With the possibility that demand for Iranian oil may fall below 1 million barrels a day (mbd) as sanctions continue to bite, Iran has announced that it wants OPEC to cut back production to the agreed quotas, rather than the overall additional 1 mbd that is actually being produced and sold. Such a move would, of course, make it more difficult for those customers who have found a way to replace Iranian oil, and perhaps incline them more toward disregarding the embargo.

OPEC has just released their December Monthly Oil Market Report (MOMR) in which they anticipate that earlier projections for 2013 oil demand growth will still be valid at 0.8 mbd. (Though they note that December 2012 growth y-o-y was at 1.0 mbd as the US economy continued to improve). They expect that all of this increase will be met by non-OPEC increases in supply, and that demand for OPEC oil may even drop 0.4 mbd. Part of that projection continues to rely on increased US crude production, and the EIA TWIP of December 5th had the latest chart showing that projected growth, based on the newly released Annual Energy Outlook 2013.

As a footnote to that graph, the Alyeska pipeline pumped an average of 582,755 bd in November, which brings the annual average up to 544, 625 bd. It is clear from looking at that plot that the gains in production are assumed to come from increased production of the "tight" oil deposits that have produced the overall gains achieved to date. The optimism of this projection goes a little beyond the levels that I anticipate will be achieved.

There has been a stir in energy news lately as folks have begun to extrapolate the growth in American oil and gas production to the point that they predict the United States may out-produce Saudi Arabia, in terms of total hydrocarbon production. Of course, in some cases, it is North American oil independence that is featured rather than that of the USA. The reason for this generalization is that by broadening the geography so the region also includes Canadian and Mexican production, then US imports from those countries magically disappear (which does not mean that they don’t have to be paid for. The US imported around 2.5 mbd from Canada and 1 mbd from Mexico in July). The stories also don’t dwell on the comparison of apples and apples. Consider the following quote from NPR. It is the easily missed sentence at the end of the first paragraph that is critical.

In 2011 the U.S. produced 5.66 million barrels of crude oil a day, according to the Department of Energy's Energy Information Administration. By next year the agency projects that will increase 21 percent to 6.85 million barrels a day. Add in things like natural gas liquids, biofuels and processing gains at refineries and that number increases.

"By 2013, we'll probably be a little over 11 million barrels a day," says EIA administrator Adam Sieminski. "That puts you pretty close to Saudi Arabia's" production of more than 11 million barrels a day, he says.

It might be pertinent to note that some of the crude produced in the Kingdom of Saudi Arabia (KSA) will be refined in the US, providing refinery gains here, and further distorting the comparison. Ah, well!

The current production gain in the US has resumed after a short plateau, although the gains following the shut-ins for Hurricane Isaac seem to be leveling off.

The theme of these posts over the past eighteen months is to look at the leading producer nations that provide crude oil to the world, and to see if it is realistic to anticipate significant increases in their production. Posts have now looked at North America, Russia, Saudi Arabia and China based on the original list of rankings produced by the EIA in 2009. And, as I noted before beginning the China posts, the interesting question at the moment relates to a) how much oil Iran is currently producing and b) how much, realistically, can it be expected to produce?

These are not questions with the same answer, since the current sanctions imposed on the country have clearly already had an impact on the amount of oil that is being exported from Iran. Nevertheless, the volumes produced have fallen below those now achieved by China, and for that reason China was given priority when it came to the order of writing these posts. But back at the beginning of 2011, there was no doubt that Iran was one of the top 5 producers, particularly if one combines the USA and Canada into the new “politically correct” term of North America as a way of dodging questions on long-term US production levels.

If one looks at the latest September OPEC Monthly Oil Market Report (MOMR), for example, there is now a gap of 1 mbd between the official production claims, which are shown below, and the reports from other sources, which follow.

For most of this past year, these posts have reviewed and then discussed data on the state of different reservoirs of oil and gas that ultimately provide the power we need and use every day. However, as we come to the end of 2011, it seems as though there is a gloss or spin applied to stories about the state of global energy supply, which implies that concerns about future energy supply are overstated. Instead, the impression is left that there will be, in the immediately foreseeable future, no return to shortages. So this post will be a more general view of the topic, less concerned with absolute numbers and references, but seeking to suggest that these perceived words of wisdom are like the promises of a return to $30 oil that we heard only three or so years ago, likely to fade into oblivion once they have served their immediate purpose.

It should be noted up front that there are considerable differences between the supplies of natural gas becoming available, and those of crude oil. Natural gas reserves are still increasing; I wrote just recently of the realization that exists in Azerbaijan that the gas produced from the Shah Deniz field will have a hard time competing in the global marketplace in three years because of the arrival of natural gas from the Levant Basin. The relatively low prices for natural gas in the United States brought about by the development of wells in the gas shales such as the Barnett, Haynesville, and Marcellus, and their initial high productivity, will continue to make it difficult to see much increase in price. Yet this comes at a time when the price that natural gas is sold for in America is around $3.50 per thousand cubic feet (kcf) or $124 per thousand cubic meters (kcm). That price is often insufficient to totally cover the costs of its production and return a profit to all the investors, with some indications that a profitable price would need to be closer to $6.00 per kcf. The low price of natural gas relative to world prices, however, means that it helps to keep American industry competitive, since fuel costs are usually significantly lower here than elsewhere.