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(MENAFN - Arab News) WITH the crude demand-supply balance definitely tight, the growing consumption in the energy rich, oil-exporting countries is under hammer, adding to the existing confusion on the future prospects of the industry.
Fresh data from the US Department of Energy show the amount of petroleum products shipped by the world's top oil exporters fell 2.5 percent in 2007, despite a 57 percent increase in prices and the rise in global consumption. And the trend appears to hold true this year as well.
Rising cash flow from high price crude have fuelled a boom in oil demand inside Saudi Arabia and across the oil rich Middle East, leaving less oil for export, some are now starting to emphasize. At the same time, aging fields and sluggish investments have caused exports to drop significantly in some of the exporting countries such as Mexico, Norway and, most recently, Russia.
Although rising consumption in the emerging economies of Asia, especially China, is often cited as the major factor behind the current tightness of the market, the surging energy demand in the Middle East is also now starting to pose a major challenge. Demand in the Middle East appears a major factor right now.
The boom in oil demand across the oil rich Middle East is leaving less oil for export, arguments are continuing to rise. Adam Robinson, an oil analyst at Lehman Brothers in New York, now predicts the region will constitute more than 40 percent of increased demand next year.
The OPEC domestic demand has already increased in 2007 by 318,000 barrels per day, the US Energy Information Administration recently reported. Shortage of gas is also causing the pressure on crude in the region. Nations in the oil rich Middle East are using their gas in the chemical, fertilizer and liquefied-natural-gas industries. Saudi Arabia is currently in the middle of a major campaign to boost production of petrochemicals, aluminum and fertilizers, aiming to emerge as a world player in these sectors.
The objective is to provide employment to its young, growing population. In view of the current tightness, the aluminum venture in Saudi Arabia with state-owned Ma'aden will now be fuelled with heavy oil rather than natural gas. The natural gas is "too valuable" to use at the $2 billion plant that will power the smelter, officials insist.
Consequent to these developments, coupled with changing lifestyles in the Gulf, the energy needs are also on rise, as all of these industries require large supplies of oil and natural gas.
Since 2004, Saudi oil consumption has increased nearly 23 percent, to 2.3 million barrels per day (mbpd) last year. Jeffrey Brown, a Dallas-based petroleum geologist, says that at the current growth rate, the Kingdom could consume 4.6 mbpd by 2020. And this would dent its crude exporting capability, some now argue.
Owing to the rising production, Saudi Arabia's oil exports may start to fall in 2014, the UK-based think tank Chatham House underlined in a report released late last month.
While production may hold steady for decades, the Kingdom's exports may fall as more oil is diverted to the local market, the report underscored. The Saudi economy absorbed 20 percent of the country's oil output in 2006, Chatham House report said, citing data from BP Plc's Statistical Review and national statistics. Local consumption rose 7 percent last year to 2.15 mbpd, the BP data showed.
And in case the projection continues to move as per the expectations, the Chatham report felt, oil exporters Saudi Arabia, Iran and Nigeria may have to stop exporting oil by 2040.
In fact the oil output from Iran, Kuwait and Nigeria, whose production capacity represents more than a quarter of the Organization of Petroleum Exporting Countries' total, will level off as soon as 2010, the report added.
The report looked at Algeria, Angola, Azerbaijan, Indonesia, Iran, Kazakhstan, Kuwait, Malaysia, Nigeria, Norway, Saudi Arabia and East Timor.
In order to reduce its consumption, the United Arab Emirates reportedly eases back at times on the crucial industry practice of injecting natural gas into crude oil fields, so as to boost reservoir pressure and increase crude recovery rates. Halting the injection ends up undercutting oil production further reducing exports, experts emphasize.
Three of the four non-OPEC players among the top 15 oil exporters — Russia, Norway and Mexico — are already reporting declines in production this year. Only Kazakhstan is showing slight net export gains.
And no big exporter is struggling more than Mexico, where net exports dropped 15 percent in 2007. Officials admit output from the country's once-mighty offshore Cantarell field had plunged by a third in less than a year.
However, there are reasons for some optimism too. The Russian government is apparently scrambling to alter the tax rates that many say had literally put a lid on new development in the country. Now there are reports that 65 new ultra-deepwater drilling rigs are expected to arrive over the next three years. This is good omen. These additional rigs will help oil companies tap some of the most promising, but currently inaccessible waters off Brazil, Australia, West Africa and in the Gulf of Mexico.
Energy is an extremely dynamic industry. Things keep changing. New elements keep adding to the list of variables that impact the energy demand-supply balance.
And history tells us that the industry has the tenacity to overcome those, one by one.
The issue of rising consumption in the oil rich economies, so that more could be spared for the have-nots of the energy world, would also be handled by the industry in its very peculiar way, one feels confident enough to bet upon.
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