Petroleum Review - Editorial - January 2004
Bumper years for oil Mega Projects
Petroleum Review would like to start by thanking readers and contributors for all their help and support over the year. We would also like to wish our readers an enjoyable festive season and a prosperous 2004.
One of the great pleasures of writing about the international oil and gas industry is that it is never dull. The industry involves everything from high political drama to the most cutting edge of new technology, and all stops in between. This spread of interest is reflected in this issue. On pX36 we feature the rapid evolution of the 'digital oil field', which promises to reduce costs and improve recovery to a quite remarkable degree. As usual at the start of new year, we do a quick 'tour de horizon' with articles looking at prospects in the US (p28) and Latin America (p25).
Much has been written about the way the new super majors created by the mergers of the last 1990s need mega projects in keeping with the scale of their operations. The oil majors and super majors are increasingly selling their interests in areas of production decline (US lower 48, UKCS, etc) precisely because these small and diminishing flows are no longer material to their operations. These assets are passing into the hands of enthusiastic smaller companies, where company size and production flows are in more comfortable balance. Surprisingly often the new owners are able to bring new thinking and new approaches and to create thriving companies with the final flows of elderly fields.
However, the overall health of the industry is largely driven by the development of the oil mega projects. These provide the big contracts, the large new production flows and, possibly most important of all, justify the building of the infrastructure which become the tomorrow's production hubs. It is the availability of these hubs that allows the development of the smaller accumulations. On pXX we list all the oil mega projects and major oil discoveries that we have been able to identify with a planned production peak of over 100,000 b/d.
Major projects are generally not secrets - companies are usually proud to announce when they give sanction to a new project. Similarly, stock market pressures mean that major discoveries are rarely kept secret for long. Our cut-off for the listing of discoveries is reserves of over 500mn boe or a likely production peak of over 100,000 b/d.
The first, and most notable, feature of the listing is that there are a number of potential mega projects in the Middle East and Russia, for which the go ahead has not yet been given. The second feature is that while the next four years seem set to be fat years for the industry in terms of new flows, the years after 2007 currently look to be rather lean years.
Russian games
Outsiders can only gaze in awe and trepidation as the current Russian administration defines its relationship to the oil industry and the oligarchs. The latest twist in an already convoluted saga is the apparent breakdown of the Yukos /Sibneft merger. Apparently this is at the behest of Ramon Abramovich of Sibneft, and possibly at the behest of Mr Putin. Yukos and Sibneft are apparently quarrelling over who dominates and who has the top jobs. At the time of writing it was unclear whether the merger was on or off.
Equally unclear was whether Russia was on the point of signing or of not signing the Kyoto treaty. The Russian signature could bring the Kyoto treaty into effect even without the US signing, although it is not clear how effective it would be in such circumstances. It is hard to avoid the conclusion that various factions in Russia are greatly enjoying the power and limelight their decision on whether the Kyoto treaty lives or dies has given them.
To watch in 2004
Already it is possible to identify a number of key aspects of the industry to be watched closely in 2004. In no particular order:
- The Russian government's relationship with the Russian oil companies. The degree of independence the Russian companies are allowed.
- The way the US gas supply crisis unfolds (at the time of writing the price had just spiked to $6.3mn Btu). Demand destruction/new supply/LNG imports.
- The cohesion of Opec and how it manages the normal second quarter demand decline.
- The speed of economic recovery and its impact on oil and gas demand.
- The progressive impact of electronic enablement in initiatives such as the 'Digital Oilfield'.
- Sales and development of new environmentally friendly fuels.
The opinions expressed here are entirely those of the Editor and do not necessarily reflect the view of the EI.
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