OPEC: Crude Oil Production Capacity to...

©Blackwell Publishing Ltd, 2006

GLOBAL ENERGY REVIEW OPEC: Crude Oil Production Capacity to 2015

A Report by Dr Paul McDonald

Consulting Editor, Oil and Energy Trends

A survey of the crude oil reserves, production and production capacity of each

OPEC country and a forecast of production capacity for 2015,

Together with a summary of the outlook for natural gas liquids for OPEC as a

whole and non-conventional crudes for Venezuela

28 February 2006


2

Contents

Introduction 4

Organization of the Petroleum Exporting Countries 6

Crude Oil Reserves 8

Expansion Plans 14

Assessing Reserve Levels 18

Peak Production 20

Countries below their previous Peaks 22 Iran 22 Kuwait 22 Libya 23 Venezuela 23 Indonesia 24

Countries likely to exceed their previous Peaks 25 Saudi Arabia 25 UAE 26 Qatar 26 Nigeria 26 Algeria 27 Iraq: a special Case 27

Other Sources of Hydrocarbon Liquids 29

Production Outlook, 2005-2015 32


3

List of Tables

Table 1 OPEC: Production Quotas, February 2006 7

Table 2 OPEC: Proven Crude Oil Reserves, 2006 8

Table 3 OPEC: Proven Crude Oil Reserves, 2003 v 2006 9

Table 4 OPEC: Reserves:Production Ratios, 2006 10

Table 5 OPEC: Crude Oil Production, 2005 11

Table 6 OPEC: Crude Oil Production v Quota, January 2006 12

Table 7 OPEC: Oil Production v Capacity, 2005 13

Table 8 OPEC: Planned Major Additions, 2006-15 15

Table 9 OPEC: Peak Production v Present-day 20

Table 10 OPEC: NGL Production, 2005 29

Table 11 OPEC: Outlook for Non-Crude Oil Liquids’ Production 30

Table 12 OPEC: Outlook for Crude Oil Production Capacity 32


4

Introduction

OPEC is, on paper, well-endowed with reserves of crude oil. Many of the reserve levels

reported by OPEC members have, however, been inflated for political reasons-principally

to enable individual countries to obtain high quota allowances-making it difficult to

determine exactly how much oil any one member-country has.

The overstatement of reserves is reflected in a number of cases in an overstatement of

crude oil production capacity. In some cases, this might throw doubt on official forecasts

of future capacity levels.

Oil markets have become increasingly concerned in recent years with the amount of spare

production capacity in OPEC. This concern arises out of a fear of what might happen in

the event of a loss of supplies from an important supplier somewhere in the world. Such

losses are becoming increasingly common. Politically-motivated interruptions have

occurred from time to time in the Persian Gulf, such as the oil embargo of the

Organization of the Arab Petroleum Exporting Countries (OAPEC) of 1973 and the loss

of exports from Kuwait in August 1990 following its invasion by Iraq. These

interruptions have become more frequent of late, particularly following the US-led

invasion of Iraq in 2003. To these Middle Eastern examples may be added weather-

related disruptions such as those sometimes encountered in the North Sea or the more

spectacular events seen in the Gulf of Mexico in 2005; along with the attacks on the oil

export infrastructure of Nigeria that occurred in 2005 and 2006.

Spare capacity is needed to make up for these disruptions. To be of maximum use,

however, it needs to be able to be brought into production at very short notice. It also

needs to provide crude oil of a similar grade to that which has been taken off the market,

which is not always the case. The lack of suitable capacity can be mitigated in the short

term by the maintenance of strategic stockpiles of crude oil. Stockpiles, however, do not

provide an answer to the shortage of capacity over the longer term.

OPEC needs to provide two things over the next decade:

o Sufficient new capacity to meet much of the increase in world oil demand; and

o Some additional spare capacity to help mitigate the effects of any short term

disruption in supplies.


5

This report suggests that some OPEC countries lack the reserves to increase their capacity

by large amounts and that consequently world oil markets will experience tight supply

over much of the coming decade.


6

Organization of the Petroleum Exporting Countries

OPEC was founded in 1960 by five countries–Iran, Iraq, Kuwait, Saudi Arabia and

Venezuela–before expanding to thirteen members in 1975. Since then, it has lost two

members–Ecuador and Gabon–and a third country, Indonesia, has ceased to be a net

exporter of oil. A further country, Iraq, is at present outside the production quota system

The member-countries have been as follows:

Country Year admitted

Iran

Iraq

Kuwait 1960

Saudi Arabia

Venezuela

Qatar 1961

Indonesia 1962

Libya 1962

Abu Dhabi 1967†

Algeria 1969

Nigeria 1971

Ecuador 1973*

Gabon 1975**

† Membership transferred to UAE in 1974

* Left in 1992

** Left in 1995

Production quotas are set at OPEC’s ministerial meetings. At various times, no quota has

been allocated to Iraq during wars with Iran and Kuwait. Iraq has been continuously out

of the quota system since 1998.

Current quotas are shown in Table 1.


7

Table 1

OPEC: Production Quotas, February 2006

Country Quota

(mn bpd)

Saudi Arabia* 9.099

Iran 4.110

UAE 2.444

Kuwait* 2.247

Qatar 0.726

Nigeria 2.306

Libya 1.500

Algeria 0.894

Venezuela 3.223

Indonesia 1.451

Total 28.000

* Including half the Neutral Zone

Source: OPEC

Quotas were agreed on 31st January, 2006 and are due to be reviewed on 8th March,

2006.


8

Crude Oil Reserves

OPEC’s 2006 proven resources are estimated by the authoritative Oil & Gas Journal as

902 bn bbl (see Table 2). As such, they account for 70% of the world’s total proven

reserves. Of the OPEC total, some 267 bn bbl, or 30%, is accounted for by Saudi Arabia.

Four other Middle Eastern countries, Iran, Iraq, Kuwait and UAE, account for 449 bn bbl,

making up a further 50% of the OPEC total.

Table 2

OPEC: Proven Crude Oil Reserves, 2006

Country Reserves

(bn bbl)

Saudi Arabia* 266.8

Iran 132.5

UAE 97.8

Kuwait* 104.0

Qatar 15.2

Nigeria 35.9

Libya 39.1

Algeria 11.4

Venezuela 79.7

Indonesia 4.3

Total (minus Iraq) 786.7

Iraq 115.0

Total (with Iraq) 901.7


Totals rounded

Source: Oil & Gas Journal

It is difficult, however, to verify these reserve levels independently. The figures

themselves come principally from the OPEC countries themselves. The kind of data on

individual fields that countries like the US and Great Britain might provide are lacking in

many cases in OPEC. Moreover, reserve estimates have an important political dimension

in that they are used in support of demands for higher production quotas. From time to

time, countries will revise reserve levels upwards with little apparent justification for


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such a move. Since 2003, OPEC’s reserves have been increased by 82.7 bn bbl, or 10%,

as a result of such revisions (see Table 3).

In some other cases, figures for proven reserves remain constant from one year to the

next regardless of how much oil has been produced in the preceding twelve months. This

lack of consistency in the reporting of reserves makes it difficult to forecast future

production levels.

The largest recent upward revision has been that of Iran (see Table 3), amounting to

42.8 bn bbl, or 47.7%. Nigeria has recorded an even larger rise in percentage terms–

49.6%–though much lower–11.9 bn bbl–in volume terms. Libya’s upward revision of

9.6 bn bbl amounts to 32.5% in percentage terms. In only one case–that of Indonesia–has

there been a downward revision.

Table 3

OPEC: Proven Crude Oil Reserves, 2003 v 2006

Country Reserves (bn bbl)

2003 2006 Change

Saudi Arabia* 261.8 266.8 5.0

Iran 89.7 132.5 42.8

UAE 97.8 97.8 unch

Kuwait* 96.5 104.0 7.5

Qatar 15.2 15.2 unch

Nigeria 24.0 35.9 11.9

Libya 29.5 39.1 9.6

Algeria 9.2 11.4 2.2

Venezuela 77.8 79.7 1.9

Indonesia 5.0 4.3 (0.7)

Total (minus Iraq) 706.5 786.7 80.2

Iraq 112.5 115.0 2.5

Total (with Iraq) 819.0 901.7 82.7


Totals rounded

Source: Oil & Gas Journal


10

The upward revisions listed in Table 3 do not fully state the reserves that are supposed to

have been added between 2003 and 2006, since they do not make allowance for all the oil

produced between those two dates. When allowance is made for this, Iran’s reserve

additions amount to 47.3 bn bbl, Nigeria’s to 14.5 bn bbl and those of Libya to

11.3 bn bbl.

Table 4

OPEC: Reserves:Production Ratios, 2006†

Country R/P Ratio

Saudi Arabia* 77:1

Iran 93:1

UAE 112:1

Kuwait* 114:1

Qatar 52:1

Nigeria 41:1

Libya 63:1

Algeria 22:1

Venezuela 84:1

Indonesia 13:1

Total (minus Iraq) 77:1

Iraq 166:1

Total (with Iraq) 83:1 † Based on 2005’s production


Totals rounded

Source: GER estimates, using reserve totals from Table 1

The official reserve figures give some impressive totals for OPEC in terms of years of

production remaining at existing levels of output (see Table 4). For OPEC as a whole the

figure is 83 years. The following countries have over 75 years of output left:

o Saudi Arabia

o Iran

o UAE

o Kuwait

o Venezuela

o Iraq


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Three of those–UAE, Kuwait and Iraq–have more than 100 years’ production remaining,

though the Iraqi ratio is grossly inflated by the low level of production in 2005.

Table 5

OPEC: Crude Oil Production, 2005

Country Production

(mn bpd)

Saudi Arabia* 9.5

Iran 3.9

UAE 2.4

Kuwait* 2.5

Qatar 0.8

Nigeria 2.4

Libya 1.7

Algeria 1.4

Venezuela 2.6

Indonesia 0.9


Iraq 1.9



Totals rounded

Source: GER estimate

OPEC’s production in 2005 is estimated at 29.9 mn bpd (see Table 5), and 28.0 mn bpd,

excluding Iraq. This latter figure is the same as OPEC’s quota ceiling for the second half

of 2005 (see Table 1). Three countries–Iran, Venezuela and Indonesia–are currently

incapable of producing at their full quota levels (see Table 6).

Most countries, with the exception of Saudi Arabia and Kuwait, do not have much spare

production capacity, either (see Table 7) and much of their spare capacity, in any case,

consists of heavy, sour crudes, for which there is little demand. Nigeria has spare

capacity of about 0.3 mn bpd, but much of this is unusable owing to high levels of unrest

in the oil-producing Niger Delta region.


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Table 6

OPEC: Crude Oil Production v Quota, January 2006

Country Production Quota Difference

(mn bpd)

Saudi Arabia* 9.5 9.1 0.4

Iran 3.9 4.1 (0.2)

UAE 2.5 2.4 0.1

Kuwait* 2.5 2.2 0.3

Qatar 0.8 0.7 0.1

Nigeria 2.3 2.3 —

Libya 1.7 1.5 0.2

Algeria 1.4 0.9 0.5

Venezuela 2.6 3.2 (0.6)

Indonesia 0.9 1.5 (0.6)


Iraq 1.6 — —

Total (with Iraq) 29.7 — —


Totals rounded

Source: (Quotas) OPEC; (Production) GER estimate

According to official estimates of its capacity, Iraq has some 0.7 mn bpd of surplus

capacity, but Iraq is something of a special case. In the first place, its output is

constrained by high levels of violence. Secondly, it is not at all clear how much of its

alleged spare capacity would be usable even in the absence of civil unrest, since the entire

production system is suffering badly from years of neglect, sanctions and under-

investment. A more realistic estimate of Iraq’s spare capacity might well be in the region

of 0.4 mn bpd.


13

Table 7

OPEC: Oil Production v Capacity, 2005

Country Production Production Capacity† Spare Capacity

(mn bpd)


Iran 3.9 4.1 0.2

UAE 2.4 2.7 0.3

Kuwait* 2.5 3.1 0.6

Qatar 0.8 0.8 —

Nigeria 2.4 2.7 0.3

Libya 1.7 1.7 —

Algeria 1.4 1.5 0.1

Venezuela 2.6 2.7 0.1

Indonesia 0.9 0.9 —


Iraq 1.9 2.6 0.7

Total (with Iraq) 29.9 33.8 3.9 † As of end-2005


Totals rounded

Iraq’s capacity as officially stated, though not fully usable owing to high levels of

violence

Source: GER estimate


14

Expansion Plans

The above considerations concerning reserves, production and production capacity ought

to introduce a note of caution into any forecasts of future production capacity levels. In

addition to these considerations, the following also need to be borne in mind:

Most of the main producing fields are mature (Saudi Arabia’s two largest fields

are more than 50 years old);

Several major fields (notably in Iraq, Iran, Nigeria and Venezuela) have been

damaged by war, civil strife or neglect;

Several countries are past their long term output peak (see below);

Many countries have little or no spare capacity;

The rate of investment is insufficient in several countries (such as Iraq, Iran and

Indonesia) to allow major capacity expansion to take place. In a few cases (such

as Qatar) natural gas is likely to command more attention in future than crude oil;

Many OPEC countries carry high levels of political risk which could greatly

restrict future upstream activity and investment.

As a starting point, we may examine what is already being planned for the next 5–10

years. The number of projects at first sight appears quite large (see Table 8), but many do

not have definite development timetables and some may not be on-stream as planned by

2015.


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Table 8

OPEC: Planned Major Additions, 2006-15

Country Project Capacity† On-stream (kbd)

Saudi Arabia** Ghawar (Haradh III) 300 2006 Abu Hadriyah/Khursaniyah/al-Fadhili 500 2007

Shaybah (expansion) 500 2008

Khurais 1,200 2009

Manifa 300 *

Nuayyim 75 *

Total 2,875

Iran Darkhovin II 160 2006

S. Azadegan 260 2007

Ahwaz 150 *

N. Azadegan 400 *

Yadavaran 300 *

Total 1,270

UAE Bu Hasa 180 2006

NE Abu Dhabi 110 2006

Upper Zakum (expansion) 650 *

Total 940

Kuwait** Raudhatain (expansion) 200 2006

Burgan 100 *

Minagish (expansion) 100 *

Northern Fields (Project Kuwait) 450 *

Total 850

Qatar Bul Hanine 70 2006

Dukhan 380 2006

Idd al-Shargi 130 2006

Al-Khaleej 50 2006

Al-Shaheen 240 2006

Other fields 93 2006

Miscellaneous/unspecified 137 2009

Total 1,100


16

Nigeria Erha 165 2006

Agbami 250 2008

Akpo 100 2008

SW Bonga/Aparo 250 2008

Usan 200 2008

Bosi 150 2009

Total 1,115

Libya Elephant (expansion) 125 2007

Murzuk 94 2007

Waha 150 2007

Total 369

Algeria ROD/MLN 100 2007

El Merk 100 2008

Hassi Messaoud 200 2010

Total 400

Venezuela Corcoro 75 2007

Tomoporo (expansion) 150 2008

Sincor II 200 *

Total 425

Indonesia Cepu 170 2008

Total 170

Iraq Kirkuk 400 2006

Rafidain 100 *

Subba/Luhais (expansion) 150 *

West Qurnah (expansion) 300 *

Total 950 † Estimated maximum flows

* To be decided; **Including half the Neutral Zone

Some dates provisional; capacities subject to change.

Source: Oil press


17

Some 10.5 mn bpd of new developments are identified in Table 8, of which Saudi Arabia

accounts for 2.9 mn bpd, or 28%. There are perhaps a further 0.3-0.5 mn bpd of small-

scale projects, which do not appear in the table, giving a total of up to 11.0 mn bpd. This

figure, however, does not represent a net addition of anything like that amount between

now and 2015, for the following reasons:

Not all the projects have received official approval;

Financing and other terms have still to be agreed for several projects;

Several projects are designed to replace the decline in existing fields rather than

constituting an addition to existing output;

Some projects may be postponed for political reasons: for example, to limit the

amount of spare capacity worldwide, or in an attempt to prolong the net exporter

status of some OPEC members;

There is enormous uncertainty over the timetable for any additions from Iraq.


18

Assessing Reserve Levels

OPEC countries give very little information about their oil reserves. The kind of detail

found in reserve estimates in the US and Great Britain, for example, is simply not

available in most cases. Whilst external estimates exist, they often do little more than

repeat the official numbers issued by the OPEC members themselves.

There are grounds for believing that some of OPEC’s reserve numbers amount to an

overestimate of proven reserves:

Reserve levels are often used to support requests for increases in quota levels by

individual countries, providing them with a major incentive to inflate their reserve

levels;

There have been several sudden upward revisions of reserve levels that appear

unrelated to any new discoveries or reappraisals of existing fields;

Some reserve estimates appear to be based on unrealistically high recovery rates.

OPEC began to take reserve levels into account in setting individual output quotas in the

early 1980s. There then followed some major upward revisions. Between 1984 and

1990, Saudi Arabia made net revisions to its reserves of over 90 bn bbl, raising them to

258 bn bbl. Over the same period, UAE added 65 bn bbl, Iraq 57 bn bbl, Iran 42 bn bbl,

Venezuela 34 bn bbl and Kuwait 28 bn bbl.

The large upward revisions of the 1980s owe much to a move by Kuwait in 1985, when it

increased its reserves from 64 bn bbl to 90 bn bbl. No new discoveries had been

reported; so it appears that Kuwait has simply applied a higher recovery factor to its

existing reserves than before (see below). In 1987, it added a further 2 bn bbl.

Kuwait’s actions appear to have goaded other OPEC countries into raising their reserve

estimates so as not to see Kuwait’s production quota rise at their expense. In 1988, Abu

Dhabi increased its total to the same level as that claimed by Kuwait–92 bn bbl–

compared with 31 bn bbl a year earlier. At the same time, Iran’s reserves went up from

49 bn bbl to 93 bn bbl and, not to be outdone, Iraq raised its reserve levels from 47 bn bbl

to 100 bn bbl. Two years later, Saudi Arabia followed suit, with a revision from

170 bn bbl to 258 bn bbl. There were some discoveries during this period, but it is

difficult to see how they might have justified what were almost certainly a series of

politically-inspired upward revisions.


19

Some of OPEC’s reserve estimates appear to be based on recovery rates considerably in

excess of those used elsewhere by the oil industry. Some countries are reported to be

basing their estimates on recovery factors of up to 60% for oil-in-place in reservoirs,

where a figure of around 30% would be rather more realistic.

The application of a 30% recovery factor would reduce reserve levels considerably in

some cases and reduce OPEC’s total reserve levels to around 600 bn bbl, compared with

the 902 bn bbl normally quoted (see Table 2). This, in turn, would reduce OPEC’s

reserves:production ratio from 83:1 (see Table 4) to a more modest 55:1.


20

Peak Production

The unreliability of OPEC reserve data makes it difficult to forecast production. An

important clue to the direction of future output is provided, however, by an examination

of the dates when output was at its maximum level. In all but four cases, peak output

levels were achieved in the period from 1970-80 (see Table 9), which suggests that some

OPEC countries have permanently passed their peak of production.

Table 9

OPEC: Peak Production v Present-day

Country Peak Year Peak Production Production 2005 Difference

(mn bpd)

Saudi Arabia* 1980 9.9 9.5 (0.4)

Iran 1974 6.0 3.9 (2.1)

UAE 2005† 2.4 2.4 —

Kuwait* 1972 3.3 2.5 (0.8)

Qatar 2005† 0.8 0.8 —

Nigeria 2005† 2.4 2.4 —

Libya 1970 3.3 1.7 (1.6)

Algeria 2005† 1.4 1.4 —

Venezuela 1970 3.7 2.6 (1.1)

Indonesia 1977 1.7 0.9 (0.8)

Iraq 1979 3.5 1.9 (1.6)

OPEC 11** 1977 30.9 29.9 (1.0)


** 1977 total excludes Ecuador and Gabon † Highest annual total to date

Totals rounded

Source: Pearl Oil

In one or two cases, notably that of Saudi Arabia, OPEC members may exceed their

previous maximum level of output; but many now appear to be permanently past their

peak and in long term decline. In the case of Iraq, the future could go either way,

depending on how soon peace and order return to the country.


21

The problem for all of OPEC’s producers is that their main fields are old and mature.

Many began production more than 50 years ago and some of the largest ones reached

their peak output more than 20 years ago. OPEC’s–and the world’s–largest field,

Ghawar, in Saudi Arabia, reached its highest level of output in 1981, as did Saudi

Arabia’s Safaniyah field, the world’s largest offshore field. Fields discovered in Saudi

Arabia since then have been much smaller, and this is a pattern that is repeated across

much of OPEC. Some of the following countries appear to be past their peak:

Iran

Kuwait

Libya

Venezuela

Indonesia.

The following should be able to go on increasing output for several years:

Saudi Arabia

UAE

Qatar

Nigeria

Algeria.

Iraq could exceed its previous peak, but only if peace is rapidly restored there. The

prospects for each country in turn will now be considered.


22

Countries below their previous Peaks

Iran

Iran’s four largest oilfields were all discovered in or before 1963 and reached their peak

output between 1967 and 1977. Despite this, Iran raised its reserve figures by 90% in

1988 to 93 bn bbl, since when it has risen to 133 bn bbl. The highest recorded output was

6.0 mn bpd in 1974: some 2.1 mn bpd above 2005’s level. At the start of 2006, Iran was

not capable of producing its full OPEC quota of 4.1 mn bpd (see Table 6).

Iran suffered heavily from overproduction in the 1970s, followed by a collapse in output

following the oil workers’ strike of 1978 and the subsequent Iranian Revolution. Further

damage and neglect occurred during the war with Iraq. Since then, it has tried to

persuade foreign oil companies to invest in new fields, but with only moderate success.

A 200,000 bpd field complex came on-stream in 2004, Nowruz/Soroosh in the northern

Persian Gulf; but it has proved difficult to sell the heavy, sour crude produced there.

Iran has announced plans for production capacity of 5 mn bpd by 2010 and 8 mn bpd by

2015. Production could nevertheless fall over the next few years. The best Iran can hope

for by 2015 is about 5 mn bpd

Kuwait

Kuwait ought in theory to be able to exceed its 1972 production of 3.3 mn bpd, given that

it claims to have about 3.1 mn bpd of production capacity at present and reserves of

around 100 bn bbl, excluding its share of the Neutral Zone. Given the huge upward

revision of reserves described above, however, there must be some doubt about the size

of Kuwait’s proven reserves.

Kuwait’s figure appears to include some ‘probable’ as well as ‘proven’ reserves and

Kuwait is also reported to be using a recovery factor as high as 60%. There are few

independent assessments of Kuwait’s reserves, but those that there are tend to put the

reserves of the emirate’s largest–and oldest–field, Burgan, around 30 bn bbl. It is

difficult to see where a further 70 bn bbl might be found. There are several promising

fields in the north of the country, but all of them taken together are unlikely to equal

anything anywhere near just one Burgan, let alone amount to something more than twice

its size.


23

Kuwait plans to raise its production capacity to 4 mn bpd by 2020. It is not impossible

for it to achieve this, but it may struggle to do this, especially if it continues to delay the

development of the northern fields. This development, known as ‘Project Kuwait’, has

attracted criticism in the Kuwaiti parliament because of the proposed involvement of

foreign oil companies. It has been repeatedly postponed. The latest such postponement

came on 15th January, 2006, following the death of the emir, Shaikh Jabar, al-Ahmad Al

Sabah. In the worst case, Kuwaiti output in 2015 could still be below 1972’s level of

3.3 mn bpd.

Libya

Libya’s prospects have been much improved with the ending in April 2004 of the US

embargo on the export of upstream technology. US companies that withdrew in 1986 are

returning and their involvement is likely to allow the expansion of the Waha field-

complex by 150,000 bpd by 2007. There are several good prospects in Libya, but field

sizes are generally small and medium-sized. One of the most important new fields,

Elephant, discovered in 1997, has proven reserves of less than 1 bn bbl. There is also a

question mark over the size of Libyan reserves in general. The National Oil Corporation

(NOC) increased its estimate of proven reserves by 33% between 2003 and 2006 to

39.1 bn bbl (see Table 3) even though there has been only a modest level of exploration

activity in this period.

Libya’s short term production target is for 2 mn bpd, to be achieved by 2007. This looks

achievable. With luck, it could reach its 2015 target of 3 mn bpd as well, but this would

probably require the proving-up of several medium-sized oil discoveries.

Venezuela

As a founder-member of OPEC, Venezuela has always been keen to play an important

role in the organization. This may well explain its decision to follow the Kuwaitis,

Saudis and others in raising its reserve figures during the 1980s. In 1988, Caracas revised

its proven reserves upwards by 124% to 56 bn bbl: since then, they have risen further to

just under 80 bn bbl (see Table 3). As in the Middle Eastern examples, there are

insufficient new finds to justify such an increase. Part of the explanation may be that

Venezuela has chosen to include large volumes of non-conventional crudes in its reserve

numbers. As in other cases, there is too little transparency on the reporting of reserves.


24

Despite its large reported reserve levels, Venezuela is more than 1 mn bpd below its 1970

production. At present, it cannot even produce its full OPEC quota, falling short by

some 0.6 mn bpd (see Table 6). The country has suffered from political instability since

2002, when oil production was crippled by strikes. Output was then running at

3.1 mn bpd. Since that time, it has never recovered and is now only 2.6 mn bpd.

Meanwhile, the state oil company, Petroleos de Venezuela (PDVSA), has been kept short

of funds by President Hugo Chavez, who has used its revenues to finance an ambitious

political programme at home and abroad. Some 0.3 mn bpd of capacity in Venezuela’s

older, western fields may have been permanently lost as a result of the failure to invest in

secondary and tertiary recovery.

Since then, Chavez’s government has become embroiled in several tax disputes with

foreign oil companies operating in Venezuela. Plans have been announced to increase

production to 3.8 mn bpd by 2010, but no details of how this will be achieved have been

forthcoming. There may be some extra capacity arising from plans to increase the

production of non-conventional, synthetic crude–currently around 0.6 mn bpd–but large

increases should not be expected. Some foreign investors may prefer to invest in North

America rather than in more volatile Venezuela, where much of the synthetic crude is

lower in sulphur than Venezuela’s mainly sour syncrude. Conventional crude oil

production could even decline by 2015 and is unlikely to rise by very much in the best of

circumstances.

Indonesia

Crude oil production is in long term decline with insufficient new fields to replace the

older, larger fields such as Minas and Duri. Most of Indonesia’s fields are small and its

reserve estimates show a decline in recent years. The presence of many western

companies in Indonesia helps to provide a better picture of reserves and production than

in many countries and the official estimates appear to be quite accurate. Already a net

importer, Indonesia is unlikely to be a full member of OPEC by 2015. Output is likely to

go on falling.


25

Countries likely to exceed their previous Peaks

Saudi Arabia

Saudi Arabia claims to have, by far, the world’s largest oil reserves, at 267 bn bbl. Some

88 bn bbl were added between 1989 and 1990, without any proper explanation of where

they came from and, since then, there have been further additions, amounting to more

than 54 bn bbl (being composed of 9 bn bbl of net additions and cumulative production of

45 bn bbl from between 1990 and 2005). The source of much of this oil is something of a

mystery.

Some of the additional reserves are ‘political’, following large upward revisions by

Kuwait and others between 1985 and 1988; some are probably based on an increase in

recovery factors; and some undoubtedly reflect new discoveries. It remains impossible,

however, to determine accurately the true extent of Saudi reserves. Some former officials

of Saudi Aramco have suggested that proven reserves lie in the region of 130 bn bbl. The

more sceptical independent observers suggest figures between 100 bn bbl and 150 bn bbl.

Saudi Arabia has an official production capacity target of 12.5 mn bpd by 2009. In May

2005, however, the chief executive of Saudi Aramco, Abdallah Jumah, told a US

audience that the kingdom was capable of raising its capacity to 23 mn bpd. Some

outside observers, on the other hand, believe that the Saudis may struggle to go much

higher than 12.5 mn bpd.

It may nevertheless be the case that Saudi Arabia could go to 12.5-15.0 mn bpd between

now and 2015. If, however, as seems likely, the country’s proven reserves have been

overstated, the Saudis may not be able to maintain production at these levels for any great

length of time. If we take the reserve estimate of 130 bn bbl given above and assume that

proven reserves can be maintained somewhere near this level for the next 5 years, we

arrive at a reserves:production ratio of 27:1 in 2010, based on a production level of

15.0 mn bpd in that year. In the absence of any further discoveries after 2010, this figure

would be down to 103 bn bbl, giving an R:P ratio of less than 18:1. Whilst this might

represent an extreme case, it suggests that Saudi Arabia’s long term sustainable capacity

is nowhere near the 23.0 mn bpd figure, and could be below 12.5 mn bpd.


26

UAE

The UAE is another country that appears to be overstating the level of its proven

reserves. In 1988, Abu Dhabi raised its estimate from 31 bn bbl to 92 bn bbl. Since then,

it has maintained the figure of 92 bn bbl, suggesting that additions to its proven reserves

have exactly equalled the volume of oil produced in each one of the last 17 years: a

remarkable coincidence, if nothing else. A similar story is evident in Dubai, which

increased its reserve numbers by 185% in 1988 to 4 bn bbl, at which level they have

remained to the present day.

What is all the more remarkable about these reserve levels is that fact that there have not

been any large discoveries in the UAE for more than a decade. Additions to capacity are

coming largely from existing fields. Moreover, one major project–that of raising the

capacity of the Upper Zakum field from 550,000 bpd to 1.2 mn bpd–is behind schedule.

UAE plans to raise capacity by 1.25 mn bpd to 3.95 mn bpd in 2010, It is unlikely to be

able to maintain the higher level for many years without major new discoveries. Whilst

the UAE does contain a number of unexplored prospective areas, it needs to move

quickly to shore-up its actual level of proven reserves, which may only be around half the

level officially stated.

Qatar

Qatar’s proven reserve estimates and plans for capacity expansion are rather more

credible than those of some of its Gulf neighbours. It is the only OPEC member not to

have increased its reserve numbers in recent years (see Table 3) and its plans for

increases in output capacity are both modest and achievable.

Qatar plans a 0.3 mn bpd increase in capacity between now and 2009, taking it to

1.1 mn bpd. There is scope for a similar-sized increase between 2009 and 2015, but the

emirate may decide to leave its capacity more or less unchanged after 2009 as it

concentrates on its main export industry, gas.

Nigeria

Nigeria has recently raised its reserve estimates by nearly 50% to 35.9 bn bbl (see Table

3) and has plans to raise this to 40.0 bn bbl by 2010. There has been considerable


27

upstream activity in Nigeria, much of it by foreign oil companies. Nigeria’s problems lie

not in its reserve levels but in the social and political unrest in the main oil-producing

areas, which has frequently spilled over into violence and delayed several field

developments.

These delays, coupled with disagreements between the government and some foreign oil

companies over upstream contract terms, threaten plans both to find new reserves and to

raise production by 1.6 mn bpd to 4.0 mn bpd. There is also some doubt whether the

deeper parts of the continental shelf contain as much oil as has been estimated. If the

deepwater fields are to be exploited successfully, Nigeria will have to improve its

attractiveness to large international oil companies, since they alone have the funds and

the expertise to develop these fields.

With large scale international involvement and an end to the unrest in the Delta region,

which is the country’s largest producing area, Nigeria might eventually achieve its

4 mn bpd target. Without such developments, it may not go much above 3 mn bpd

between now and 2015.

Algeria

Although Algeria has revised its reserve levels upwards in recent years, its estimates

appear to be more realistic than those of many other OPEC members. Its plans for

expansion are also suitably modest, with a capacity target of 2 mn bpd by 2010.

Reserve constraints may ensure that 2 mn bpd is the maximum Algeria can reach and

2015 may well mark the last year in which it can sustain production at that level. Much

of Algeria’s upstream efforts, in any case–like those of Qatar–will be concentrated on gas

rather than oil.

Iraq: a special Case

Iraq joined its neighbours in raising its proven reserve estimates during the 1980s, when it

more than doubled its total to 100 bn bbl. From 1990 to 2003, it was subject to a UN

embargo on upstream investment and since that date it has been under US occupation and

in a state of political and economic chaos.


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Despite the embargoes, war and the lack of upstream investment, Iraq has recorded a net

addition to proven reserves of 15 bn bbl since 1990. It has even found an extra 2.5 bn bbl

since 2003. Allowing for the 1.9 bn bbl produced since then, this amounts to a gross

addition of 4.4 bn bbl since 2003, which is more than the proven reserves in the British

sector of the North Sea. In the chaos of the US-led invasion and its aftermath, it is

impossible to see whence such a huge addition might have come.

Iraq has announced a series of production targets for the period up to 2010: all of them

somewhat academic. Some of the more far-fetched forecasts have spoken of output

levels of 10 mn bpd.

It is almost certain that Iraq’s recoverable reserves have declined since 1990 thanks to a

combination of poor depletion practices and a lack of spare parts, leading to a decline in

reservoir pressures. As a consequence, several billions of barrels may have been

permanently lost. Poor reservoir management is continuing, and the situation is made

worse by frequent attacks on oilfield installations. Iraq will be doing very well indeed to

be producing much more than 3 mn bpd by 2015, and may even be producing less if the

present high levels of violence are not brought under control.


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Other Sources of Hydrocarbon Liquids

In addition to its output of crude oil, OPEC produces some 3.4 mn bpd of natural gas

liquids (NGL) and 0.6 mn bpd of non-conventional crude. Both of these categories lie

outside the cartel’s quota system, which has given a powerful incentive to countries to

classify as much of their liquids’ production under these headings. This has led to the

classification of some light crudes as condensate in order to allow their unrestricted

production.

This not only distorts the production figures for many countries: it is also clear that some

NGL and non-conventional crude have been included in some countries’ estimates of

their proven oil reserves. Whilst some figures exist for Venezuela’s non-conventional

crude reserves (i.e. bitumen and ultra-heavy crudes), there are no reliable estimates of

NGL reserves. All this makes it difficult to forecast future levels of output.

Table 10

OPEC: NGL Production, 2005

Country Production

(mn bpd)

Saudi Arabia* 0.8

Iran 0.2

UAE 0.5

Kuwait* 0.1

Qatar 0.3

Nigeria 0.1

Libya 0.1

Algeria 0.8

Venezuela 0.2

Indonesia 0.1


Iraq †



† <0.1 mn bpd

Totals rounded

Source: Author’s estimate


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It is quite likely that several countries will increase their production of NGL, particularly

those with ambitious gas development plans. Venezuela meanwhile might double its

production of non-conventional crudes, giving a total addition to OPEC’s non-crude

liquids’ output of 2.1 mn bpd by 2015 (see Table 11).

Table 11

OPEC: Outlook for Non-Crude Oil Liquids’ Production

Country Production**

2005 2015 Change

(mn bpd)


Iran 0.2 0.6 0.4

UAE 0.5 0.6 0.1

Kuwait* 0.1 0.1 —

Qatar 0.3 0.8 0.5

Nigeria 0.1 0.2 0.1

Libya 0.1 0.1 —

Algeria 0.8 1.1 0.3

Venezuela** 0.8 1.4 0.6

Indonesia 0.1 † (0.1)


Iraq † 0.1 0.1

Total (with Iraq) 4.0 6.1 2.1


** NGL plus non-conventional crude

† <0.1 mn bpd

Totals rounded


There could be a further boost from liquids synthesized from gas using gas-to-liquids

(GTL) processes. Qatar is due to begin producing 34,000 bpd in 2006. Further GTL

plants are planned here and in Indonesia, Iran, Nigeria and Venezuela. Around

1.1 mn bpd of GTL capacity has been proposed in these five countries between 2006 and

2020. By no means is all of it likely to be built. Qatar, which has the most ambitious

programme, has already announced a delay to some of its projects.


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It appears likely that no more than half the projects proposed across OPEC will go ahead.

GTL output looks like being in the region of 0.6 mn bpd by 2015. This gives a total

growth of hydrocarbon liquids other than crude oil of 2.7 mn bpd, between 2005 and

2015, made up as follows:

(mn bpd)

NGL 1.5

Non-conventional crude 0.6

GTL 0.6

Total 2.7


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Production Outlook, 2005-2015

The outlook for OPEC’s production of crude oil is summarized in Table 12. The figures

for 2015 are for production capacity. Actual production will be determined by market

conditions prevailing at the time. The scenario presented in Table 12 suggests an

increase in production in the range of 4-13 mn bpd. The amount of capacity available

will depend principally on the size and nature of the reserves remaining in OPEC. The

considerable uncertainties about reserve sizes, outlined above, account in part for the

wide range in the forecast estimates.

Table 12

OPEC: Outlook for Crude Oil Production Capacity

Country Production 2005 Production Capacity 2015 Change

(mn bpd)

Saudi Arabia* 9.5 11.0-12.0 1.5-2.5

Iran 3.9 4.0-5.0 0.1-1.1

UAE 2.4 3.0-4.0 0.6-1.6

Kuwait* 2.5 3.0-4.0 0.5-1.5

Qatar 0.8 1.1-1.5 0.3-0.7

Nigeria 2.4 3.0-4.0 0.6-1.6

Libya 1.7 2.0-3.0 0.3-1.3

Algeria 1.4 1.7-2.0 0.3-0.6

Venezuela 2.6 2.0-3.0 (0.6)-0.4

Indonesia 0.9 0.5-0.8 (0.4)-(0.1)

Total (minus Iraq) 28.0 31.3-39.3 3.3-11.3

Iraq 1.9 2.6-3.6 0.7-1.7

Total (with Iraq) 29.9 33.9-42.9 4.0-13.0


Totals rounded


The figure of 4 mn bpd is in line with the OPEC Secretariat’s forecast for 2010. It is by

no means inconceivable that OPEC could increase its capacity by between 3 mn bpd and

4 mn bpd by then. Thereafter, it is likely that capacity will rise at a modest rate towards

2015. The 13 mn bpd increase is only really possible if OPEC’s reserves are close to the

levels claimed by the group. To achieve an increase of this magnitude would also require


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a period of political calm across OPEC, particularly in the Persian Gulf, as well as the

pacification of Iraq. Neither scenario looks plausible at present.

Politics has a further role to play. OPEC’s raison d’être is to maximize the incomes of its

members. It attempts to achieve this by controlling production through a series of quotas

for each country. As production outside OPEC peaks and goes into long term decline,

OPEC’s ability to add to its production capacity gives it enormous influence not only

over future price levels but over world political and economic developments as well. The

threat to postpone or cancel additions to capacity could become just as potent as past

threats to cut off exports.

There are already OPEC members who would like to use the ‘oil weapon’ to influence

US policy in the Middle East. President George W Bush may have increased the risk of

this in his State of the Union address to Congress on 31st January, 2006, when he called

for the US to reduce its oil imports from the Middle East by 75% within 20 years. Some

Persian Gulf countries may wonder where this leaves their ambitious and expensive plans

to increase capacity between now and 2015. It is beginning to look as if the expansion of

capacity within OPEC is going to lie within the lower half of the range suggested in

Table 12, with 8 mn bpd a plausible figure for crude oil, giving total capacity increases

by 2015 as follows:

(mn bpd)

Crude Oil 8.0

NGL 1.5

Non-conventional crude 0.6

GTL 0.6

Total 10.7

This would allow an annual growth of up to 1.2% in world oil demand: somewhat below

its most recent level. Competition for oil could soon become a major source of friction

across the world.

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