Opec Can't Meet West's Oil Demand, Say Saudis

Carola Hoyos 07/06/2005

Financial Times (UK)

The Organization of the Petroleum Exporting Countries will be unable to meet projected western demand in 10 to 15 years, Saudi officials have warned.

At today's prices, the world will need the cartel to boost its production from 30m to 50m barrels a day to 50m by 2020 to meet rapidly rising demand, according to the International Energy Agency, the energy watchdog for consuming countries.

But senior Saudi energy officials have privately warned U.S. and European counterparts that OPEC would have an extremely difficult time meeting that demand. Saudi Arabia calculates there is a 4.5m b/d gap between what the world needs and what the kingdom can provide.

U.S. oil futures on Wednesday rose above $60 a barrel as tropical storms caused production shut-downs in the Gulf of Mexico. G8 leaders are expected to discuss the high oil prices during their three day summit which began in Gleneagles, Scotland, on Wednesday.

Saudi Arabia has the world's largest oil reserves and will need to bear up to half OPEC's production growth in the next 10 to 20 years, with the rest mainly coming from Kuwait and the United Arab Emirates.

Saudi Arabia pumps 9.5m b/d and has assured consumer countries that it could reach 12.5m b/d in 2009 and probably 15m b/d eventually. But a senior western energy official said: They said it would be extremely difficult to move above that figure.

But European officials hope that energy saving measures could curb oil demand.
They believe OPEC could produce the 44m b/d the world would need if consumers adopted efficiency measures under discussion by governments in the U.S. and Europe.

By Carola Hoyos

Financial Times
July 6, 2005

LONDON — High oil prices will continue to threaten global economic growth unless the Group of Eight industrialized countries take the lead in improving energy efficiency, Claude Mandil, chief executive of the International Energy Agency, said on Wednesday.

He told the *FT*: We definitely need a lot of improvement in energy efficiency if we want to curb high oil prices. The G8 has always taken the leadership and are always a model to be followed.

Mr. Mandil, who is a participant in the G8 summit at Gleneagles, Scotland, said that if asked he would raise the issue in a discussion about high oil prices and climate change. I will certainly insist on energy efficiency, not because it is the main tool in solving the climate change issue, but because I am convinced that the sooner we start the better . . . It is available with prevailing technology, he said. It is good for economic growth because many of the decisions are low cost or [cost saving] and it is extremely good for energy security.

Mr. Mandil's comments come as Saudi Arabia, the world's largest supplier of crude oil, has begun to warn consuming countries that the Organization of the Petroleum Exporting Countries, the oil cartel, will not be able to meet the demand levels projected in the next 15 years.

But the IEA believes OPEC would be able to meet projections if consuming countries adopted oil-saving policies, especially in the transport sector.

Mr. Mandil said: Everybody from producing to consuming countries has to ensure that there is enough investment in the energy chain, from upstream to downstream.

And we need a strong energy efficiency policy to be sure that there is a demand response to the high oil prices. Otherwise, prices will remain high.

He urged the U.S. to support energy-efficient diesel cars and hybrids, and China and India to adopt high efficiency standards for new vehicles. I am an optimist, I think it is possible to solve the problems we have without jeopardizing our lifestyles, he said.

The G8 is believed to be considering mandating a uniform electricity-use standard for home appliances on standby mode, and is likely to call again on the oil industry to improve the reliability of its supply and demand data. Countries such as Saudi Arabia and Kuwait have been reluctant to provide data and have been unwilling to allow international oil companies to speed up the extraction of their vast reserves of oil.

Some in the industry believe high oil prices are making it even less likely for them to open their borders to foreign investment. But Stewart Johnston, vice-president of CRA International, which works with international and state oil companies in the region, said: If people believe that the Saudis will not be able to meet demand figures, it will give further impetus to the marriage of national oil companies and international oil companies to implement advanced technology, especially in the Gulf region.

Factors holding back OPEC governments include the possibility of a dramatic drop in demand growth as was the case during the Asian financial crisis that began in late 1997 and the possibility of an earlier than expected recovery of Iraq's oil industry.

Gerhard Schrder, the German chancellor, on Wednesday said the G8 should send a signal to calm the oil markets, arguing that speculation was behind the recent sharp increases in oil prices, Hugh Williamson reports from Berlin.

Writing in a German newspaper, Mr. Schrder said that experts say there is enough oil on the markets and that supply is totally adequate. Bernd Pfaffenbach, the chancellor's sherpa in negotiations ahead of the G8 meeting, said Germany would press G8 leaders to support a plan for a global oil database.