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?

One Comment

  • How does the global 5% decline in oil well productivity square with the anecdotal examples in yesterday’s NYT article on increased output from old fields? Reading this post, I realized that the examples cited were exactly that, anecdotal, as well as speculative – the views of Saudi Aramco – at exactly the moment that is the story the oil powers want this story to be told.

    Many of the factors cited in the Centre for Global Energy Studies report seem like they may be temporary -shortages of workers -or political – host governments wanting more revenue. is it possible to say with much certainty that the decline in global productivity is related to those temporary constraints and a lag in implementing the types of new tech that the NYT article is about… or is it related to fields actually emptying out?

Comments are closed.