Production fears as offshore drilling is brought into question
IEA spells out threats to oil supplies from BP spill
The developed world's energy watchdog has warned of the varying threats to oil supplies from the recent spill in the Gulf of Mexico. The Paris-based International Energy Agency (IEA), which advises 28 industrialised countries on energy issues, said the catastrophic blowout of a BP deepwater oil well last month could in the short term cause the evacuation of some oil rigs for safety reasons as the slick spreads.
In the medium term, debates over the adequacy of safety measures could lead to more stringent regulation of the offshore oil industry, hampering production and raising operating costs. More intrusive security checks and directives to refit oilfield safety equipment were among the potential consequences. "For the longer term, environmental and local industry groups have raised concerns about the very desirability of offshore drilling and the merits of opening up new areas," the agency said in its latest monthly oil market report, published yesterday.
"This takes on greater urgency given the role of the Gulf of Mexico in generating most of the increase in US crude production in recent years and its likely predominant role in the future … Finally, damage has accrued to the oil industry in general, and to the reputation of the companies concerned." The US is not only the world's biggest oil consumer but is also among the biggest producers of crude. In 2008, it pumped more than 6.7 million barrels per day (bpd) of oil, representing 7.8 per cent of global output. Only Saudi Arabia and Russia produced more.
A big reduction in output from the Gulf of Mexico, which supplies of about a quarter of US crude, would therefore have a marked effect on global oil supply. Last December, the IEA forecast that US Gulf of Mexico oil production would exceed 1.8 million bpd in 2012, up from 1.5 million bpd last year, mainly due to a flurry of recent deepwater oil discoveries by multinational oil companies such as BP, Royal Dutch Shell, ExxonMobil and Chevron.
Yesterday, it warned that a "knee-jerk" reaction by regulators to ban offshore drilling could force such companies into "ever more precarious locations in search of hydrocarbons", precipitating further accidents as global oil requirements increase in years and decades to come. "The law of unintended consequences may apply," the agency said. This year the world is oversupplied with oil as it struggles with aftershocks from the global downturn. Iran in particular is having difficulty selling its crude. It is storing up to 38 million barrels of excess output in tankers moored in the Gulf.
Refiners in China, Japan, South Korea and India have cut or cancelled contracts to buy crude from Iran this year, the IEA said. "Volumes at sea may continue to build until refiner demand returns … or until the National Iranian Oil Company improves its sales terms," it said. The IEA trimmed its forecast for global oil demand yesterday, predicting the world would consume 86.4 million bpd of oil this year, or 50,000 bpd less than it projected last month.