Crude Oil Economics

 

We all wonder what’s the basic economics behind crude oil production. Let’s have a look at this

BBL/Barrel (unit), this basically measures the amount of barrels produced. ideally 1 barrel is 100L-1000L or in US 42Gallons/159L.

MBL: one thousand barrel

MMBBL: one million barrel

What is crude oil?

Crude oil is a mineral oil consisting of a mixture of hydrocarbons of natural origin and associated impurities, such as sulphur. It exists in liquid form under normal surface temperatures and pressure. Its physical characteristics (for example, density) are highly variable.

Where is the bulk of oil demand growth going to come from?

In the next five years, almost half of global oil demand growth will come from China, and this trend is set to continue to 2040, as oil demand from the transportation sector is growing strongly in countries such as China and India. In contrast, oil demand among OECD countries is expected to decline over the outlook period, driven mostly by government policies on fuel efficiency and the fact that rates of vehicle ownership are already high.

Below is a great website to read on Trade Economics of different countries.

http://www.tradingeconomics.com

More Statistics on

http://money.cnn.com/interactive/news/economy/worlds-biggest-oil-producers/index.html

As you can see USA has surpassed KSA in 2014 in oil production according to CNN Money.

Have a read.. and post your comments.

 

 

 

 

 

World Crude Oil Production Study

Top Oil Producers

The top five crude oil producers in 2011, based on the new data are

1. Russia – 9.8 million barrels a day (mbd)
2. Saudi Arabia – 9.5 mbd
3. United States – 5.7 mbd
4. China – 4.1 mbd
5. Iran – 4.1 mbd

The top five producers when substitute liquids of various kinds are included are the same countries, but in a different order. On this basis, the US also appears to be closer to catching up to the top two.

1. Saudi Arabia – 11.2 mbd
2. Russia – 10.2 mbd
3. United States – 10.1 mbd
4. China – 4.3 mbd
5. Iran – 4.2 mbd

Rankings: Top 20 Oil Producers 

please note the drop in 2011 which is reflected below

As you can see from the graph in 2011 it is 73 mbpd an increase of 0.35 % as compared to 2010’s production.

Note: Russia, USA, China are not part of OPEC. Hence OPEC prices are not applicable to these nations.

OPEC: the mission of the Organization of the Petroleum Exporting Countries (OPEC) is to coordinate and unify the petroleum policies of its Member Countries and ensure the stabilization of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers and a fair return on capital for those investing in the petroleum industry.

The International Energy Agency (IEA) which is predominately a consumer based group of nations has recently and publically been calling for OPEC and the IEA to merge.  Russia is not part of either group, neither is China or India.  For the most part, the IEA and OPEC are usually on the opposite end of the spectrum, with IEA and its consumer members calling for lower oil prices and therefore more production, while OPEC usually wants oil prices in the higher end of the range and thus cuts production.  On this basis it is unlikely that OPEC and the IEA will work together under a single framework.

So where does all this leave Russia? Could it be that Russia is in fact quietly looking at new market infrastructure when it comes to trading oil and Gas? Certainly on the gas side, Russia has been the prime mover in the creation of the Gas Exporting Countries Forum (GECF), commonly referred to as the gas OPEC. Qatar and Iran are also members of the GECF. Russia, Iran and Qatar are the number one, two and three holders of gas reserves respectively in the world, with around 50%. As the world market in Gas grows, and begins to rival the influence of the oil market on economies around the world, Russia’s political and economic influence, and responsibility will also grow.

Russia is more likely to turn to Iran and importers such as China and India when it comes to energy politics, rather than the current status quo of OPEC and the IEA.

Bahrain In Short

Political violence in Bahrain is stirring markets worldwide. Oil traders hang on every news bulletin from its capital, Manama, where protesters are challenging the rule of an entrenched monarchy.

Why does anyone care about turmoil in a nation with only 740,000 people? Simple: proximity.

As with much of the unrest sweeping the Arab world, events in Bahrain are providing yet another crash course for the rest of us in why these nations matter.

Yes, Bahrain is an oil producer. But it pumps only about 49,000 barrels a day, less than one-tenth of 1% of the world’s daily output. That’s not enough to earn an invitation to join the Organization of Petroleum Exporting Countries. But the island nation sits smack dab in the middle of the biggest oil-producing region in the world and has long played a key role in supporting the petroleum industry that pivots around it.

First a little history: Before Saudi Arabia burst into the oil world, there was Bahrain. Oil was discovered there in 1932 by Standard Oil of California, now Chevron (CVX 98.72, +1.55, +1.60%) . It was the first commercial well on the Arabian shores of the Persian Gulf.

Geologists had a strong hunch that Bahrain’s oil extended westward beneath the narrow waterway separating it from the Saudi mainland, where they were soon enough tapping into the biggest fields ever found.

Bahrain, its output quickly dwarfed by those of Saudi Arabia, Kuwait, Oman and the United Arab Emirates, turned itself into the gateway to its rich neighbors’ oil fields and began diversifying its economy. It’s now a regional hub whose activities include refining operations, fed mostly by Saudi crude arriving via pipeline, and a growing petrochemical industry.

Because of its ready access to cheap energy, Bahrain is also one of the world’s biggest aluminum producers. Alba, owned by the Bahrain government and the Saudi Public Investment Fund, runs an aluminum smelter capable of turning out 870,000 tons a year. Most of the alumina feedstock comes from Australia.

The tiny nation is also a key player in the shipping industry. At the heart of it is ASRY, the Arab Shipbuilding and Repair Yard Co. ASRY is a joint venture between Bahrain and six other members of the Organization of Arab Petroleum Exporting Countries (OAPEC). The yard and its giant dry docks tend to the needs of the bulk carriers and tankers that routinely call at this maritime crossroads

This is also one of the main reasons the U.S. Navy’s Fifth Fleet is headquartered in Bahrain, a pretty handy location for warships cruising the Gulf and one U.S. commanders would be loath to give up.

Overlying all this industrial activity is high finance, and Bahrain has worked hard to establish itself as a financial hub in a region awash in petrodollars. One thing financial centers don’t weather well, though, is revolution.

So as the wave of Arab protests that toppled Egypt’s Mubarak washes ashore in Bahrain, it’s not felt just in Manama but across the entire neighborhood.

For the oil market, this is all unfolding uncomfortably close to nations that are both the backbone of the industry and whose restive citizens still are ruled by absolute monarchies. And it’s unsettling for Bahrain’s other heavy industries since, unlike high-flying finance, they can’t pull up their stakes and move on a moment’s notice.

Oil-rich Abu Dhabi…for the next 150 yrs

Oil-rich Abu Dhabi is on a strong growth trajectory and the emirate will remain in a strong economic position in the future, too, after having weathered the economic downturn considerably well.

The figures quoted in a new report by Isthmus Partners ‘Abu Dhabi Investment Environment’, shows that with 33 per cent of the country’s population, the emirate contributes around 60 per cent to the UAE’s GDP and has a GDP per capita of 1.8 times the national average.

“Abu Dhabi has one of the highest GDP per capita in the world. Even on a standalone basis, Abu Dhabi would be the second-largest economy in the GCC after Saudi Arabia,” said the authors of the report stressing the economic clout of the capital city.

The emirate is blessed with 95 per cent of the UAE’s proven oil reserves and 92 per cent of UAE’s gas reserves. Based on current utilisation rates and no additional discoveries, Abu Dhabi’s oil reserves will last for 150 years, said the report.

According to the IMF estimates, the UAE produced 2.62 million barrels of crude oil per day on average in H1 2008, 97 per cent of which was produced in Abu Dhabi.

As a result, oil exports generate significant income for the emirate.

In 2008, export revenue from oil and gas was Dh376.9 billion, but in 2009 this figure was reduced to Dh208.5bn due to the drop in the price of oil and the global economic recession.

With good revenues coming from the hydrocarbons, Abu Dhabi is also trying to diversify its economy.

“The government has intensified the diversification efforts in recent years capitalising on the 2000s oil boom and the increased inflows of foreign investment,” said the report, adding that the “emirate’s strategy is to capitalise on the strong hydrocarbon sector and grow into other industrial sectors as well as tourism and aviation”.

The emirate is also home to one of the world’s leading sovereign wealth funds, Abu Dhabi Investment Authority, which is a strategic international investor.

The report said: “Although official figures on assets under management are not forthcoming, it is considered that the Abu Dhabi Investment Authority (Adia) and Abu Dhabi Investment Council (Adic) hold hundreds of billions of dollars of investments. According to the IMF, the UAE held an international investment position (IIP) with net assets of $305 billion (Dh1.1 trillion) of international assets in 2009 and the great majority of them are owned by Abu Dhabi entities.

The ratio of IIP net assets over UAE’s GDP is 132 per cent, compared to 105 per cent for Singapore and 52 per cent for Norway.”

Abu Dhabi has traditionally invested a considerable amount of its oil revenues abroad and such international investments provide a significant source of income to the Abu Dhabi Government and reduce the volatility of the emirate’s GDP and dependence on oil prices, said the authors of the report.

Exports of oil and gas brought $102.7bn to the UAE in 2008 and a projected $56.8bn and $71.8bn in 2009 and 2010 respectively, according to the IMF, as quoted in the report. The year 2008, which was probably one of the best in terms of economic growth, saw the UAE’s consolidated fiscal surplus reach a record high of Dh127bn due to strong oil and non-oil revenue, even though consolidated government expenditure increased to a record of Dh198bn, as per the data in the report.

“The UAE reported fiscal surpluses for four consecutive years from 2005-2008 (while previously it had several years of fiscal deficits due to low oil prices and a steady growth in public spending and infrastructure).

“A small fiscal deficit of 0.3 per cent of GDP is predicted for 2009 due to lower oil prices and an expansionary fiscal policy by Abu Dhabi to counteract the economic slowdown. The IMF forecasts that the UAE will report a surplus in 2010.”

Given the economic growth, Abu Dhabi’s population has increased rapidly in recent years, primarily through immigration of expatriates. “Resident population grew by a compounded average of 4.6 per cent annually between 2001 and 2006. Between 2005 and 2008, the emirate grew at a faster annual rate of six to seven per cent. Anecdotal evidence suggests that the population increased mildly in 2009 and 2010, as Abu Dhabi remains a net employer.”

In recent developments, Abu Dhabi was also hit by the global credit crunch.

“The oil growth engine (centred in Abu Dhabi) and the non-oil growth engine (centred in Dubai) were hit at the same time driving the country into mild negative real GDP growth in 2009, forecast at –0.7 per cent by the IMF.”

However, it was a softer landing. “Though at the beginning of the financial crisis many participants expected that Abu Dhabi could be immune to shocks, the reality is that the crisis has affected Abu Dhabi though to a smaller degree.

“In the real estate sector, Abu Dhabi has expanded more conservatively and has a better match of demand with supply. In many segments of the property market, Abu Dhabi is still undersupplied. Yet the UAE’s capital experienced a reduction in real estate prices in 2009. Prices in prime residential properties have fallen 40 per cent between Q3 2008 and Q3 2009,” said Colliers.

Rental levels have fallen by an average 18 per cent in the first three months of 2009, but had previously increased by 14 per cent in Q4 2008.

“Occupancy rates in Abu Dhabi are almost 100 per cent and supply of completed property (rather than off-plan) cannot satisfy demand. Yet rental prices have been dropping since Southern Dubai has emerged as a substitute to Abu Dhabi.”

As far as the banking sector is concerned, the central government has moved proactively in easing the liquidity problem and restoring confidence in the system.

Other sectors of Abu Dhabi’s economy are performing well. The return of oil prices to the $70-$80 a barrel level has boosted oil revenues. “Industrial demand and revenues have fallen due to the slowdown in global activity and local construction, but investments in this sector continue.

“Abu Dhabi will capitalise by increased industrial export revenues once the global economy resumes expansion. In the meanwhile, the emirate benefits from carrying out its infrastructure investments at reduced cost due to the drop in the price of construction materials and labour costs.”

Abu Dhabi has also indicated that the government and the emirate will continue supporting troubled government-related entities given that they are sustainable businesses, the report points out.

With a GDP of Dh520bn in 2008, the emirate is a strong economy. Yet, Abu Dhabi is one of the most concentrated economies in the GCC, as the oil sector dominates economic output and any major fluctuations in oil price can impact it.

Thus, diversification is in a major way and the emirate has invested large amounts of capital in broadening the economic base.

“Abu Dhabi has intensified efforts embracing the two pillars of diversification and privatisation, introducing strategic measures and undertaking substantial new investments in industry, real estate, tourism, aviation and other sectors.

“Abu Dhabi targets an annual growth of 7.5 per cent. The emirate published in 2009 the ‘Abu Dhabi Economic Vision 2030’ outlining its economic priorities for the coming years and its policies over the next two decades to achieve its goals.

“The plan envisages a population of 3.1 million by 2030, an 80 per cent increase from an estimated 1.7 million people in 2009,” it said.

“Abu Dhabi’s aim is to stimulate non-oil sectors rather than to reduce activity in the oil sector. It is increasing its industrial base [petrochemicals, plastics, metals] capitalising on the availability of resources.

In addition, it is looking to boost tourism and aviation sectors amongst others.

Abu Dhabi aims to become industrial and manufacturing hub

On sector analysis of the Abu Dhabi economy, the Abu Dhabi Investment Environment report highlights that Abu Dhabi aims to become the Middle East hub for industrial and manufacturing companies seeking to capitalise on the numerous opportunities that the emerging economies of the region offer.

“The government envisages exploiting the emirate’s competitive advantage in the energy sector and command a larger share of the hydrocarbons value chain.

“According to the Abu Dhabi Chamber of Commerce, investments in industrial projects reached Dh39.8 billion in 2008.”

The construction sector is another important one to watch out for. It contributed Dh21bn to Abu Dhabi’s GDP in 2008. Construction activity is still strong as there are massive infrastructure projects under development. Growth in real estate construction has slowed down but fundamentals are good, said the report.

“There are massive government or government-related investments in shipyard, seaport, airport expansions, healthcare, education, major road upgrades and transportation.

“Infrastructure investment makes up a significant and growing proportion of construction activity for Abu Dhabi and the GCC,” it said.

Developments in transport are also commendable. Abu Dhabi’s new port is under construction and will include one of the world’s largest industrial zones.

The emirate has also undertaken a massive expansion project for its main airport.

Aerospace and defence are also important pillars for Abu Dhabi’s diversification plans.

“In the third quarter of 2009, Mubadala announced that it had signed a long-term strategic aerospace agreement with Boeing to develop mutually beneficial initiatives in various areas including composite manufacturing, engineering, R&D, commercial maintenance, repair and overhaul, military maintenance and sustainment, and pilot training.

“In the first quarter of 2009, Mubadala had announced that it is in the initial stages of forming a joint venture with the United States company Sikorsky Aerospace Services in order to develop a military-aviation maintenance centre,” the report said. Abu Dhabi is also investing considerably in the tourism sector as a means of diversification.

The government has undertaken big initiatives in tourism infrastructure, including the airport expansion and iconic master developments, such as Sir Bani Yas Island (home to the Yas Marina Circuit already hosting the Abu Dhabi Grand Prix) and Saadiyat Island (home to the Abu Dhabi Louvre and Abu Dhabi Guggenheim that will be completed in 2012).

The city has been developing specialised economic zones in strategic locations to attract investments.

The emirate has launched huge projects to diversify its economy.

ONGC/Petronas consortium wins Venezuelan oil project

Three Indian oil companies, Malaysia’s Petronas and Spain’s Repsol are awarded the mandate to partner with the Venezuelan state oil company on a multi-billion dollar oil project in Venezuela.

India’s Oil & Natural Gas Corporation (ONGC), Malaysia’s Petroliam Nasional (Petronas) and Spanish firm Repsol are part of a consortium which has emerged the winner to develop a multi-billion dollar integrated oil project in Venezuela.

International consortium of ONGC Videsh, IOC, OIL, Repsol YPF and Malaysian Petronas to acquire 40% in a “Mixed Company”

The consortium holds a 40% interest in a discovered oil resource in the Orinoco Heavy Oil Belt in Venezuela, an area that is estimated by industry experts to have recoverable heavy oil of up to 513 billion barrels.

The consortium of ONGC Videsh Limited (“OVL”, 11.0%), Indian Oil Corporation Limited (“IOC”, 3.5%), Oil India Limited (“OIL”, 3.5%), Repsol YPF (“Repsol”, 11.0%) and Petroliam Nasional Berhad (“PETRONAS”, 11.0%), (collectively, the “Consortium”), was selected today (late evening 10th February Caracas, Venezuela time) by the Government of the Bolivarian Republic of Venezuela for awarding a 40% ownership interest in an “Empresa Mixta” (or “Mixed Company”) which will develop the Carabobo 1 Norte and Carabobo 1 Centro blocks located in the Orinoco Heavy Oil Belt. The Corporación Venezolana del Petróleo (“CVP”), a subsidiary of Petróleos de Venezuela S.A. (“PDVSA”), Venezuela’s state oil company, will hold the remaining 60% equity interest.

The Mixed Company will build heavy oil production facilities, upgrading facilities and associated infrastructure. The upstream production facilities are expected to produce around 400,000 barrels per day of extra heavy oil of which approximately 200,000 barrels per day will be upgraded into light crude oil in a facility to be located in the Soledad area, Anzoátegui State. The license term will be for 25 years with the potential for a further 15 year extension for a total of 40 years.

The Consortium will be required to submit a bonus in stages upon the achievement of certain project milestones. In addition, the Consortium will also extend a limited credit facility to CVP. The award of the Mixed Company contract followed an extensive international selection process conducted by Venezuela’s Ministry of Energy and Petroleum during late 2008 and through 2009. The Mixed Company contract between CVP and the Consortium is scheduled for signature in March 2010 following the fulfillment of certain predetermined conditions including the investments approvals of OVL; IOC and OIL by Government of India.

The Government of the Bolivarian Republic of Venezuela has given high priority to increase production of extra-heavy crude oil from the Orinoco Oil Belt for the purpose of promoting national development. Consequently, the Ministry offered seven blocks in the Carabobo area, with combined oil in place estimated at around 128 billion barrels. The blocks were grouped into three projects with each project expected to produce a plateau of 400,000 barrels of 8° API oil per day for 40 years. Each project also includes the construction of heavy oil upgraders that individually will have the capacity to process around 200,000 b/d of 32° API crude.

The Carabobo area, located in the eastern section of the Faja, has a massive resource potential and is part of an extensive reserve certification process led by PDVSA. As recently reported by the US Geological Survey, the estimated mean volume of recoverable heavy oil in the Faja is as high as 513 billion barrels, one of the few global opportunities open to private investment.

More on:-
India Info online

Orinoco Heavy Oil Belt, Venezuela