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14 April 2024

High oil prices to stifle Gulf crude output in long term

By Nadim Kawach


Gulf oil heavyweights are reaping the fruits of strong oil prices in the short term but their crude production could plunge by at least 12 million barrels per day in the long term, according to an official US report.

In case oil prices remain above $90 a barrel, the crude oil output of the UAE and neighbouring Gulf producers could be as low as 27.5 million bpd in 2030 but could be as high as 40.9 million bpd in case of low oil prices of around $34 a barrel, said the report by the Energy Information Administration (EIA) of the US Department of Energy.

Although high oil prices will bring enough funds for Gulf states to invest in capacity expansions, they could encourage investments in the oil sector in other regions and at the same time depress demand in the long run.

In such a scenario, Gulf states could be forced to cut investment in capacity projects to pave the way for other producers and this will naturally depress their actual production, EIA said in its 2007 International Energy Outlook.

A breakdown showed the UAE could produce only around 3.7 million bpd in 2030 in the high oil price scenario but could pump as much as 5.7 million bpd in the low oil price case and fully utilise its heavy investment in capacity expansion.

Saudi Arabia, the world’s oil powerhouse, is projected to produce only near its current capacity of 11.6 million in 2030, if oil prices remain high but its output could soar to around 16.4 million bpd in case of low crude prices.

Kuwait, another Gulf Opec producer, is expected to pump nearly 3.1 million bpd in the high price case and as high as 6.2 million bpd in the low price case. Iran’s output was forecast at around 3.8 million bpd in the high price scenario and 5.8 million bpd in the low price scenario.

Qatar, a relatively small Gulf oil power, could produce around 1.3 million bpd in high oil prices and nearly two million bpd in low oil prices. War-battered Iraq, whose energy sector has been badly damaged by conflicts, is projected to produce around four million bpd in the high oil price scenario and as high as 6.2 million bpd in the low oil price case.

EIA’s forecasts also included the reference case, involving an average $57 price, in the long term. In such a scenario, the combined production of those six Gulf states could climb to around 37.5 million bpd. The six countries currently produce about 21 million bpd, nearly a quarter of the world’s total oil supplies. But their proven deposits of around 720 billion barrels account for two thirds of the global extractable crude resources.

High oil prices over the past three years have sharply boosted the income of the six producers and allowed them to wipe out painful fiscal deficits that had accumulated over the previous decade because of low crude prices.

Compared to their revenues in 1998, their income jumped more than five times in 2007 and is expected to remain high in 2008.

From $33 billion (Dh121bn) in 1998, Saudi Arabia’s earnings shot up to $170bn (Dh623bn) while those of the UAE rocketed from only $10bn (Dh36.7bn) to $57bn (Dh209bn). They jumped from $8bn (Dh29.4bn) to $52bn (Dh190bn) in Kuwait, from $11bn (Dh40.37bn) to $54bn (Dh198bn) in Iran, from $7bn (Dh25.6bn) to $38bn (Dh139bn) in Iraq and from $3bn (Dh11bn) to $18bn (Dh66bn) in Qatar.

The six countries have been locked in a massive programme to boost their crude output capacity to cope with their growing market share.

According to the London-based Centre for Global Energy Studies (CGES), which is owned by former Saudi oil minister Sheikh Ahmed Zaki Al Yamani, Saudi Arabia could invest around $11bn (Dh40.37bn) to add nearly three million bpd to its 2004 capacity until 2020.

The relatively low investments are due to the fact the cost of adding one barrel of oil to capacity in Saudi Arabia is the cheapest in the world, standing at only $3,500 (Dh12,845) compared with as high as $9,000 (Dh33,030) in Venezuela, $8,000 (Dh29,360) in Indonesia and more than $10,000 (Dh36,700) in some non-Opec regions.

The report put investments in the UAE at $11bn (Dh40.37bn) for an addition of two million bpd until 2020.

3.7m bpd

will be the output of the UAE in 2030 in the high price scenario but the region could pump as much 5.7m bpd in the low price case, and utilise investments in capacity expansion.