Earlier this week, the International Energy Agency released its forecasts for the period to 2015. This is something the IEA does every year and what a difference a year makes. This time last year, the agency was warning that sharp cuts in upstream spending would result in world crude production capacity growing by just 4.2 million b/d in the period to 2014 rather than by the 5.5 million b/d forecast just a few months earlier.
The agency has changed its forecast dramatically for Iraq. Last year, it saw the country's oil production capacity rising by just 230,000 b/d, from 2.47 million b/d in 2008 to 2.7 million b/d in 2014.
Iraq, it said in June 2009, "remains the OPEC wild card given constitutional and security issues, and we maintain a cautious view on its supply capacity growth."
The 2010 report, however, sees Iraqi capacity growing by 970,000 b/d to 3.46 million b/d between 2009 and 2015 and accounting for half of the projected 1.9 million b/d increase in OPEC capacity. The outlook for Iraq "has improved dramatically," it says, referring to the major upstream contracts signed with a host of major international oil companies after two auctions in June and December.
David Fyfe, head of the agency's oil industry and markets division, describes the projected rise in Iraqi capacity as "the single most important supply contibution" within OPEC.
The IEA acknowledges that its new projection for Iraq is more conservative than the 6 million b/d level some now believe Iraq capable of achieving as a result of the two bidding rounds, citing "the considerable logistical, operational and political challenges" facing the country. Nevertheless, it adds, "an increase to 6 million b/d now appears to be more a question of when, rather than if."
The agency has maintained its pessimistic view of Iran's capacity growth prospects. Last year, it forecast that Iranian output capacity would fall from 3.97 million b/d in 2008 to 3.48 million b/d in 2014, a drop of 490,000 b/d. This year's report sees capacity taking a 680,000 b/d dive over the next few years, from 3.97 million b/d in 2009--already a downward revision of 100,000 b/d from last year's estimate--to 3.29 million b/d in 2015.
Iran has several small projects of 25-50,000 b/d coming on stream over the next few years. It is also expecting 100,000 b/d from the second phase development of the Azadegan field and 85,000 b/d from Yadaveran. But these additions won't be enough to prevent capacity falling.
Iran's "escalating isolation" from the international oil community following global opposition to its nuclear program is just one factor behind the projected capacity decline, the IEA says, giving equal if not greater importance to "unattractive investment terms" based on what it describes as "a largely discredited buyback program of service contracts." Further clouding the outlook for Iranian production, the agency says, is "an ever-changing management team" at the National Iranian Oil Company.
It's not that Iran doesn't have the resource base--it does, David Fyfe acknowledges. But, says the IEA, the country's target of 5.1 million b/d by 2015 looks "wholly unrealistic."
The latest projections for OPEC kingpin Saudi Arabia show some interesting differences from those of last year. The 2009 report had Saudi capacity rising from 10.74 million b/d in 2008 to 11.22 million b/d in 2009, peaking at 12.16 million b/d in 2010 and reaching 11.97 million b/d in 2014, resulting in a 1.23 million b/d increment over the forecast period.
The 2010 report sees Saudi capacity growing from 11.23 million b/d in 2009 to 12.09 million b/d in 2010, when it peaks before dipping back to 11.63 million b/d in 2014 and 11.66 million b/d in 2015.
The IEA assumes that the Saudis will hold operating levels below the 12.5 million b/d nameplate capacity levels, probably within an 11.6-12.1 million b/d range. It expects the kingdom to shut in some operations for extended periods "either for purely economic reasons or to perform extensive rehabilitation work."
Geopolitics must always be taken into account when looking into the future, says the industrialized world's energy watchdog, which released its report just a day before the US Congress passed a sanctions bill specifically targeting Iran's oil sector.
But this year's explosion at BP's Macondo well in the Gulf of Mexico has introduced an additional forecasting complication.
The IEA says as much as 850,000 b/d of projected global oil production growth over the next five years could be at risk as a result of the spill. That figure includes a range of between 100,000 b/d and 300,000 b/d for Gulf of Mexico production and up to 550,000 b/d of expected growth from deepwater Brazil, Angola and Nigeria, which the IEA says could now be at risk if regulatory and operating procedures are changed in light of the Macondo disaster.
