- WASHINGTON - Global oil production
is not likely to peak anytime soon, contrary to talk that has helped propel
prices close to $60 a barrel, although lower prices may still be a few
years away, a prominent energy consultancy said Tuesday.
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- Cambridge Energy Research Associates said that, instead
of a crest being reached sometime this decade, an inflection point in world
oil output will occur sometime beyond 2020, after which production will
plateau for several more decades.
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- In a report that builds upon earlier analyses by the
Cambridge, Mass.-based consultancy, CERA said it believes that between
now and 2010 there will be a substantial increase in worldwide oil production
capacity. It said that "as a result, supply could exceed demand by
as much as 6 million to 7.5 million barrels per day later in the decade"
that will lead to an extended period of lower prices beginning as early
as 2008.
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- The price of oil could "slip well below $40 a barrel
as 2007-08 nears," CERA said.
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- Today, the supply cushion is only about 1.5 million barrels
per day and that has markets extremely nervous about the possibility of
a supply disruption. Oil prices are up more than 55 percent over the past
year, in part because of the threat of hurricanes, terrorist attacks and
labor strife in key oil production regions, such as the Gulf of Mexico,
Iraq and Nigeria.
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- "Today's high prices are the result of an exceedingly
tight and precarious supply-demand balance," CERA chairman Daniel
Yergin said in a statement. "Yet significant new capacity will be
coming on stream... The addition of that new capacity is what is required
to improve the supply demand balance."
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- The CERA report is a counterweight to the predictions
of some energy experts, who in recent years have been publishing books
filled with charts and graphs that aim to prove that world oil production
is about to peak, if it hasn't already.
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- The most recently published book to make that claim is
called "Twilight in the Desert: The Coming Saudi Oil Shock and the
World Economy," which was written by Matthew R. Simmons, a Houston-based
investment banker who is well-known in the petroleum industry.
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- Simmons argues that Saudi Arabia's best oil fields are
aging rapidly and that the rest of the world needs to question the veracity
of the kingdom's claim that it still has 260 billion barrels of petroleum
left to pump.
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- The CERA report acknowledges that there will be fewer
giant oil fields found and produced after 2010, but it argues that with
new technology and multibillion dollar investments the petroleum industry
has the ability to provide more than enough supply to meet rising demand.
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- "The main risks to our supply expansion scenario
are above ground, not below ground " changes in the political and
operating climate that could delay expansion," Yergin said.
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- The debate about whether global output is on the cusp
of an irreversible decline is not new " petroleum engineers and executives
have been hashing it out for decades. But it has garnered extra attention
amid soaring prices and the revelation last year that Royal Dutch/Shell
Group overstated its reserves, a key measurement of an oil company's future
profit potential.
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- Lawrence J. Goldstein, president of PIRA Energy Group
in New York, said he was present when Simmons met with Saudi officials
to gather information for his book and that he remains an "agnostic"
when it comes to the peak oil debate.
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- It isn't entirely clear, Goldstein said, whether today's
tight global supply reflects a geologic limit that is being reached or
if it merely signifies that the industry hasn't made the necessary investments
to keep up with rising demand.
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- "The truth is, I don't know whether we're resource-constrained
or effort-constrained, and neither does anybody else," he said.
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- "This market is being driven by fear of what can
happen," said Citigroup analyst Kyle Cooper in Houston. "I am
trying to find a fundamental reason for today's rise, but there is none.
This is one of the most bearish markets we have seen in years, yet prices
are at record highs."
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- According to Mr. Cooper, inventories in the U.S. are
at near-record highs when one looks at overall stocks. "Nobody mentions
the fact that U.S. oil production is above where it was a year ago."
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- "Who would have ever thought the cartel would be
producing 28 million barrels a day and we'd be taking about $56 a barrel
oil," David Rosenberg, of Merrill Lynch.
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- On the New York Mercantile Exchange on Tuesday, July
crude futures fell 32 cents to $59.05 per barrel.
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