Copyright 2004PennWell Corporation All Rights ReservedThis file and any of the material containedherein may not be reproduced electronicallyor mechanically, stored in a retrieval system,or electronically transmitted without priorwritten permission of the Editor of Oil & Gas Journal.Simulations of the World Oil Pro-duction Capacity (Wocap) model sug-gest that global oil production willpeak at a point near 81 million b/dwell before the end of the decade, like-ly by 2006-07Wocap was developed mainly during1997-2000.The model’s cornerstoneconsisted of the conventional oil re-serves estimates developed by Colin J.Campbell that added to a global total of1.9 trillion bbl.1After the first successful simulationruns in 2001,Wocap was modified in2002 to introduce political intangiblesin most countries belonging to the Or-ganization of Petroleum ExportingCountries. In 2003, an attempt wasmade to usher in global geopoliticswithin the model (Fig. 1).Wocap simulationsThe latest Wocap simulation predictsthat worldwide crude oil production(inclusive of all other hydrocarbon liq-uids, such as NGLs, etc.) will peak dur-ing 2006-07 at about 81 million b/d,give or take 1 million b/d or so (Fig. 2).Thereafter, declining production willprove irreversible, and global oil outputis expected to fall to about 55 millionb/d by 2020 (give or take 3 million b/d).As can be seen in Fig. 2, non-OPECoutput will continue in its current longplateau (just below 50 million b/d) forsome years to come, before eventuallybeginning to dwindle in 2006 or 2007.On the other hand, OPEC’s produc-tion peak is likely to occur sometime inthe middle of the next decade, well be-low 40 million b/d—in stark contra-diction with all those who wishfullypredict an OPEC output well above 50million b/d and even over 60 millionb/d for 2020.Under no scenario (even the mostexotic ones) could the Wocap modelbe simulated to peak after 2008—adate that really seems to be the ultimateterminus ad quem.Non-OPEC’s new championThe North Sea—non-OPEC’s cham-pion of the 1980s and 1990s—is infull decline at an average rate of around6%/year. Its total output soon will sinkbelow 5 million b/d and likely will fallto about 3.5 million b/d by 2010.2In the 21st century, Russia has takenover from the North Sea as non-OPEC’snew champion. Unlike the North Sea,however, Russia is not a new provincebut a very mature one. Moreover, it is aregion over which the defunct SovietUnion had ridden roughshod, especial-ly during the 1980s (with the batteringof the supergiant Samotlor field a casein point).3During 2003, Russia achieved an av-erage output of 8,460,000 b/d.The lat-est Wocap base-case scenario for Russiaforecasts an oil production plateau ofjust under 8.5 million b/d during2004-06.4Under no Wocap scenariocould Russian output edge over the 9million b/d mark.This is in stark contrast with manyother forecasts, especially those issuedby Edinburgh-based consultants WoodMackenzie (WoodMac), which seesRussia’s crude output going fromstrength to strength before reaching10.4 million b/d in 2010.5WoodMacDirector Tim Lambert summarized hisconsultancy’s findings on Russia’s fu-ture oil production:“Russian produc-tion has been growing rapidly in recentyears, and many observers consider thatWorld oil production capacity modelsuggests output peak by 2006-07G ENERAL I NTERESTA.M.Samsam BakhtiariNational Iranian Oil Co.Tehran18 Oil & Gas Journal / Apr. 26, 2004 +++Price of crude oilOil industry cash flowUpstreammaintenanceDiscoveredreservesEOR projectsDividends, etc.E&P expendituresWorld oilproductioncapacityUndiscoveredreservesDiscovery ofnew fieldsCivil strife, warsActs of GodGeopoliticsField developmentEORmethods & processesEORmethods & processesWorld oil demandAnnual oilproduction40%60%±––For each individualOPEC member countryor non-OPEC regionWORLD OIL PRODUCTION CAPACITY (WOCAP) MODEL Fig. 1it should exceed 10 million b/d in2010. On an unconstrained basis—as-suming that all required investmentwas put in place—we believe that pro-duction could reach 12 million b/d in2010 and 2011.”6Both Wocap and WoodMac cannot beright, and undoubtedly one is totallywrong.The question remains whichone is wrong.But the Wocap-WoodMac discrepan-cy is not the only gap on Russian fore-casts. Even in the short term, there is anabyss between the prediction of 2.2%growth in 2004 by Russian experts andthe 8.6-10% rise forecasted by interna-tional analysts, translating into a differ-ence of 550,000-670,000 b/d byyearend.However, there is little doubt thatRussia will be the oil industry’s ulti-mate supply-side litmust test.And thisyear’s output results might settle theshort-term (and maybe even long-term) differences once and for all.Andit goes without saying that as faresnon-OPEC champion Russia, so willfare the whole of non-OPEC in 2004.OPEC’s main pillarMost of OPEC’s stars (e.g., Iran,Kuwait)are not faring well:They clearly havereached the end of their oil capacitytether (a fact readily confirmed by therespective Wocap simulations).7OPEC’sbrightest hope, Iraq, is now still in thegrip of vicious terrorist attacks—withthe development of the supergiant fieldsof Majnoon,West Qurna II, and NahrUmar having to wait for calmer days.But, far more ominous than all thesedevelopments, is that OPEC’s main pil-lar, Saudi Arabia, has been the subjectof serious doubts.Saudi Arabia always has stood as theoil industry’s symbol:“a supplier for allseasons” and the “producer of last re-sort,” which produced an average of8,672,000 b/d in 2003 (32.3% ofOPEC’s total output.)8Naturally, theSaudi oil miracle was expected to lastforever. No one ever dared think theunthinkable.But, then, on Feb. 24, in a presenta-tion at a conference held by Washing-ton, DC-based Center for Strategic &International Studies, Matthew Sim-mons, chairman and CEO of Houston-based Simmons & Co. International,predicted that the Saudi oil miracle“would soon come to an end.”And his arguments were built aroundan ironclad thesis based upon extensivescientific research (and, among manyothers, some 200 Society of PetroleumEngineers technical papers).Simmons even questioned the po-tential of the world’s largest oil fieldand the Saudis’ major producer, theawesome Ghawar:“Aramco [the origi-nal Arabian American Oil Co.] estimat-ed Ghawar’s reserves to be 60 billionbbl in 1975 on the basis of 400 wellsand a very clear mapping of the oil-wa-ter contact...and with 55 billion bblnow
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