The oil industry is finding it harder to expand upstream capacity, a new report by the Centre for Global Energy Studies has warned.
“Development costs are up sharply, essential equipment and skilled labor are in short supply and host governments want a bigger share of the proceeds,” it concludes.
As a result, the report said projects take longer to complete and output is growing more slowly than predicted. In 2006, non-OPEC oil production rose by only some 450,000 barrel per day (bpd). This was better than 2005, when a myriad of unanticipated problems kept output virtually flat, but it was still less than expected by most industry forecasters.
“Once again, project delays, adverse weather, equipment failure and oilfield problems combined to trim nearly one million bpd off non-OPEC supply growth projections for 2006, leaving the market much tighter than expected,” the London-based center said.
With underlying oil well productivity declining at an average rate of 5 percent worldwide, the report said the industry needs to drill enough wells to replace more than 2 million bpd of aging non-OPEC capacity each year just for production to standstill. “Any delay in starting up a new project therefore, widens the gap that needs to be filled before overall non-OPEC production can begin to rise,” it said.
Maybe the Peak Oil pundits are right. What do you think?