The study announced by Cambridge Energy Research Associates last week, laying out what it sees as a projected cutback in production due to ongoing cutbacks in capital spending, gets a little more support in the real world every day.
What CERA is writing about hasn't stopped. The CERA report came out Friday, March 27. In the 7-day period surrounding that release, the following developments have been recorded, to help support CERA's theory:
--Privately-held Placid Refining delayed a project to increase crude capacity by 25,000 b/d, to 80,000 b/d at its Port Allen, Louisiana refinery. The company's president Dan Robinson told Platts' Beth Evans of the company's plans to delay its increase. Robinson said the company is now "speculatively" targeting a completion in its project in 2012; the original date was 2010. The company had completed a debottlenecking project last year, but the second phase was going to increase crude distillation capacity from 55,000 b/d and upgrade units that would increase gasoline and diesel output by a third. (And to think it was just a year ago that politicians were screaming that we needed new refining capacity in the US. Now even expansions are being put aside.)
--A final investment decision for the phase one development on the giant Shtokman natural gas development in the Russian Barents Sea will be made in the first quarter of 2010, the project's operator Shtokman Development said. Russia's state-controlled energy giant Gazprom holds a 51% stake in Shtokman Development, while Total has 25% and StatoilHydro holds the balance. CEO Yuri Komarov said the delay was "insignificant."
--This isn't a big one, but it did happen soon after CERA's report: Indonesia's publicly traded oil and gas company Medco Energi Internasional said it would cut capital expenditures in 2009 by 31% to $200 million from $288 million last year. Company director Lukman Mahfoedz said an enhanced oil project at Rimau is not economically viable until prices hit $70.
--A late addition: Platts reported April 1 that Qatar has put on hold a proposed 250,000 b/d refinery, due to be operational by 2010, because of the current economic climate and poor refining economics. The refinery was dubbed the al-Shaheen refinery and was to be built in the city of Mesaieed.
CERA's report called what is going on "The Long Aftershock." It said that about 7.6 million b/d out of total potential future net growth of 14.5 million b/d from 2009 to 2014 are "at risk" from spending cutbacks driven by the decline in price. According to the report, "The Long Aftershock concludes that if all "at risk" supply fails to materialize, world oil production capacity just five years from now could be 101.4 million b/d, 7.6 million b/d below the pre-collapse CERA projection of 109 million b/d for 2014." It should be noted that there are numerous analysts, many of the Peak Oil school, who have long found even these numbers to be overly optimistic.
Fatih Birol, the IEA's chief economist, in an interview with Platts while in Singapore, largely echoed CERA's report. "The higher the spare capacity, the better it will be for the world economy," he said. "But my main concern is that if the economy recovers very strongly and if oil demand follows that pattern...we could face some very difficult times." According to Birol, project cancellations and deferments have wiped out some 2 million b/d of additional capacity that could have been brought online, though it isn't clear what time frame he was using, for purposes of comparison to the CERA study.
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