Numbers for November and December suggest real OPEC production cuts in Algeria, Libya, Qatar and UAE. The total cut could be 230kb/d which knocks around 50kb/d off annual average production. I did not expect to find evidence for cuts, but that's how the data looks to me - four small cuts made at the same time by countries that otherwise increased their production last year through announced projects. Thus, I believe those four OPEC members, but only those four, have the ability to restore that production. Without those cuts, crude and condensate production would still be clearly down, but total liquids would have shown a somewhat more significant increase.

The following is a guest post by Phil Hart, a petroleum facilities engineer and member of ASPO-Australia. Phil worked for Shell in the UK for five years, before returning home to Melbourne in late 2006. Phil's blog can be found here .

To establish the potential for 2007, for each country identified by the EIA, I have estimated the balance between depletion of fields in production and new project capacity expected this year. Not yet having mastered Hubbert Linearization, I have used simpler mathematical techniques: addition and subtraction.

To estimate underlying decline, I have considered the net change between 2005 and 2006, and also the production trend in 2006. Countries on a rising trend in the last twelve months start the year above their average last year. They stand a better chance of achieving the same average even without new projects this year (the rising trend is often due to fields developed recently that may still be expanding production). Conversely, countries on a declining trend start the year handicapped below their average for 2006. New projects would need to come on stream early for them to achieve or improve on their 2006 average.

Expected project capacity is based on Chris Skrebowski's Megaprojects report "New capacity fails to boost 2006 production - delays or depletion?", Petroleum Review, February 2007 (should be available at ODAC soon).



Summary 15 countries contribute to a gross decline of 1.1 Mb/d. 15 identified countries plus 'Others' and 'NGLs' contribute to a gross increase of 1.7 Mb/d. The net result is a possible increase in capacity of nearly 600 kb/d.

Don't get excited about the final figure suggesting an increase this year. This represents what we might call 'increased capacity', but that level of production could only be achieved in an almost ideal world. There is very little upside here, but many risks.

If peace breaks out in Nigeria or Iraq, production could improve significantly. Neither appears very likely. Brazil, Angola and Canada have the potential to exceed the estimates listed here. But potential downsides are everywhere.

Disruption in Iran or perhaps just the impact of sanctions, hurricanes in the Gulf of Mexico or other producing regions, accelerating declines in Saudi Arabia and Mexico - any one of these could wipe out most of this net production gain. Production could easily fall short of the significant gains estimated for the aforementioned Brazil, Angola and Canada.

New capacity, while substantial, may not be enough to offset increasing declines and real world performance.

Estimating New Capacity in 2007 (thousand barrels per day)

Country Production

2006 Change

from 2005 Trend in

2006 Project

Capacity 2007 Forecast for

2007 Algeria 1,814 17 Increase. Max in Q4 65 50 Indonesia 1,019 -47 Decline na -50 Iran 4,028 -110 Decline. Offset by new projects 150 -50 Iraq 1,995 117 Increase. Max in Q3 na 50 Kuwait 2,535 6 Decline. Max in Q1 110 -25 Libya 1,681 48 Increase. Max in Q3 40 25 Nigeria 2,440 -187 Decline through disruption. na -25 Qatar 850 15 Increase. Max in Q3 65 50 Saudi Arabia 9,154 -396 Decline 500 -400 UAE 2,635 100 Increase. Max in Q3 na 50 Venezuela 2,511 -54 Decline 75 25 Norway 2,491 -208 Decline. Offset by new projects 85 -100 UK 1,490 -159 Decline. Offset by new projects 180 -50 Angola 1,419 163 Increase. Max in Q4 490 250 Argentina 696 -7 Variable na -10 Australia 433 -12 Increase. Max in Q4 na 50 Brazil 1,722 89 Increase. Max in Q4 610 300 Canada 2,525 156 Variable increase. Max in Q4 270 150 China 3,686 77 Variable. Max in Q2 190 50 Colombia 531 5 Decline. Max in Q2 na -10 Ecuador 536 5 Decline. Max in Q1 na -10 Egypt 639 -19 Variable decline. Max in Q1 na -25 Gabon 237 -29 Decline. Max in Q1 na -10 India 689 24 Increase. Max in Q4 na 25 Malaysia 684 -65 Decline. Max in Q1 120 25 Mexico 3,256 -78 Decline. Max in Q1 na -300 Oman 738 -36 Decline. Max in Q1 na -25 Russia 9,244 202 Increase. Max in Q4 na 100 Syria 406 -26 Decline. Max in Q1 na -25 States 5,143 -36 Variable increase. Max in Q4 180 100 Other 6,231 254 Increase. Max in Q4 120 200 NGLSs 7,938 139 Increase. Max in Q4 480 200 Total 81,397 -54

3,730 585

Some comments on key countries:

Russia

Russia provided the largest single production increment in 2006 of 200 kb/d. Production in December was close to the maximum for the year so they begin 2007 in a strong position to maintain their average, but posting another similar gain seems less likely. Clearly one to watch.

Brazil

With 610 kb/d of new projects on the books, Brazil looks set to post by far the most significant gain for the year. Many of the projects are expected in the first half and at least one has already started. 300 kb/d as estimated here would be a huge annual increase but they could even exceed that. They also start the year above their average for last year. Without Brazil, peak oil would already be moving clearly into sight in the rear view mirror.

Angola

With another two megaprojects expected, one in each half of the year, Angola looks set to repeat last year's strong performance and should post the second largest gain in 2007. Again, we will need it.

Natural Gas Liquids

Strong growth looks set to continue in this category as well.

Saudi Arabia

The decline of 400 kb/d compared to 2005 had nothing to do with quota cuts and was not anticipated by any energy agency. Stuart's post shows that the massive Haradh III project presented itself as a little bump on the ski slope. The Khursaniyah/Abu Hadriya/Fadhili developnent is larger again but not expected until the end of the year and will therefore not impact the figures much. Until then, we should get a long clear look at decline. Surely, sometime this year, the world will make a strong call on Saudi 'spare capacity', which could finally put that notion to bed. Or perhaps we will be proven wrong?

In their defense, Saudi Aramco have delivered and continue to work on the world's largest oil and gas projects. They have an enviable project delivery reputation within the industry. The economists, however, will show little gratitude. Expect to hear the phrase 'lack of investment' soon.

Mexico

Decline here is estimated at 300 kb/d. It could be worse.

Project Notes: Figures in brackets are maximum capacity and not necessarily what could be achieved this year. Saudi Arabia Khursaniyah: Not expected until end of 2007. Reading between the lines suggests even that may be a challenge. (500kb/d plus 250kb/d NGLs). Venezuela Corocoro: Expected mid-2007. Angola Greater Plutonio: Expected first half of 2007 (240kb/d) Rosa: Expected second half of 2007 (250kb/d) Brazil Espadarte: Started production in January (100kb/d). Golfinho: Production to expand 100kb/d in June with arrival of additional FPSO. Polvo: FPSO expected to arrive in February. China Bohai Bay: Production expected at low levels in 2007. Malaysia Kikeh: Production started in January. United States Atlantis: Expected end of 2007 (150kb/d). NGL Projects Are counted under corresponding EIA column and not allocated explicitly to country columns, which are crude and condensate projections only. Two main projects in 2007 are Saudi Aramco and QatarGas. Updates on particular projects or the potential in specific countries are of course welcome.

The net positive result achieved in this analysis is not all that surprising. The Megaprojects report identifies 3.2 Mb/d of capacity arriving in 2006, while EIA data show the net result was a slight loss (for crude and condensate and NGLs). After allowing for project delays and production below capacity, an approximate guess would suggest that net new production for the year was around two million barrels per day. Production declines absorbed all of that.

For 2007, new project capacity rises to a massive 4.6 Mb/d, more than 40% higher again than last year (some of that is from last year's projects that are still expanding). Even allowing that several of the largest projects only arrive late in the year, it is possible that net new production will increase, even above last year's historically high levels.

For 2007 production to fall relative to 2006, depletion must also increase substantially. Plenty of evidence supporting that notion has been presented on TOD. This analysis is somewhat conservative in that regard. If Saudi Arabia continues declining at 8% as in Stuart's analysis, then they will lose 700 kb/d. The extra 300 kb/d compared to my estimate would wipe out half of my net 'possible' gain. A similar case for Mexico could wipe out the rest, and that's before allowing for major disruptions anywhere else.

Khebab's analysis of countries already suffering Type III depletion is another, more refined way of illustrating the challenge outlined above. It will be interesting to see an update of that with 2006 data. But I also know Khebab has lots of other requests and no doubt ideas of his own to work on :-).

Let me finish with a chart of EIA Total Liquids for the last three years. The obvious feature is the 1.5 Mb/d jump from June to July last year. This set some alarm bells ringing but reviewing the data, it is hard to fault. The month-to-month increase was provided by UK and Norway (270), Angola (180), Australia (120), Brazil (100), Canada (170), NGLs (300), OPEC (200) and 'Other Liquids' (190). It seems remarkable that all these increases should arrive at once, although it did occur as prices were approaching their record highs. The jump in production helps to explain why prices steadily retreated afterwards - a world that had learned to live with 84 million barrels per day suddenly had another 1.5 to play with. So, despite the large jump, average changes for the year for all these countries look reasonable in the context of delivered projects, so I don't believe it is an attempt to delay peak oil by massaging the figures.

We started 2007 with production just slightly higher than the average for 2006. A few steps upwards early this year would put us within striking distance of matching the average again. But, will those steps materialize or will the line continue the downward trend?



cheers!

Phil Hart

Petroleum Facilities Engineer, Melbourne

Phil worked for Shell in the UK for five years, before returning home to Melbourne in late 2006. He is a member of the Australia Association for the Study of Peak Oil.

www.philhart.com