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04/08/2004
Energy Update
It’s been a while since I summarized a few things on the energy
front and I thought we’d examine some key facts and figures.
Total worldwide daily consumption of crude oil is now about 80
million barrels per day (mmbd), up roughly 2% over the past
year, thanks in large part to soaring volume in China.
[Separately, the International Energy Agency forecasts average
annual growth in demand over the next few years of 1 %.]
OPEC decided that effective April 1, the cartel would cut daily
production to 23.5 mmbd, down from a previous quota of 24.5.
But, OPEC was producing at about 26.0 mmbd in the month of
February, so there is little doubt that while a few OPEC members
may reduce their production slightly, OPEC will nonetheless be
producing substantially over the new 23.5 target.
Following are the daily quota and actual production figures for
some OPEC members in the month of February.
Saudi Arabia 7.96 mmbd (quota) 8.45 (actual production)
Iran 3.60 3.92
Venezuela 2.82 2.54 (never really recovered from labor
issues of a year earlier archaic infrastructure)
Nigeria 2.02 2.34
UAE 2.14 2.22
Kuwait 1.97 2.21
Iraq is not factored in as yet into official OPEC figures.
Surprisingly, to some, Iraq appears to want to stay in OPEC.
It is estimated that the only OPEC members with significant
excess capacity are Saudi Arabia, Kuwait and UAE. Most non-
OPEC nations (particularly Mexico, Norway, and Russia) are
running full tilt to take advantage of the high prices.
So, if you take OPEC production of 26 mmbd vs. overall
consumption of 80 mmbd, OPEC represents about 33% of world
supply. In a market such as this, however, it’s easy to see how
1-2 mmbd swings from OPEC can roil prices and that’s why
Saudi Arabia has always seen itself as the key player,
particularly with its supposed excess capacity.
Oil Consumption
U.S. 20.18 mmbd (imports over 50% of its oil and of this 25%
comes from Persian Gulf)
China 5.60 (overall demand up 33% last year, estimated to rise
20% in ’04 and is really now over 6 mmbd)
Japan 5.46
Russia 2.86
Germany 2.65
India 2.27 (will grow substantially)
South Korea 2.21
Canada 2.15
Brazil 2.07
Mexico 2.05
60-65% of the world’s proven reserves, currently 1.2 trillion
barrels (almost double 1970s level) are in the Persian Gulf,
defined as Saudi Arabia, Kuwait, UAE, Iran and Iraq, and
approximately 25% of world production, particularly when Iraq
is producing at normal levels (2.5-3 mmbd).
Saudi Arabia 21.6% of world reserves
Iraq 9.3%
UAE 8.1%
Kuwait 8.0%
Iran 7.4%
Venezuela 6.4%
Russia 4.9%
U.S. 1.9%
Of course recently there has been lots of talk that the estimated
reserve figure could be way out of whack, especially in places
like Saudi Arabia and China, so the issue is are world reserves
overstated? If you believe this to be the case, you’re obviously a
big time energy bull over the long term, particularly going out to
2010 and beyond.
Key consumer nations Japan and China receive a large portion of
their crude from the Middle East. Japan has to meet all of its
energy needs from overseas and gets 87% of its oil from the
Persian Gulf. China imports about 50% from the region and if
they are truly having problems with the production in their own
fields, this percentage will obviously soar and should rise
anyway due to rapidly expanding demand.
And then there’s the price of gasoline around the world. As of
March 15, the cost per gallon of premium gas:
Netherlands $5.64
U.K. $5.27
Germany $5.08
Italy $5.02
France $4.78
U.S. $1.91
[Yes, taxes are the chief difference between the U.S. and the
others.]
Finally, you have the issue of the Strategic Petroleum Reserve in
the U.S. President Bush directed in November 2001 that it be
filled to 700 mmbd; it’s currently at about 640. In other words, if
the Persian Gulf accounts for 2.5 mmbd or thereabouts, the 700
mmbd is 280-300 days worth of Persian Gulf imports should
there be a real crises in the region.
Sources:
Wall Street Journal
Star-Ledger
Daniel Yergin
Financial Times
International Energy Agency
Robert Samuelson / Washington Post
Energy Information Administration
New York Times
Hott Spotts will return 4/15.
Brian Trumbore
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