Business | Oil & Gas
Producer group not immune to rising costs
Soaring costs and a manpower shortage that have caused problems the world over are increasingly a threat to core producers of the Organisation of Petroleum Exporting Countries (Opec) battling to increase their oil output.
- Reuters
- Published: 00:38 May 16, 2008
Dubai: Soaring costs and a manpower shortage that have caused problems the world over are increasingly a threat to core producers of the Organisation of Petroleum Exporting Countries (Opec) battling to increase their oil output.
"It's not surprising. We're seeing global bottlenecks in the service industry affecting Gulf countries as well," said David Kirsch of Washington-based PFC Consultancy.
One of the biggest capacity additions in recent years, the 500,000 barrels per day (bpd) Khursaniyah field in Saudi Arabia, has at last started production four months behind schedule. "It does raise some questions for some other projects in Saudi Arabia," Kirsch said.
In particular, he said the Moneefa oilfield, the last in the list of expansion projects Saudi Arabia has announced, would probably slide by a couple of quarters, if not a year.
The 900,000 bpd project is expected to begin producing in 2011.
Concerns about the extra time now needed has helped to drive oil prices to a record of nearly $127 a barrel this week.
"One of the things the market is cottoning on to at the moment is the realisation Opec does not have the capacity to increase their output that significantly," said Angus McPhail of British-based investment firm Alliance Trust.
UAE situation
Apart from Saudi Arabia, the other Opec member capable of increasing its output quickly is the UAE.
The world's fifth largest oil exporter aims to expand output capacity to 3.5 million bpd in 2012 from around 2.8-2.9 million bpd.
"The tight contracting market does make that target more and more unlikely," said Ross Cassidy at consultancy Wood Mackenzie.
"We see them getting there around 2015. There is no doubt that they can produce at that level, but they are experiencing delays in both onshore and offshore expansion projects."
A crucial project to boost output that has fallen behind is at one of the world's largest oilfields, Upper Zakum, where ExxonMobil acquired a 28 per cent stake in 2006.
The goal was to raise capacity by around 200,000 bpd to 750,000 bpd as part of a wider expansion, but plans are still not finalised as rising costs have forced revisions, industry sources said.
"Studies are still ongoing about how best to execute the project. That means it will be late," said a source familiar with the project.
"The problem is the same here as everywhere in the world. There are not enough contractors, there is not enough manpower."
Prices: Volatility to blame
The rise in global oil prices in recent years has more to do with financial market volatility than fundamentals, Saudi Oil Minister Ali Al Naimi said yesterday.
He also said Asia's oil consumption was expected to rise by 20 million barrels per day, driven by strong economic growth, and would account for 60 per cent of the expected rise in global demand by 2030.
"The short-term oil price gyrations are more closely tied to the internal logic of the financial markets than to underlying supply/demand fundamentals," Naimi said.
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