OPEC to spend $160 billion to increase capacity

Australian News.Net
Saturday 31st May, 2008 (Tamsin Carlisle - The National)

Opec members will invest US$160 billion in oil development projects in the next three years to increase their production capacity by 15% in response to growing demand.

The announcement by Abdalla Salem el Badri, the secretary general of Opec, came a day after British Prime Minister Gordon Brown sought to put high oil prices at the top of the agenda for a summit in July of the Group of Eight (G8) most powerful nations.

Mr Brown had said that a lack of investment in future production capacity was the main factor driving prices to record highs, but Mr Badri disputed this.

“Even though we see no shortage of oil in the market, since the middle of 2007 we have seen a major disconnect between oil prices and market fundamentals. A number of factors have contributed to this, but primarily [it is] the massive role that speculators now play in the oil market,” Mr Badri said.

He said Opec countries would add five million barrels per day (bpd) of extra crude production capacity by 2012.

“Our members have already undertaken a $160 billion investment programme to expand crude production capacity by close to five million bpd by 2012,” he said in emailed responses to The National.

Opec pumped about 32 million bpd in April, equivalent to 40 per cent of world oil consumption, and has about two million bpd of spare capacity.

Mr Badri said Opec had plans for another $230-$500bn from 2012 to 2020, adding another nine million bpd, but he said there was uncertainty over demand.

At a meeting of the International Association for Energy Economics in Dubai, Hasan Qabazard, the director of the Opec secretariat’s research division, said there was no immediate prospect of the world running short of oil reserves. “World reserves are sufficient to meet expected demand,” Mr ­Qabazard said.

Petroleum refining bottlenecks had contributed to fears of a looming oil shortage that had helped push crude prices to record levels, he said.

On Wednesday Mr Brown said the global economy was facing a “third oil shock” and that record crude prices should be added to the agenda of July’s G8 meeting. His remarks followed calls by Nicolas Sarkozy, the French president, for a suspension of the value-added tax on fuel to ease the burden of high oil prices on ­consumers.

Mr Brown attributed high oil prices to “growing demand and too little supply to meet it”.

Mr Qabazard said yesterday that Opec expected global demand for crude oil to continue rising, on average by 1.4 per cent annually between now and 2030. But between 2010 and 2030, Opec expected oil production by its member states to climb significantly to 59 million bpd, overtaking crude production by the rest of the world.

“There is no need to be pessimistic about oil supply,” Mr Qabazard said. “That is one of the reasons why prices are being pushed up.”

Ali al Yabhouni, the Opec governor for the UAE, said the nation was ready to increase crude production if the market required it.

“We are there to fulfil our commitments as a producing country when there is a demand for it,” he said. “We can meet that commitment.”

Fatih Birol, the chief economist of the International Energy Agency (IEA) and an adviser to 27 oil consuming countries, said the main problem facing world oil markets was a growing perception that rising demand might not be met by increased supply prospects.

“From producing countries, we would like to hear that they are going to increase production capacity in years to come,” he said.

At the same time, energy consumers should strive to use fuel more efficiently, especially in the transportation sector, Mr Birol urged. However, that might not happen unless governments in the parts of the world that were expected to contribute most to oil demand growth – China, India and the Middle East – reduced or scrapped fuel subsidies that were costing them an estimated $50bn a year, he warned.

Mr Birol also said he would be “surprised” if oil prices retreated substantially in the next few months. However, recent speculation by prominent analysts that oil prices could surge as high as $200 a barrel was “not very helpful to the market”, he added. On refining, Mr Birol said he saw two new regional hubs emerging in the Middle East and India. “This is good news and good service to the industry,” he said.

The IEA economist also predicted that oil production outside Opec could soon peak, a worry that was helping to push up prices.

That did not necessarily mean that the world would run out of oil, but international oil companies would have diminished access to reserves, he said. That, in turn, raised questions about whether the investment needed to keep oil supply in balance with demand could be made “in a timely and sufficient manner”.

The Opec and IEA officials called for more communication between oil producers and consumers on a number of levels to help reduce oil price volatility – a goal that both organisations share.

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