New Oil Fields Offsetting Drop in Old

What's happening in Oil Land? Russian production has risen by more than half since 2000. China now produces half as much oil and the US. Canadian production is booming. But, the nation that has decided the state is a better manager of the oil business than oil experts has seen a stunning drop in production. Chavez has led the Venezuelan oil industry on a one-way trip down. His latest spree of nationalizing will push production lower. That's what happens when incompetents and bureaucrats run businesses. Too bad for everyone.

Output from the world's existing oil fields is declining at a rate of about 4.5% annually, a new study concludes, depriving the world of the same amount of oil that No. 4 producer Iran supplies in a year.

Yet the study's authors, Boston-based Cambridge Energy Research Associates, argue that their assessment supports a generally rosy view of the industry's future, given that new projects in the works will make up for the decline.

DOOMSDAY DEFERRED?

• What's New: A study says the world's oil fields have a depletion rate of about 4.5%, equaling a loss of nearly four million barrels a day this year.

• The Positive: But the study's authors argue that new projects will offset the losses.

• The Question: Depletion rates are a key issue in the debate over whether the world is nearing peak oil production.

Set for release today, the study, based on data from 811 fields around the world, takes aim at a growing school of thought that the world's oil production may soon hit its peak just as demand is surging in Asia and the Middle East.

"This study supports a view that there is no impending short-term peak in global oil production," the paper concludes. CERA, led by oil historian Daniel Yergin, is a prominent adviser to oil companies.

Oil-field depletion rates are a key barometer of the health of the world's oil market, and thus are hotly debated among factions feuding over the relative stability of future supply. That debate is made all the more intense because analysts have limited access to reliable data on field-by-field production rates from key suppliers such as Saudi Arabia, Iran, Venezuela and Russia.

The CERA study, however, asserts that fewer than half of the fields scrutinized were in decline. The study also argues that decline rates overall aren't accelerating, as some in the industry insist.

Mr. Yergin said that the huge number of projects under way in Brazil, Saudi Arabia, West Africa, the Caspian Sea and the Gulf of Mexico will more than make up for natural declines from fields now in production.

"This is a daily, hourly and minute-by-minute challenge for the world's oil industry," he said. "But for every Iran you are losing, you are gaining almost two Irans in return."
Long-term concern over supplies has contributed to a surge in oil prices in the past four years. In New York yesterday, crude futures fell $1.06 a barrel, or 1.2%, to $90.84, but are up 74% in the past 52 weeks.

Veteran Houston-based energy banker Matthew Simmons says that few in the industry believe that the global oil-decline rate is below 5% a year, but the lack of clear data is a problem that haunts the industry.

"If we can get field-by-field data for the last five years for the top 250 oil fields, we could answer this once and for all," says Mr. Simmons, who has argued the world faces a decline in oil production. "But the big producers in OPEC and Russia are not about to give those up."

CERA has drawn fire among skeptics for being one of the most optimistic forecasters in the industry. The company predicted in June that world oil production, now at just above 85 million barrels a day, could hit 112 million barrels a day by 2017.

The task of reaching that mark appears daunting. According to CERA's own rate of decline, the world's existing fields by 2017 will be producing about 33 million fewer barrels a day than they are now. So hitting a production level of 112 million barrels a day within a decade would require adding 59 million barrels a day in new capacity -- or more than six times today's daily output from Saudi Arabia, the world's largest oil exporter.

On top of making up for natural productivity declines, the International Energy Agency yesterday predicted that global demand for energy will jump 2.3% this year, to 87.8 million barrels a day. Asia alone, the IEA says, will require a million barrels a day more by the end of the year than it did in December 2007.