Petroleum Review Editorial April 2006
Walking the tightrope
Rather like the high wire artist in the circus, to many gasps and much apprehension, the international oil and gas industry appears to have made it through the Northern hemisphere winter. The achievement has been very considerable as there have been huge challenges to overcome.
In the case of UK gas supply, the final straw appeared to be a fire at the UK’s only significant gas storage facility – the Rough field. Yet, despite record spot prices, despite the cold weather and the lack of storage, the system has held together – although there will be many saying ‘never again’.
The challenge now is to equip the UK with adequate storage and suitable contracts so that both Interconnector capacity and LNG import facilities are more fully used next winter.
Since August 2004, total Opec production has held within a very narrow band of roughly 0.5mn b/d. In December 2004, total Opec production was 33.99mn b/d; it peaked at 34.5mn b/d in August 2005, and is now at 33.99mn b/d (February 2006).
These totals, however, conceal small, but steady, growth in output from Algeria, Kuwait, Libya and Qatar. Nigerian production grew till late 2005, but had fallen by 400,000 b/d in February 2006 as a result of the political disturbances in the delta region. Venezuelan and Indonesian production has eased back over the period as output failed to offset capacity erosion.
Iran is clearly struggling to maintain production, with flows reaching 4mn b/d in some months and falling to 3.7mn b/d in others.
Both the United Arab Emirates and Saudi Arabia exhibited the somewhat strange pattern of producing as much in February 2006 as in December 2004, with both having produced 100,000–150,000 b/d more in September 2005.
Meanwhile, Iraq remains Opec’s wild card, with production reaching 1.9mn b/d in good months, and as little as 1.5mn b/d in the bad ones.
Petroleum Review’s latest tabulation (April issue) of the megaprojects shows, quite clearly, that Opec is now investing heavily to expand its production capacity. A great deal of information on its plans has recently been published on the Opec website (www.opec.org) and this has now been incorporated in our megaprojects’ database. In addition to the new information about Opec capacity additions, recently there has been a number of announcements about development plans for a variety of Canadian tar sands projects.
The basis of the database is that, if the information is reasonably full, it is incorporated in the main database by year of start-up; if the data is less comprehensive or the start-up dates are more uncertain, it is tabulated as a ‘potential project’. It should be noted that some of the Opec project timings look agressive, as do a number of the Canadian tar sands projects.
In respect of this, two particular challenges were noted by Jeroen van der Veer, Chief Executive of Royal Dutch Shell, in his address during IP Week. The first is the way that a rush of projects and a lack of people is causing inflation in oilfield costs. He estimated that 25% of Shell’s incremental investment would be eaten up by the oilfield cost inflation .
The second concern he mentioned, was the need to sequester carbon dioxide (CO2) in order to minimise global warming impacts. It is interesting to note that there are plans for large-scale sequestration of CO2 in Canada in order to facilitate tar sands developments. Petroleum Review will have an article on this in a forthcoming issue.
In the exploration and development of oil and gas fields – the drilling and completion of the wells remains the largest single cost. Over the years, numerous changes and innovations have been proposed, and new technologies, all with the aim of minimising well costs or making wells more effective in order to lower production costs. In the April issue, we have an article where the claim is that well costs can be reduced by up to 30% by effective management of the supply chain. During IP Week, John Pearson of Amec suggested that a greater focus on minimising costs was needed and called for improvements in the contractor-oil company relationship . He also focused on the changing relationship, with international oil companies (IOCs) losing their technical and financial pre-eminence as the national oil companies (NOCs) become more competent and financially stronger.
He foresaw IOC/contractor groupings competing to help develop the resources of the NOCs. Interestingly, the same theme recurred throughout this year’s IP Week – essentially, what is to be the relationship between the NOCs, who control the bulk of the world’s oil reserves, and the IOCs, who control a large proportion of the world’s distribution infrastructure. Most of the commentators concluded that cooperation was the key to successful future relationships.
The challenge may be that continuing high oil prices are giving NOCs the financial resources to buy in the technical and administrative resources to develop projects that they would have previously had to depend on the IOCs for. Curiously, this may actually make cooperation between IOCs and NOCs easier, as relationships become more balanced in terms of what each party brings to the table.
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The quest for cleaner fuels is causing increasing interest in one the oldest commerical chemical reactions – the synthesis of syngas.
To an older generation, this was the reaction of coke and steam that gave town gas. In its latest forms, it is the way to clean coal, to turn low-grade petroleum coke from heavy oil and tar sands, upgrading into a source of process heat for tar sands extraction. If the carbon monoxide is fully reacted to CO2 and this is then sequestered, it becomes a direct route to clean burning hydrogen. It is clearly a key process for the future.
Chris Skrebowski
The opinions expressed here are entirely those of Chris Skrebowski, Editor of Petroleum Review, and do not necessarily reflect the view of the EI.
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