OPEC – “What, We Worry???”
Iraq has plans to produce up to 12 million b/d by 2020. Outsiders, including former head of Saudi Aramco, think they’ll be lucky to get to 4.3 by 2015. This is BELOW a skeptical consensus, and also BELOW Iran’s likely output (4 mm b/d today and marginally higher – at best- by 2015). The target acknowledges the open secret in the region – deference to Iran’s regional influence on Iraq’s economic plans, and it ability to confound those intentions. The upshot is that OPEC members believe (possibly talking their own book) that Iraqi production profile will have very little effect on world prices over the next five years.
Chinese Energy Policy – Supply & Demand Management
CLSA report on China’s State Capital plans for energy, suggest the country will increasingly work to manage oil demand over the next decade. The broker cites energy growth around 9% AGR last decade, slipping to as little as 1.6%/yr by 2020+. This is consistent, though slightly more optimistic, with a macro view that global demand (not necessarily oil) might crest in the 2020-2040 timeframe.
Updated Fundamentals – US oil consumption will increase about 2% this year, after a 3.6% decline in 2009, and will be about 7% below the 2007 peak. Consumption in the rest of the OECD countries will fall again this year, ending around 9% below 2007. nonOECD demand will have risen 13% since 2007, and will add to just under 50% of worldwide demand. Assuming flat OECD demand – possibly optimistic – nonOECD growth of 4% would add 1.7 million b/d to demand, against OPEC’s 5 million b/d spare capacity. Meanwhile, nonOPEC production is flattening out, and may not grow until 2013. The result is that OPEC spare capacity, a key factor in near-futures pricing, amounts to less than three years of growth in oil demand. Thus, IF nonOECD demand grows as modeled, oil fundamentals may tighten considerably over the next 18 months. Typically, the tipping point for price response is about 2.5% spare capacity.
It’s all about returns. ExxonMobil is apparently shopping its ‘Block 31’ position in Angola. While there have been numerous discoveries (Total and Marathon are partners), the returns just may not be there, given the geology, fiscals, and development timeline. As usual, the Chinese are the most likely buyers.