The Oil Price: Noone Really Knows What's Going On; Russia economic growth usa oil oversupply opec report

Just two months ago, the World Bank estimated in its commodity forecast report that the price of crude oil will average $51.4 per barrel in 2016, virtually unchanged from the average price last year ($52.5), but since then oil has fallen all the way down to $30 with no bottom in sight.

Just this month the price reached an 11 year low for the third session in a row ($36), despite positive news regarding US supply (stockpile down -5.8m barrels vs +1.1m estimate). The price was as high as $110 as recently as 2014 but $30 oil was not uncommon in the 1990's and early 2000's.

Now Opec which represents a third of the world's oil output, is coming out and saying that improved overall demand will lead to a recovery in the price ($70 by 2020).

And Russia - the world's second largest producer - is saying it doesn't expect oil prices to recover beyond $30 in 2016 which says a lot coming from a nation that loses $2 billion in revenues for every dollar decline.

My opinion - Oil prices will swing wildly in both directions in the upcoming years so prepare accordingly.  However peak oil is not the issue.

this opinion is based on

• The USA oil oversupply cannot continue especially at current prices - most oil production increases in the US are attributable to North Dakota shale exploration the pace of which cannot continue at current prices.
• New Canadian pipelines (Energy East Pipeline will allow Canada to fully utilize refinery capacity in New Brunswick / Northern Gateway Pipeline / others) will permanently lower glut of supply in US North Western PADD regions).
• Higher oil exploration costs in general as tradition sources dwindle (shifts from light crude -> heavy oil which requires more expensive processing).
• However
• in much of the world the infrastructure and technology to utilize renewable sources of energy is not yet in place or too expensive to implement.  Furthermore, it is those parts of the world where most of the population and economic growth is happening (Africa, India, Economy of the Arab League).

Oil Companies 2013 Results Impacted By Oil Sands Production, Lower Refinery Margins, Kearl Project Christina Lake

2013 was a great year for three of my favorite oil companies - Suncor Energy (nyse:SU), Cenovus Energy (nyse:CVE) and Imperial Oil (nyse:IMO).  For the most part, production, revenue, earnings and dividends were up, however plummeting refining margins coupled with a stronger US dollar negatively affected an otherwise solid financial statement from Cenovus Energy.  I have read through the SEC filings from these companies and will give a brief synopsis of the results.

America Choosing Not To Renew Licenses For Coal Fired Power Plants Gives China, India Economies Competitive Advantage

Nearly 1200 coal fired power plants will be coming online around the world in 2014 ; a cost-benefit-efficiency analysis shows that coal fired power plants produce energy at a very low cost and that's giving US competitors China, India and other emerging markets a strategic advantage.  Another interesting thing to note is this - after a string of attacks on nuclear power plants, their vulnerability has been called into question.

Despite what the nay sayers are saying, US carbon emissions are at their lowest levels since 1994; the reason for this is simple - the so-called 'dirty energy' sources are producing at a very high level of efficiency (power plants fitted with sulfur and carbon scrubbers).

2013 Highlights From Suncor Energy, Cenovus Energy, Imperial Oil

Suncor Energy (SU) 2013 Highlights

Net earnings up significantly thanks in part to a strong fourth quarter; last year, 4Q loss was $574 million due to Voyageur incident / writedown on assets in Libya.  12-month net income: $3,911 million up from $2,740 million.  Hindering earnings is the strong US dollar:  fx loss of $157 million in 2013 vs fx gain of $521 million in 2012.
Capex of $6.380 billion is up marginally from $6.370 billion last year: capex on oil sands down 13% -> $4.311 billion; capex on refining and marketing up 38% -> $890 million.  Planned capital and exploration budget of $7.8 billion for 2014.

Concluded 2013 with record quarterly net production from the oil sands (409,600 bpd) up from 342,800 bpd in 4Q2012.

For the year, production was up at oil sands operations (+33,300 or 9.3% -> 392,500 bpd) but down in the exploration and production segment (189,900 -> 169,900).  Production mix is moving away from natural gas (only 6% from natural gas, down from 9%). Refinery utilization down in Western North America (100% -> 96%).  Price per barrel realized up:  oil sands: $84.22 (vs $82.75);  exploration and production: $91.44 (vs $84.05).

Operating Netback:  increases came from North America Onshore (+33.5% -> $2.51 / mcfe), Other International (+14.5% -> $47.85 / bbl), East Coast Canada (+12.0% -> $73.02 / bbl).  Strongest netback results from North Sea Buzzard where the company pays no royalties (netback @$101.50 (vs $99.74) on avg price realized of $109.95 (up from $108.46).  15% increase in quarterly dividend up to 23 cents.  Net earnings up significantly in the final quarter:  $443 million profit, up from $557 million loss.

Cenovus Energy 2013 Highlights 

What CNOOC (CEO) Nexen (NXY) Acquisition Means For Oil Sands (China oil companies production reserves offshore)

After months of waiting for the Canadian government to approve it, on December 8, 2012 China's national offshore oil corporation (nyse:ceo) completed a $15.1 billion all cash takeover of Canada's tenth largest oil company Nexen (tsx:nxy).  The deal is the largest foreign investment by any Chinese company ever and will undoubtedly be a confidence booster to Chinese firms looking to buy companies abroad after having been spurned by Unocal Corp in 2005 ($18.5 billion offer rejected) .  In order to get the Canadian government to approve the deal, CNOOC had to make a few concessions:  It agreed to an annual review of its operations, that Nexen Canadian operations employ more Canadian workers than Chinese, CNOOC has also said that it will consider listing on the Toronto Stock Exchange.  The stipulations are not new, the Canadian government has a similar arrangement with Rio Tinto Alcan.

Don't be fooled !  Chinese investment in Nexen doesn't necessarily indicate their interest in the oil sands.  Nexen only accounts for about 6% of oil sands production (including shale, Nexen produces 52 thousand bpd in Canada), in fact the majority of Nexen's production comes from outside of Canada in regions such as the North Sea, the Gulf of Mexico and offshore West Africa (African production down from 18th boe/d last quarter to nothing this quarter). 

PetroChina (PTR), Sinopec (600688-SH) Chinese Energy Companies Stand Out; RIM Maintaining Shareholder Value; Canada Records Budget Surplus In January

For the month of January 2012 Canada recorded a monthly surplus ($1.7 billion), the first since February 2009. Canada's fiscal year ends in March; Thus far (March 2011 to January 2012) the federal deficit is $16 billion down from $27.7 billion in the previous period. Canada's annual deficits aren't expected to end until 2015 at the earliest (when it may be +$3.4 billion). For the 2010 ten month period ending Jan 2012, the reduction in deficit is attributable to higher revenues ($189b --> $197b) being met with lower program spending (-1.7%; $194.1b --> $190.8b). Canada's public debt spending is up +$300 million.

China sets sights on Mongolia

China already does a lot of business in Mongolia with state-owned Batou Steel Rre-Earth operating Inner Mongolia's large Bayan Obo mine. Now, coal company Shenhua Energy (China's biggest coal producer) is aiming to secure a 40% interest in the world's largest deposit of steelmaking coking coal, Tavan Tolgoi (home to six billion tonnes of coal), by mid 2012 just after Mongolia's next general election. Mongolia hasn't been an easy place for companies to do business; Last July, Mongolia promised Shenhua 40% of the project but that deal was revoked after other countries deemed the process unfair. Other bidders come from the US (Peabody Energy) and Russia (Russian Railways). The other major coal deposit in the south Gobi region Ovuut Tolgoi, was recently invested in by Chinese coal company Chalco (subsidiary of Chinalco); Chalco boughtout Ivanhoe Mine's 57% stake for $889 million. The largest resource in the South Gobi region is copper mine Oyu Tolgoi. At its peak Oyu Tolgoi will be the source of one third of Mongolia's gross domestic product. China is the world's leading consumer of coal.

China's largest oil company by production, Petro China (86% state-owned) produced more oil in 2011 than ExxonMobil after Exxon posted a reduction in total volumes. Exxon production -5% to 2.3M bpd while Petro China production +3.3% to 2.4M bpd. Petro China is a growing company that's for sure, but does that make it a great investment stock? I'm not so sure about that. Petro China was created with one objective: To feed China's increasing energy appetite. China's demand for petroleum products will grow by 100% over the next 25 years. The company is probably not overly concerned with shareholder value but who can blame them? China needs to secure oil in order to support the 8 and 9% gdp growth rates and state-owned enterprises like PetroChina and Sinopec are getting the job done.

Sinopec petro output was up +1.6% to 407.9M boe in 2011 (1.1M bpd) HOWEVER the increase came only from natural gas (73.6M boe --> 89.2M boe), crude oil production was down -1.9% to 321.7M boe). The higher output didn't add to profits; Fourth quarter earnings at Sinopec were down -23% attributed to a number of factors including higher tariffs in China (+7.1%) and the lower price of natural gas. In the first quarter of 2010 PetroChina bought a 9% interest in Canadian oil company Syncrude. In January 2012 a major Athabasca oil sands project came under complete control of PetroChina after the company paid $673 million for the 40% of shares that it didn't already own.
Warren Buffet was a PetroChina shareholder until September 2007. A lot of PetroChina's oil comes from Daquing and Changquing.

Sinopec, China's number two oil and gas company is China's largest oil refiner providing the country with 80% of its fuel. Due to increasing profits, in 2010 the company made Fortune 500 top ten list which is a feat considering the prices it receives for its produces is less than it would have in the free market due to governmental restrictions on pricing.

Research In Motion

The device marker is currently undergoing changes as evidenced by the resignation of key board members and an explicit desire to refocus business away from the consumer market. I'd interpret the company's recent statements this way: In countries such as the United States and South Korea where BlackBerry overall market share is low, the company will not have app using-typical users as the primary target for marketing however, in other countries such as the Canada, Argentina, South Africa and Indonesia (and maybe even the UK) RIM's existing consumer market will continue to be supported in a positive way (this is assumed given that the company stated it will cede only selected markets) - This is a wise decision for Research In Motion considering asset writedowns associated with the company's market value, reduced net income by more than $300 million in the latest quarter (ended March 2012).

I'm not really disappointed by RIM's latest results. PlayBook sales are up to 500,000 units from 200,000 units in the previous quarter. In the same quarter, adjusted net income was just over $400 million which is comparable to the previous quarter when revenue was significantly higher. PlayBook now holds 15% of the Canadian tablet market, up from 5% in late 2011. RIMM's stock was up +7.06% the day following the news (Friday March 30, 2012). Also note that 90% of Fortune 500 companies use the BlackBerry phone.

Peak Oil? Suncor, Cenovus Energy, Penn West, CNRL & Alberta: Conventional Output Higher

        With the exception of a brief period in the late 1990's when oil prices were too low as to encourage oil sands growth, oil production in Alberta has been in a long term upward trend.

Over the last decade output of crude and synthetic crude has risen sharply, however conventional sources like light & medium oil have not and that has given some credibility to the peak oil theory. Recent data coming out of Alberta shows a surprising reversal to this trend: Production light and medium oil will reach 500,000 bpd in 2014. In 2011 alone, medium/light oil output increased by 70,000 bpd which represents the largest year on year gain in over a decade; that trend is expected to continue into the near future. Keep in mind that the trend is still very new, between 2002 and 2010 output from conventional sources declined by 33%, 50% since 1995. The last time conventional oil was produced at a rate higher than it currently is, was back in 2006. Remember though that future supply depends a lot more on heavier crude than conventional (the oil sands are on track to account for 88% of Alberta's oil production by 2017 up from 64% in 2007).

Alberta disadvantages:
--> More than half of oil exports go to refineries in an area known as PADD II in the US Midwest. Because of a glut of supply, Canadian oil is more heavily discounted there than it is in PADD III which is Texas (why getting the Keystone pipeline approved is so important).

--> Western Canadian Select (WCS) oil trades $33 below West Texas Intermediate (WTI).
--> Export market not diversified : 99% of Canadian oil goes to only one market, the United States.

Alberta advantages:
--> Among lowest royalties in the world, something that makes it easier to attract foreign investment.
--> Canada is home to 90% of the world's oil reserves outside opec.
--> Calgary is home to more than 2,000 petroleum companies. TSX Venture Exchange makes attracting investment easier to do for statups.

At Canadian Natural Resources Limited Canada's leading producer, drills for conventional are are yielding better results; conventional oil production will grow by 17% in 2012 even though the number of wells drilled will be reduced by 62 (956/2000 wells vs 1018/2004 in 2011).

The company's reserves of light and medium oil in Alberta came in at 150 on Dec 31, 2010 up 6.4% from a year before. That compares to a -4.9% in the North Sea (to 252M bbls) and -11.8% offshore West Africa (to 120M bbls). Furthermore, in November 2011 company president Steve Laut credited much of the 24% 2012 increase in crude oil output to "Canadian light oil & NGL's growth". Growth in North American light oil will be +17% in 2012 due to the implementation of a new Enhanced Oil Recovery (EOR) program. The overall growth in BOE will also be spurred by expansion of the company gas facility in NE British Columbia but still Alberta will remain the most important source.
As oil sands production grows, companies such as Canadian Natural Resources are improvising in order to reduce their reliance on water from the Athabasca river, so that they continue to remain below the usage limit set by the province (was 360 million m3 a couple years ago, only about 1% of water from the river is used by the province and oil and gas operations); CNRL now separates water from solids more effectively by injecting carbon dioxide captured from its hydrogen plant into tailings lakes reducing the need for additional water. The Athabasca River is fed by a glacier 1,200 km away. 90% of conventional oil reserves are controlled by state owned oil companies.

Cenovus Energy                 (more indepth coverage by me can be found at Cenovus Energy production reserves)  
On February 15, 2012 Cenovus released data for the 2011 fiscal year and the results are very impressive!  Even though the stock was down little more than 1% on the day of the news TD Newcrest upgraded CVE from hold to buy.
Net asset value per share is $37 up 32% from 2010 year-end ($28).
Net Income $1.95/share (+37%) even though operating earnings were +55% to $1.64/share.  The company profited $1.478b on the year ($1.081m in 2010, $680m in 2009, $2.487b in 2008).

-> Total proved reserves up 17% to 1.9455 billion barrels of oil equivalent.  What's most notable there is the amount of bitumen reserves.  On December 31, 2010 bitumen reserves were 1.154B boe.  Today they are 1.455B boe an increase of 26%.  Contingent resources increased 34% to 8.2B boe.  Reserves of light and medium oil (& ngl's) +3.6% to 115M boe but natural gas -13% to 200M boe (which is inline with company plans to focus capital away from gas to bitumen, long-term production target is 400 MMcf/d, 575-600 for 2012). 2P proved + probable reserves +10.7% to 2,660.7M boe.
-> Production:  Total Oil/Bitumen/NGL's 134,000 bpd which is up 3.88% vs 2010 (129,000 bpd), up 12.61% vs 2009 (119,000 bpd).
Oil sands +13.56% or 8 bpd to 67,000 bpd, +52.27% vs 2009.  Christina Lake 12,000 bpd +50% vs 2010 (4Q2011 150% higher than 4Q2010 20,000 bpd).  Quarterly high was 4Q2011 at 75,000 bpd (13.6% higher than 3Q2011 which is the largest quarter to quarter increase in a while).
Conventional oil down 2,000 bpd to 68,000 bpd (Pelican Lake, Weyburn -10% to 36,000 bpd).
Natural gas output took a 737 nosedive (no pun intended :) from 737 MMcf/d (122.8 boe/d) to 656 MMcf/d (~110,000 boe/d).  Gas production averaged 837 MMcf/d in 2009 (140 boe/d).

 -> CAPEX: $3.1-$3.4B planned for 2012 which is more than the $2.7B spent in 2011 ($900M at Foster Creek + Christina Lake, $400M at the Wood River Refinery in Roxana, Illinois).
-> Cash flow +33% to $3.3.  Operating Cost at CL +23% to $20.2/bbl (+28% not excl fuel).  Weyburn's operating costs were also up but they are still roughly half of CL.

Christina Lake consists of seven phases of development.  The last phase G won't be completed until the start of 2019.  Phase E is 30% complete, phase D is 70% complete.  When project is complete Christina Lake will production at a rate of 278,000 bpd (in the last quarter production was only 20,000 bpd).


Suncor
Last year Suncor's total production was hit hard by the situtation in Libya however there is optimism surrounding the company right now; 3 of its 5 fields there have already resumed operations (Jan 2012).
Also up at Suncor, oil sands output ! In December of 2011 Suncor's oil sands output averaged a monthly record high of 345,000 bpd, that record was broken the next month in January 2012 when 355,000 bpd production was reached.
Remember too, that oil sands output was only 162,000 bpd as recently as May 2011. Suncor finished 2011 averaging just over 10,000 bpd in Libya up from nothing; 2Q of last year it took on a $514 million writedown in the value of its Libyan assets.

Suncor is Canada's largest oil company by market capitalization (though second to Canadian Natural Resources in terms of production) and is the largest producer of oil sands oil through a 12% interest in the Syncrude Canada Ltd. mine, a 41% stake in the Fort Hills mine and operations at Firebag & Mackay river.

Penn West Exploration        Penn West 3Q 2011 Report    Penn West 4Q 2011 Report

4Q: For the 2011 year 18.0% of total oil and gas sales went to royalty payments ($661m/$3667m) down from 17.8% in 2010.  Expenses were 69.0% higher ($1503m --> $2540m) mostly due to the company's gain on dispositions being $910m lower than in 2010.
Prices In the 4Q, light oil and liquids was sold at an average price of $88.76/boe (up 25%), heavy oil $76.88/boe (up 24%), natural gas $3.47/mcf (down 8%).  For the year oil and liquids were priced at $86.19 (up 24%), heavy oil $69.07 (up 14%), natural gas $3.78/mmcf (down 10%).  HOWEVER because of the company's constantly changing hedging strategy, oil prices realized varied even more;  light oil realized in 2011 was $87.18 (up 30% from 2010), heavy oil $76.88 (up 24%), natural gas hedging included, $3.47 (down 15% because in 2010 hedging caused it to gain an additional $0.31/mcf).
In 2011, light oil and ngl's represent 52.31% of total output (85,316/163,094 bpd) up from 49.02% in 2010 (80,706/164,633 bpd) heavy oil 17,892 bpd or 10.97% of production (down from 11.09% 18,260 bpd), natural gas 59,886 boe/d or 36.72% of production (down from 39.9% 65,667 bpd).
Overall, operating netback declined the most for natural gas, -53% to $0.99/mcf.  The reserve replacement ratio was 234% up from 122% in 2010, 73% of which was liquids (65% liquids in 2010).  Although gross revenue (+19% to $3.604B) and funds flow (+30% to $1.537B) were up, net income was -43% to $638M making earnings per share $1.37 basic (-45%), $1.36 diluted (-45%).

For 2012 the company has hedged 60,000 bpd of liquids at between US$85.53 and US$101.16.

In 2011, light oil and ngl's production was up 6.20% to 85,316 bpd (+2% to 90,185 in the 4Q), conventional heavy oil down 2.0% to 17,892 bpd (but +6.15% to 17,886 bpd in the 4Q), natural gas down 9% to 359 mcf/d (but steady in the last quarter at 364 mcf/d).
Royalties for the 2011 fiscal year: +23% to $16.83/boe for light oil, +15% to $10.01/boe for heavy oil, $0.54/mcf for natural gas (down 7%).  Overall risk management loss per boe was $1.06/boe (+212%) but overall netback (profit) per boe was still up 23% due to prices being 20% higher overall.

Risk management losses (hedging prices) were less negative than they were in 2010.  $2.03/bbl for light oil (down 25% vs 2010), and $0 for natural gas (compared to a gain of $0.42/mcf in 2010).

3Q: During the first nine months of 2011 revenue from light oil and ngl's went up 36% ($1417 --> C$1921m) compared to only 5% for heavy oil. Peak oil doesn't seem to be a reality for Penn West either: For the first three quarters of 2011 light oil production was up by 7.14% or 5,578 bpd even though total oil production by Penn West declined 1.80% or 2,952 bpd to 161,171 bdp.
9M2011 light oil & ngl's output: 83,675 bbls/d (3Q: 83,287 b/d) total production: 161,171 bbls/d (3Q: 161,323 b/d)
9M2010 light oil & ngl's output: 78,087 bbls/d (3Q: 80,614 b/d) total production: 164,123 bbls/d (3Q: 164,087 b/d)

2012 forecast: total production up to 174-178,000 bpd up from 162-164,000 bpd in 2011. capex spending in 2012 estimated to be $1.6B.         Like North American Interests on Facebook

Keystone pipeline rejection creates opportunity for Pacific Rubiales Energy, Oil Update (OPEC, refinery margins, oil prices, Gulf Coast)

     As promised, Saudi Arabia increased its crude output during the third quarter of 2011 bringing OPEC crude production up to 29.9 mbbls/d from 29.2 mbbls/d (opec implemented a 30m b/d cap a couple years ago). However, it wasn't enough to offset the 1.6 million barrels a day of crude lost due to the situation in Libya. Average WTI price fell from $102.3/bbl in 2Q11 to $89.5/bbl in 3Q11 meanwhile Brent Crude fell by only $3.6/bbl to $113.4/bbl, contracting the spread by $8.6/bbl.
A small increase in refinery margins boosted demand for oil by refineries. Margins dubbed crack spreads were at $6.8/bbl during the last three months (4Q) which is up from the previous quarter but still down from the previous year when they were $10.1. Refineries have responded to the marginal increases in the third and fourth quarter by increasing capacity: In the 3Q the following changes hapened: Repsol up 86,000 bpd, Port Arthur up 50,000 bpd, Brazil's Araucaria up 50,000 bpd. In Aruba, a 235,000 bpd refinery was reopened.

Refineries in the Gulf Coast the destination of the proposed Keystone xl pipeline, also receive regular bulk-cargo shipments of oil from Colombian producers like Ecopetrol (58% of exports in April went to the Gulf Coast/foreign investment limited due to state ownership however if you're from Colombia then I recommend taking advantage of the country's recent domestic sale of 10% of the company's stock) and Pacific Rubiales Energy (Toronto-based but Colombia-focused).  The Keystone Pipeline would carry 700,000 bpd of Albertan oil to refineries in an area known as Padd III where WCS oil commands higher prices than it does in Padd II due to a glut of supply there already (55% of Canadian oil goes to the Northern region Padd II due to its proximity to Canadian pipeline routes).

Some background on Pacific Rubiales Energy
Pacific Rubiales Energy produces castilla-blend crude, a commodity type that has seen its realized market price grow by 39% in the third quarter of 2011 to $93.87. Pacific Rubiales is a joint partner in Colombia's most lucrative oil fields at Rubiales & Quifa (gross production from the two areas combined is up 56.9% in the 3Q11 stemming from more than 27 successfull drills).
In just the last quarter, Pacific Rubiales sold 9,342,859 barrels of oil equivalent which is more than it sold during the entire year only a few ago (837,860 bbls is from purchases used in trading). New drilling at Quifa increased total daily production there to 40,000 barrels up from just over 3,000 bpd last year. Rubiales production hit a high of 190,000 bpd at the end of September 2011 up from the daily average of 125,145 barrels in the third quarter of 2010 (keep in mind that PRE's share is only 50% at Rubiales and 60% at Quifa; there's also royalties that bring the net production down slightly). The company has four other semi-major producing fields which produced at a rate of 12,752 bpd combined in the last quarter (up from 11,187 in 2010). One of them, the largest which is La Creciente is significant to the company because it is one of a few that is 100% owned. Total production at La Creciente was up 18.2% during the last quarter.

Risks associated with Pacific Rubiales - Union disruption at the largest fields Rubiales and Quifa cost the company 1,343,084 total barrels of output last quarter (491,933 net share after royalties). Each time a disruption takes place it takes the company a week to bring production back to normal levels. Also of note: due to higher royalties on higher production, PRE's net ouput share after royalties from the 60% owned Quifa field was only 1.77X La Creciente (19,241 vs 10,857) in 3Q11 despite avg total gross field production being 3.19X greater (35,222 vs 11,053). The OCENSA pipeline which Pacific Rubiales now relies on for most of its pipeline transport, is being blamed for soil, groundwater and crop contamination. That resulted a lawsuit against British Petroleum and Ecopetrol who built it back in 1997.

Positives - For the third quarter 2011 revenue increased by 103% qoq even though the price of oil only increased 42%. Net income per share was the second highest for a quarter in company history at 72c basic, 68c diluted. That compares to a 26c loss in the first quarter of 2011. Net revenue in the third quarter was $828,285 up 41.9% compared to quarter ended March. Quarter revenue was down, however from $957,509 in the quarter ended June, due to the price of oil being slightly lower.
In just the last quarter the company along with partner Ecopetrol (EC) built 4.4 km of new road and 30 new electical substations at Rubiales and 27.7 km of new road at Quifa. In addition Rubiales increased its water treatment capacity by 150,000 bpd to 1.8 million bpd. The company keeps breaking production milestones! Total production at all the fields it has a joint/controlling partnership in reached 239,000 bpd on November 7, 2011. In terms of public companies Pacific Rubiales is one of Colombia's fastest growing oil producers. On January 24, 2011 Pacific Rubiales Energy stock (TSX:PRE) was up 2.6%. By the end of the day the stock price was 37% higher than 1-year low. Its 50-day moving average is up 0.5% in just the last five days.

Why Pacific Rubiales matters to refineries in Houston
The Gulf Coast received four of the seven large cargos of oil exported from terminals operated by Pacific Rubiales Energy. That's nearly half of the 8.2 million barrels of oil that was exported (over 90,000 bpd), up significanty (just over 5.0m barrels exported in 2Q10) due to the increased oil output. With the crack spread recovering from early 2011 levels, refineries on the Gulf Coast of the U.S. are welcoming the increased supply. There's already a binational pipeline connecting Venezuela and Colombia meaning that Pacific Rubiales most likely has access to refineries in Venezuela too so there's nothing limiting demand as in the case with Canadian companies. Canada hasn't seen one new refinery built in the last 35 years/there is one however that's pending, it will be operated by Canadian Natural Resources. Also of note: In April, 58% of Ecopetrol's exports went to the Gulf Coast.

Mexico's Oil Reserves are falling fast
Through partnerships with Ecopetrol Pacific Rubiales is well connected. Ecopetrol accounts for 60% of Colombia's oil output, it also has pipeline networks throughout the country. Pacific Rubiales transports over 14,000 bpd by truck (that's growing) and as of October 21, 2011 Mexican trucks are allowed to cross over into the U.S.
Perhaps in the near future pipelines will be built to connect Colombia/Venezuela to Mexico considering Mexico's oil reserves are rapidly being depleted (down to 14.7 billion barrels in 2008 from 25 billion barrels in 1999, that's a 41.2% drop in only nine years!). In addition to that the oil field that used to account for two-thirds of Mexico's oil production in 2011 only accounted for about 25% (current production at Cantarell is around 900,000 bpd the lowest since the 1990's). I think that a pipeline connecting Mexico to Venezuela and Colombia will eventually happen. Could be a couple years could be a decade but it's not unfathomable.

Growth in Oil Supply is Lagging Demand, Refineries open in China in response to demand growth (Tianjin), Russia aims to diversify away from oil after World Bank Issues warning

   There are varying viewpoints regarding the state of supply and demand over the next 10-15 years. On one side are those who think massive shortages are inevitable, many of whom subscribe to the peak oil theory. In 2010 the US military warned of massive shortages in supply as early as 2015 with the annual shortfall reaching 10M bbls/d. Another research report released in 2009 by Merryl Lynch stated that by 2015 the world will need to replace an amount of oil output equivalent to Saudi Arabia's production, every two years (decline in oil production leading up to 2015 could be as much as 30M barrels/d).
On the other side are those who see shrinking demand and lower prices (In September 2011 the world bank warned Russia that its economic growth was too dependent on oil demand/oil prices; Russia has to be concerned by the sub $90 oil price and the 2011 forecast made in September by the US Energy Agency which cut its 2011 global demand growth outlook (demand still increases but not by as much). Update (Nov. 24): Opec price forecast changed to $85-95/bbl up from $75-85/bbl previously (notable since $100 is the price at which the majority of producers hedge).  Goldman Sachs expects oil to reach $140/bbl by the end of 2012.  The volatile situation in the arab world (Iran) and Middle East region (Syria, Tunisia, Egypt) has the west concerned that supply from major exporters could come to a hault, consequently putting a lot of positive pressure on oil/gas prices. Unlike Europe, the US doesn't import oil from Syria so inconsistant output there has less of an impact on the US.  Europe's oil embargo on Iran will have consequences for both Europe and Iran: 1st quarter of 2011 Iran was the source of 4.39% of oil imports ranking eighth overall after Russia, Norway, Libya, Saudi Arabia, Kazakhstan, Nigeria and Azerbaijan.  Iran imports 45% of its food, 60% of gdp comes from oil.

For the past 10 years, total supply each year has roughly equaled total demand (1995: 70.1 demanded/70.7 mbpd supplied, 2009: 84.7 demanded/85.0 supplied) but that could change as early as 2012. Also of note, even though retail prices for gas are much higher in Europe and Japan than the United States, industry margins aren't; In Japan, France and Germany consumers actually pay more in tax than they do for the crude itself (June 2008: taxes accounted for the following proportion of pump prices Canada 24%, USA 9.6%, Japan 34.7%, Spain 45.4%, UK 57%, Germany 59%. (International Energy Agency) (In Canada, an increase of C$1 in the price of a barrel of crude oil raises pump prices by about 0.63 cents/liter with only 0.03 cents of that due to the GST tax. (March 2010: National Energy Board of Canada-Gasoline Pricing-Energy Facts) Though oil may seem cheap today ($84.51/bbl after hitting $110 in April 2011) $80 still higher than its 2010 average of $79.45 ($61.92 in 2009). November 16, 2011: crude oil suprasses $100/bbl, the last time it passed that barrier was February 2011 and it stayed there for months before tumbling back down (before that it hadn't reached the level since October 2008); the reason being given for its current swing back up is tensions with Iran, the world's 4th largest producer. In 2011 the highest oil futures reached was $120/bbl which happened at the beginning of the year in January. Biofuels production isn't expected to grow significantly until the 3Q of 2012 when it is forecast to rise to 2.4M bbls/d (up 20% quarter to quarter). Though North America accounts for less than 15% of the world's oil supply, 2,109 of the world's 4,044 active oil rigs are stationed there.

Update January 25, 2011 The International Energy Agency made a couple of surprising announcements. It says oil prices will rise to $146/barrel by 2035 as China, India and the Middle East consume more energy. It also forecasts that U.S. production will increase 22% between now and 2020 to 6.7M bpd from 5.5M bpd (crude only, natural gas not included), allowing the country to rely less on imports. The U.S. will become a net exporter of natural gas by 2021. The bad news for the U.S.? Shale natural gas recoverable reserves in Marcellus, a vast area covering land from New York and Tennessee, was revised down from 410 million cubic feet to 141 million cubic feet. US production of natural gas is presently around 2.3M boe per day.

In January of 2009 the 12 member oil pact known as opec began implementing a plan that calls for 4.2M b/d in cuts to crude output even though key member Saudi Arabia wasn't in full agreement (defied opec and raised production to 9.8M bpd in July 2011; 1.1M bpd increase since the outbreak of war in Libya) ; as well, Algeria is over its opec production quota and is pressing for increases but Algeria probably isn't too concerned given that a lot of its output is in natural gas liquids, a petro component that's already exempt from quotas. OPEC's crude oil production fell to 30.15M bbls/d in September 2011. (Platts Survey: OPEC Crude Output Drops to 30M bpd); Annual crude output (opec) averaged 31.6m bpd as recently as 2008 (total supply including ngl's was 36.2m vs about 35m in 2010, rise of 0.8M in ngl's made up for some of the drop in crude). Crude production isn't the same as oil supply (oil supply also takes into account non-oil additives like ethane/ethanol, pentane, propane, butane as well as field condensates). According to the most recent data 2011 oil demand should increase by about 1.6% and average 88.2 million bpd over the year (in September it was at 88.7 mbpd). Production from Iraq could more than double by 2016 (4.1 mbpd compared to 1.5 mbpd in 2010).

In OPEC's 2010 annual report, Venezuela's proven oil reserves were given as 296.5 billion barrels (40.4% larger than in 2009, or roughly the same as Iraq and Iran combined) surpassing Saudi Arabia (264.5B barrels) however outside opec many dispute the estimates citing concerns regarding the economic viability of Venezuela's oil since a lot of has to be extracted by unconventional means (Venezuela's output is only about a quarter of Saudi Arabia's). The recent war in Libya has put a hault to oil production there but production is slowly coming back online with 1M bbls/d likely within six months and full recovery in 15 months (in 2009 Libya produced 2% of the world's crude and 0.5% of its natural gas). (OPEC oil output will fall as Libya recovers -SecGen) Saudi Arabia produced 9.606M bpd in June and 9.76M bbls/d in August (down from 10.5M in 2010) while Kuwait was at 2.6 mbpd in July (up from 2.45 mbpd in 2010). About $16-20 of oil prices (ranged from 80-95/bbl last couple months) is attributable to risk uncertainty in certain countries (Libya, Nigeria, Iran). The world is becoming less reliant on OPEC for oil (opec production down to around 30M bbls/d in 2011 from 33.3M bbls/d in 2009) however if as the US Energy Agency expects, non opec countries fail to meet consumption increases 5-10 years from now, production from opec could rise as more pressure is put on it to meet the extra demand. OPEC exports of natural gas were up 27.6% in 2010 (21% share globally) with some of the biggest increases coming from Qatar (gas production up over 70% since 2006 (109.335 vs 64.2 bil m3). Qatar was also the main source of Exxon Mobil's 10% increase in 2011 first half oil equivalent production. Graph: 2011 and 2012 uses data updated (Sept/Oct '11) from the US Energy Agency not IEA whose data is shown in the third table).

Graph shows production only for selected companies, other major companies such as Reliance Industries, Lukoil, Sinopec are not included).
In June 2011 Paris based IEA (agency) pegged 2016 consumption at 95.3 million bbls/d with 41% of the increase after 2010 (3 out of 7.3 million bpd) tied to China. That puts annual growth in demand between 2011 and 2016 @ 1.3% or 1.2M bbls/d (up from 0.5 mbpd previously forecasted by the agency). Oil production capacity will rise to over 100 mbpd from 93.8 mbpd in 2010. With demand that high, opec's plan to lower crude output to under 30M barrels seems unrealistic (opec thinks that lowering supply is the only way to keep oil prices at prices above $80-85/bbl, a price it's comfortable with). A lot of the world's new production will also come from Iraq (4.1m bbls/d up from 1.5 in 2010). Canadian supply will rise to 4.7 mbpd by 2016 while US supply grows to 8.3 million bbls/d with US onshore shale formations driving the growth (shale from North Dakota and Texas could eventually produce at a rate of 2.5 mbpd). (McClatchy Newspapers, August 5, 2011) Angola and the UAE's are the main sources of OPEC crude production growth (2012-2016) while transportation will be the source of 80% of the growth in demand in 2016. Supply growth in non-opec countries is being led by Brazil (in 2011 non-opec production was up 760,000 bpd). In September JP Morgan estimated that oil supply will rise to 91.2 mbpd by 2013, a bullish position to take considering opec doesn't plan on contributing anything to growth in crude output (2009 is the year its plan to lower crude output to 29.4 mbpd took effect). Biofuels aren't expected to grow significantly until the 3Q of 2012 when they are forecast to rise to 2.4M bbls/d (up 20% quarter to quarter).

2010 was a big year for opec ngl (gas liquids) production; Averaged over the entire year, output surpassed 5m bbls/d for the time ever (avg given as 5.5m by the IEA) up from 4.7m the year before, though during the year rates changed a lot (5.2m bbls/d early in the year down to 5.08m by May before rising later on). A lot of that increase came from Saudi Arabia (1.7M bpd, up 8%) where a number of projects started in 2009, finally came online. (Kingdom's growth expected to reach 6.5% this year) Algeria produces about 800,000 bpd of NGL's out of 2.125M bbls/d, the highest proportion of NGL output by any of opec's members. Algeria is also a top 6 producer of natural gas. World refinery capacity: 88.6773 million barrels per calendar day (b/cd) 9.9% of which came from opec (9.5% in 2006). What's striking is that the key sources of new production Venezuela (down 5.5% since 2006) and Canada (down 6.8% since 2006) aren't focused on refining their own oil (in Canada for example, oil is being redirected to other places such as the U.S. through new pipelines the largest of which will be the $7B Keystone Pipeline ($13B system) if approved (opposition from environmental groups despite approval from Greenpeace Founder, American refining capacity up to 17.869Mbblpd in 2010). Between 2011 and 2015 Keystone could create as many as 250,000 jobs associated with construction of the pipeline (20,000 long term in the US/$20B to US economy). (US Chamber of Commerce) China's refining capacity is 38% as much as the USA's even though it produces 50% as much oil. Saudi Arabia, the world's number two source of oil is also a big consumer, consuming 2.81 million barrels per day in 2011 75% higher than in 2001, in the 1990's its consumption grew by only 39%. In just 2010/2011 demand by Saudi's rose 5.4% per capita, 4X greater than the global average. Part of the reason it consumes so much has to do with its use of crude oil in generating electricity, rather than using refined oil it burns the oil directly making use of it inefficiently (2009 demand from there was 450,000 bpd or twice what it was just seven year earlier while in Riyadh demand is expected to exceed 580,000 bpd in 2011).

By Country

China - Oil output from China has risen steadily over the past decade (from 3.0M in 1995 up to 3.9M in 2009 and past 4M bbls/d in 2010; 7% growth in 2009) however Chinese oil demand has skyrocketed (3.3M bbls/d in 1995 (only 10% higher than domestic prod) to 4.1M in 1998, 5M in 2002, pushing past 8M by 2009). It took from 1998 to 2002 for China demand to rise by 1M bbls/d but only 1.5 yrs for the next 1M increase. Total demand by China is still less than American demand (18.7M bbls/d vs 8.4M bbls/d). Higher demand could force China to increase refining in the country by 14% (the Tianjin refinery in China is one of many being built; Tinjin is a $4.5B joint venture between Russia's Rosneft (China is a top 4 destination for Russian oil) and CNPC of China. Rosneft owns 49% of the 200,000 bpd refinery that will be 70% fed by oil from East Siberia. Between 2006 and 2010 Chinese imports of natural gas exploded by 1500% (1000 to 15,980M cubic meters).

Saudi Arabia - Production dropped significantly between 2008 (9-10M) and 2011 (8.9M in February-April but increased to 9.8M bbls/d by July; domestic demand : 2.4M bbls/d). (International Energy Agency - Oil Market Report 12 May 2011), (International Energy Agency - 2010 Edition) Crude oil exports by Saudi Arabia suffered in the late 1980's before recovering in the early 1990's (tripled in just a couple years). (opec.org) Between 2000 and 2010 consumption in Saudi Arabia has risen more than 75% (up to 3.1% of global demand) an increase that exceeds even changes in India's demand. Production averaged 8.8M bbls/d in the first half of 2011 (peaked at 9.1M in May) up from 8.3M bbls/d in the first half of 2010. Saudi Arabia ranks sixth in the world in terms of oil demand. The higher rates of production in the summer of 2011 were a direct response to Saudi Arabia's promise to replace Libyan production (Saudi Arabia increased its output by 1.1 mil bpd since the outbreak of war in Libya).

Alberta, Canada - According to Alberta's 2012 budgetary report, total oil production will reach 3M bpd by 2014, 2.4M of that is from non-conventional sources like bitumen (bitumen royalties totalled $5.7B in 2011 will be $9.9B in 2014).  2011-2012: non-conventional oil production was at 1.78 million barrels per day.  Conventional oil production will be 500,000 bpd in 2013.  Provincial royalty revenue:  Bitumen contributed $5.7B of the $6.5B total which includes conventinal, in 2012, 30% higher than the $4.4B earned the year before.  Total will be around $12.2B in 2014.


Russia - The world's largest supplier of oil. Russia's economy is heavily invested in oil (state oil company Rosneft produced more than 2M bbls/d while Gazprom is one of the world Oil Majors). On september 20, 2011 it was reported by the Voice of Russia that $20/bbl difference in the price of oil could mean the difference between GDP growth of 2% and a recession (predicated on oil prices decreasing to $60/bbl for an extended period of time). Consequently, a fall in oil demand would cause a 1.5% drop in gdp growth. Though unlike most developed countries, Russian household debt is low and so a recovery (from recession) would be relatively quick. (World Bank warns of possible global oil demand fall:Voice of Russia) In 2009 Russia surpassed Saudi Arabia in terms of production. Russia is also the world's second leading producer of natural gas, providing 19.3% of global supplies (gas reserves are the largest- proved reserves at 1680T ft3/26.7% of global reserves). In 2010 Russia's gas production rose 4.5% while domestic consumption fell 3.3% pushing net exports up 29% (6,539BCF ranking 86 among all countries). (U.S. Energy Information Administration: Russia Briefing) China was the 4th largest importer of Russian oil in 2009 (Germany was 1st), but China could be top 3 by 2011/2012 with exports to China rising from Russia increasing 20-30% annually (70% of crude used in China's newest refinery in Tiajin will come from East Siberia). Russian oil exports to the US were 21.% higher in 2009 (rank 9th, Canada is the main source of imported oil).

USA - In 2008 the United States depended on oil imports to supply 67% of what its refineries used but by 2010 that number dropped to 49%, the decline has more to do with a rise in exports of petroleum products (in 2010 the US became a net exporter of petro products for the first time since 1973). The last time the United States experienced such a drastic drop in foreign dependence to meet its oil needs was between 1977 and 1982 when foreign oil met only 28% of demand (production from Alaska also played a key role). Between 2006 and 2010 imported petro production fell by about 25% or 1 million bpd.

Libya - Crude: Production (at 100%) 2% of global supply, reserves: 3.3% of world total.
Natural Gas: production: 0.5% of global supply, reserves: 0.8% of world's total. (Afribiz.info: Libya: MIneral Industry Overview)
references: output for 2011 and beyond reflects revised data released by the US Energy Agency (not accounted for in IEA's September report shown in the table.

For more information about petroleum specifically the oil sands coming out of Canada visit Alberta Oil - North American Interests

Information from Saudi Arabia http://bit.ly/pzYH1A
International Energy Agency data from 1995 to 2009 http://bit.ly/kohS0N
2016 forecasts full report http://bit.ly/nw4PEk