capacity to rise by 1.5 to 2.0 mbd by 2010, to about 12.5 mbd, and observes that the country is still “underexplored.” It describes “reduced near-term expectations” for output in Russia, reflecting “the slow development of the export infrastructure and political uncertainty.” Capacity in the United States will decline from 7.55 in 2005 to 7.15 in 2010 -- about a 5% percent decline.

* Supply sources -- A large number of major, new projects are approved and under development or looking highly likely to proceed, especially in the deep water, the Caspian, in extra heavy oil, and gas-related liquids from the gas boom. There are approximately 20-30 new major (greater than 75,000 barrels per day) projects coming onstream every year to 2010, and these are contributing between 3 and 4 mbd of new liquids capacity annually.

* What Kind of Capacity? -- Of the 17.7mbd of gross capacity expected to be added to the world production stream between 2005 and 2010, more than half (10 mbd) will be light liquids and almost 20% (3.2 mbd) will be heavy. Much of the impetus for high oil prices and increasing spreads between WTI and heavy crude in 2004 was that there was there was no ready refining capacity to absorb the growing quantities of heavy, sour oil. Given the time needed to build additional refinery capacity, this will not change in the short to medium term and, as Saudi Arabia, Venezuela and Canada step-up heavier crude production in the longer term, the prospect of wider light-heavy spreads will encourage either investment in refinery conversion capacity or upgrading capacity nearer the wellhead.

* Unconventional liquids -- Condensates, natural gas liquids (NGLs), extra heavy oils, and the ultra-deepwater (greater than 2,500 feet deep) will be the key component of the increase to 101.5mbd in 2010 when they will represent 30% of the total -- compared with 22% today and less than 10% in 1990. Also by 2020 unconventional liquids will account for 34% of the total liquids capacity in 2020, compared with 22% percent today and less than 10% in 1990.

* Supply balance -- The balance of supply over demand has the potential to expand significantly over the next five years, and this could drive oil prices to the downside. If demand growth averages a relatively strong 2.2% through 2010, prices could weaken from recent record highs and slip well below $40/bbl as 2007-08 nears. If demand growth were notably weaker, a steeper price fall would be conceivable; however such a fall would likely slow capacity expansion and bring a market rebalance within two to three years.

* Peak or Plateau? -- CERA believes there will be no “peak oil” problem before 2020. However, sometime beyond 2020 an inflexion of sorts will occur, but it will not be followed by a precipitous decline in productive capacity. At this time CERA believes that the worldwide capacity profile will track an “undulating plateau” for a number of decades before starting to decline more slowly than might be thought today, as a step change in investment occurs and new technology is pumped into exploration, field upgrades, stranded gas, and heavy oil projects in a manner quite unlike any other period in the history of the oil industry.

* Methodology -- CERA’s methodology “for liquids production capacity forecasting adopts a bottoms-up in which the overall profile is the sum of the outlooks for fields in production, fields under development, and fields under appraisal, all of which is built into a national outlook. A component of capacity from future exploration investment, yet-to-find, is also included. For some countries, we include data from every producing field and upcoming major project, while in others the data is less comprehensive.”

--Cambridge Energy Research Associates (CERA), a subsidiary of IHS Inc., is a leading provider of independent analysis to energy and power companies, consumers, financial institutions, governments, and technology companies. 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 Beijing; Calgary; Mexico City; Moscow; Oakland, California; Oslo; Paris; Rio de Janiero; and Washington, DC.


By Brad Foss

Associated Press
June 21, 2005

Original source: San Francisco Chronicle

Global oil production is not likely to peak anytime soon, contrary to talk that has helped propel prices close to $60 a barrel, although lower prices may still be a few years away, a prominent energy consultancy said Tuesday.

Cambridge Energy Research Associates said that, instead of a crest being reached sometime this decade, an inflection point in world oil output will occur sometime beyond 2020, after which production will plateau for several more decades.

In a report that builds upon earlier analyses by the Cambridge, Mass.-based consultancy, CERA said it believes that between now and 2010 there will be a substantial increase in worldwide oil production capacity, providing a supply cushion of 6 million to 7.5 million barrels per day that could cause oil prices to "slip well below $40 a barrel as 2007-08 nears."

The debate about whether global output is on the cusp of an irreversible decline is not new -- petroleum engineers and executives have been hashing it out for decades. But it has garnered extra attention amid soaring prices, a flurry of books about the oil industry and the revelation last year that Royal Dutch/Shell Group overstated its reserves, a key measurement of an oil company's future profit potential.

"It's certainly being taken more seriously, but it's not a more serious topic than it's ever been," said Lawrence J. Goldstein, president of PIRA Energy Group in New York.

Because of surprisingly rapid demand growth, especially in China, the global oil supply cushion right now is only about 1.5 million barrels per day, or less than 2 percent of total global consumption of 82 million barrels a day. That has markets extremely nervous about the possibility of an output disruption. Oil prices are up more than 55 percent over the past year, in part because of the threat of hurricanes, terrorist attacks and labor strife in key oil production regions, such as the Gulf of Mexico, Iraq and Nigeria.

CERA chairman Daniel Yergin said the extra supply of oil he anticipates is only part of the solution to relieving the stress in the energy market. He assumes more efficient energy use, particularly in transportation, will be critical to stabilizing prices.

"The way that we consume energy in 2025-2030 is likely to be different," he said.

At the same time, as the supply cushion grows, the Organization of Petroleum Exporting Countries can be expected to rein in production to keep prices from falling too far. "The history of the oil industry is a history of cycles," Yergin said.

The CERA report acknowledges that there will be fewer giant oil fields found and produced after 2010, but it argues that with new technology and multibillion dollar investments the petroleum industry has the ability to provide more than enough supply to meet rising demand for several more decades.

Yergin said the main threat to this supply expansion scenario are geopolitical uncertainties. For example, "Iraq has the potential to be a very big player, but its timing is very uncertain," he said.

The CERA report is a counterweight to the predictions of some energy experts, who in recent years have been publishing books filled with charts and graphs that aim to prove that world oil production is about to peak, if it hasn't already.

The most recently published book to make that claim is called Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy, which was written by Matthew R. Simmons, a Houston-based investment banker who is well-known in the petroleum industry.

Simmons argues that Saudi Arabia's best oil fields are aging rapidly and that the rest of the world needs to question the veracity of the kingdom's claim that it still has 260 billion barrels of petroleum left to pump.

At an event in Washington last week to promote the book, Simmons said its most important message is a warning to the industrialized world: get ready for the post-petroleum era, sooner rather than later.

"This is the battlefront," he said, warning that a lazy approach to the transition could result in serious economic disruptions.

PIRA's Goldstein said that he was present when Simmons met with Saudi officials to gather information for his book and that he remains an "agnostic" when it comes to the peak oil debate.

It isn't entirely clear, Goldstein said, whether today's tight market reflects a limit in supply that is being reached, or if it merely signifies that the industry hasn't made the necessary investments to keep up with rising demand.

"The truth is, I don't know whether we're resource-constrained or effort-constrained, and neither does anybody else," he said.

On the New York Mercantile Exchange on Tuesday, July crude futures fell 47 cents to settle at $58.90 per barrel in afternoon trade.



Global Issues

By Ron Scherer

Christian Science Monitor
June 22, 2005


NEW YORK -- According to the Association for the Study of Peak Oil & Gas, the end is near -- when the earth's oil reserves start to run dry and scarce petroleum will go to the highest bidder. Seers have written books detailing that time, and websites such as EnergyShortage.com forecast a steady rise in prices -- such as Tuesday's oil price of more than $59 a barrel.

Not so fast, maintains a new report issued Tuesday by the widely respected group Cambridge Energy Research Associates (CERA). Instead of the wells running dry, CERA says petroleum supplies will be expanding faster than demand over the next five years, according to an analysis oil field by oil field. In good news for the SUV set, the new oil will be light, sweet crude -- ideal for making gasoline. And since supply will grow, CERA forecasts prices will fall, possibly below $40 a barrel.

"We expect supply to outpace demand growth in the next few years, which would take the pressure off prices around 2007-2008 or thereafter and even lead to a period of price weakness," says Peter Jackson, a coauthor of the report.

Kjell Aleklett, a professor of physics in Sweden and president of the Association for the Study of Peak Oil & Gas, says the CERA report is overly optimistic. In addition, he says, one of his students looked at a draft of the report and concluded that CERA double-counted. "I'm not worried about this report," he said from a cellphone in Madrid. "Over the next several years, they will find new oil fields, but then it will be hard to do it."

Still, CERA maintains that higher prices are encouraging production and that technology is helping to capture oil from older fields. It foresees non-OPEC production expanding rapidly through the rest of the decade, particularly as new supplies come onstream from Russia, the Caspian, Brazil, Angola, and Canada.

Much of the production increase is already starting to happen as oil-rich nations begin to dig deeper and produce faster. According to the report, there are approximately 20 to 30 new major projects (producing more than 75,000 barrels per day) coming onstream every year until 2010. These will add 3 million to 4 million barrels of oil per day each year.

Over the next five years, there will be 10 million barrels per day of new light or medium crude and 3 million barrels per day of new heavy crude. Altogether, supply will exceed demand by 6 million to 7.5 million barrels per day later in the decade, according to CERA.

While many of the oil-depletion theories claim that Saudi production will falter, CERA predicts that the oil-rich nation will expand its production by as much as 2 million barrels of oil per day by 2010. In fact, the CERA analysis concludes that OPEC production will expand the fastest -- to 45.6 million barrels per day, up from 36.8 million last year.

But because of political uncertainty, it has shaved its estimates for oil production from Russia. Any decline of Russian crude production would also be mirrored by a continued decline in production from other non-OPEC countries, such as the United States.

CERA does not foresee an actual "peak" in oil production. Instead, with huge projects coming onstream on a regular basis, it predicts an "undulating plateau" in terms of supply and demand for decades. An "inflexion" point will come in the third or fourth decade of the century, according to CERA.

"There is no indication to suggest peak oil is imminent," says Daniel Yergin, CERA chairman and author of several books on petroleum.

The main risks to its forecast, says Mr. Yergin, are political and operating changes that could delay expansion. If that happens, CERA predicts that oil production will increase by only 11.5 million barrels of oil per day between 2004 and 2010.


By Harold Brubaker

Philadelphia Inquirer
June 22, 2005


High crude oil prices -- near $60 a barrel this week -- are fueling debate about how much of nature's economic elixir is left on the planet.

A growing chorus is predicting that oil production will soon begin a gradual decline, with the potential to wreak havoc on oil-dependent economies.

Kenneth S. Deffeyes, a retired Princeton University geology professor, is among the "peak oil" prognosticators arguing that mankind is heading into the downside of the age of oil.

Peak-oil proponents are not saying that the Earth's store of crude is nearly gone. Rather, they say it is nearly half gone, and daily production will begin slowing -- while growth in demand continues, according to Deffeyes.

"I'm very concerned about the five-year time scale. There's not much we can expand rapidly on a five-year time scale" to make up for a shortfall in oil, he said in a recent interview at his home in Princeton.

But Cambridge Energy Research Associates asserted just the opposite yesterday in a report predicting that oil production capacity could exceed demand by more than six million barrels per day by the end of this decade -- far above the current margin of one million barrels per day.

That projected capacity increase could push prices below $40 a barrel again by 2007 or 2008, the Cambridge, Mass., firm said.

Cambridge Energy expects major new contributions from Russia, the Caspian Sea region, and West Africa. Unconventional crudes, such as extra-heavy oil, oil from wells drilled below more than 2,500 feet of seawater, and other liquid hydrocarbons will increase to 30 percent of total production capacity in 2010, up from 22 percent now, the company said.

Cambridge Energy predicted that much of the increase in supply will be light, sweet crude oil -- good news for Philadelphia-based Sunoco Inc., whose refineries are designed to process that type of oil.

Peter M. Jackson, Cambridge Energy's director of oil industry activity, acknowledged during a teleconference with reporters yesterday that last year's discovery of 13 billion barrels of new oil worldwide did not nearly offset the 30.7 billion barrels pumped out of the ground. That propels the belief that rapid depletion is at hand.

But that is not the case, Jackson said, because upgrades and expansions of existing fields have made them capable of producing more oil than was previously thought possible.

Cambridge Energy does not see a peak in overall production until around the middle of the century. Even then, it will be an "undulating plateau rather than a peak," he said.

Deffeyes, however, does not buy predictions that production can keep increasing for decades, especially since in 1986 the world began burning more oil annually than it was finding.

Although oil production has continued increasing worldwide, discovery of new oil reserves has been in a relentless decline for 40 years.

"There are a few juicy places," said Deffeyes, who worked for Shell Oil in the 1950s before leaving for an academic career. Among those places are Russia, where political instability is a serious concern, and Iraq, which is the only Middle Eastern country that has not been thoroughly explored, Deffeyes said.

To move the peak of oil production a few decades forward, "they've got to find another Middle East, plus another North Sea on top of that," Deffeyes said.

Deffeyes, whose book Beyond Oil: The View From Hubbert's Peak was published this year, based his prediction that global oil production would peak late this year on the methodology of M. King Hubbert, a geologist with Shell Oil.

Hubbert correctly predicted in 1956 that oil production in the continental United States would peak around 1970. His notion was that adding all the production from oil fields in a large region, such as the lower 48 states, would generate a bell curve showing a peak and subsequent decline.

Production climbed again in the United States after Prudhoe Bay in Alaska came online in 1976, but it never reclaimed previous heights, Deffeyes said.

In Beyond Oil, Deffeyes listed things consumers should expect during the next five years. They included:

A growing need to avoid long daily automobile commutes.

A new appreciation in cold climates for winter vegetables that do not need to be transported thousands of miles.

A scramble for high-efficiency diesel engines.

If his prediction turns out to be correct, Deffeyes still is not predicting a long-term apocalypse. "On a 20-year time scale," he said, "we'll figure out a lot of things."



Energy Watch

By Sudeep Reddy

** Research firm predicts production will increase sharply by decade’s end **

Dallas Morning News
June 21, 2005


Oil prices are hovering around $60 a barrel due to persistent anxiety about supply shortages in the face of surging demand.

But worries about an oil crisis in the coming years may be unwarranted, a prominent consulting firm said in a report Tuesday.

Using a field-by-field analysis of oil projects around the world, Cambridge Energy Research Associates found that global oil-production capacity should increase dramatically by the end of the decade.

"What really strikes us is the difference between the current mood and expectations and what we see when we do our analysis," CERA chairman Daniel Yergin said.

Global oil supplies could exceed demand by as much as 7.5 million barrels a day by the end of the decade, a cushion that's at least five times larger than what exists today, the industry research and consulting firm said.

The growth in oil supplies could force prices well below $40 a barrel as early as 2007, the CERA report said.

Oil for July delivery lost 47 cents Tuesday to close at $58.90 a barrel on the New York Mercantile Exchange. The near-month futures contract, which hit a record $59.70 in intraday trading Tuesday, has averaged $51.26 this year.

The U.S. Energy Information Administration, the statistical and analytical arm of the Energy Department, said in its outlook this month that oil prices would average more than $50 a barrel through 2006 due to the persistent tightness in the market.

Oil prices are up more than 50 percent over the last year as strong economic growth in China, India and the United States led to the biggest growth in oil demand in almost three decades.

The rising demand has depleted the spare production capacity of oil producers to less than 1.5 million barrels a day for a world market that consumes more than 84 million barrels each day.

"Because the spare capacity is at such low levels, the geopolitical concerns have an amplified impact on the oil market," said James Burkhard, CERA's director of global oil market research.

Other industry experts have increasingly adopted views that world oil production is approaching its peak, and that prices will continue rising as supplies become more scarce.

Some prominent investors, such as Boone Pickens of Dallas, say that world production is already maxed out.

But CERA said that unconventional oil -- including Canadian oil sands and natural gas liquids -- would help fill the gap, along with contributions from Russia, the Caspian, Angola and OPEC countries led by Saudi Arabia.

A global peak in oil production won't come anytime before 2020, CERA said, disputing projections by analysts who predict a peak by the end of this decade.

The firm said that a decline in global oil production could arrive in the third or fourth decade of the century, but even then it would be an "undulating plateau" continuing for several decades.