Oil Crisis Is Seen As World Production Capacities Will Be Short Of Demand.

*** The M.E. Is Gradually Integrating With The Asia/Pacific Economies

*** By 2005, When Asia/Pacific Will Have Become Far Bigger A Market For M.E. Oil, Demand In China Will Have Risen To More Than 6 Million B/D

*** Saudi Aramco Has A Project To Expand Output Capacity For Arab Light By 600,000 B/D In 2005; But This Will Be At The Expense Of Heavier Oils

*** The M.E. Holds Over 33.8% Of The World's Proven Gas Reserves; Yet Its Share Of World Output Is Less Than 10%

There could be a serious oil crisis in the coming years as oil production capacities will be short of world demand, unless major expansions are done now. This is the jist of an address made by Pierre Shammas, president of APS Energy Group, to the 5th Annual IIES Conference held in Tehran on Nov. 4-5, 2000. The following are excerpts from his presentation.

"... The Middle East is by far the biggest oil reservoir in the world and its importance to the global economy is growing further. This region's capacity to meet world oil demand will be crucial to the global economy for as lon as energy remains the main g engine for growth.

"The Middle East today accounts for more than 65% of the world's proven oil reserves, compared to less than 56% at the beginning of the 1980s, and its reserves to production (R/P) ratio averages more than 87 years. The world's R/P ratio for oil has declined to about 40 years.

"Oil and condensate production capacities in the Middle East this year will average 26.22m b/d, 33.5% of the world's total capacities of 78.5m b/d... At least 3m b/d of these capacities are mothballed, mainly in Saudi Arabia and the UAE, and can only become available after one to three months of de-mothballing work.

"It is important to watch the situation. According to the IEA's Oil Market Report of Oct. 10, 2000, world oil demand this year is to average 75.7m b/d. But the IEA says world oil and condensate demand in the fourth quarter of 2000 is to reach 78.4m b/d, a critical level considering that capacities available for immediate supply are below this figure.

"The situation will become more critical in 2001. The IEA has forecast that

world demand for oil and condensates in 2001 is to average 77.6m b/d, whereas APS Energy Group says useable world capacities will not be much higher than this year's level. Imagine - and this is getting close now - that in the fourth quarter of 2001, according to the IEA, world oil and condensate demand is to reach 80.1m b/d.

"Yet more critical will be the situation in 2005 - only five years from now - when, according to APS Energy Group, world oil/condensate production capacities will have risen to 81.5m b/d if capacities in the Caspian region were limited to 2m b/d (compared to 1.281m b/d at present).

"The table on oil production capacities for 2005 (see page 3) is optimistic, as it projects Iraq's capacity at 5m b/d which may not be the case.

"The importance of the Middle East will have grown considerably by 2005. It will account for 39% of the world's output capacities.

"The inclusion of North Africa in these tables is because occasionally some people associate it with the Middle East. But apart from it being within the Arab world and strategically located close to Europe, North Africa is not relevant to this presentation.

"Whereas most of North Africa's oil and gas exports are destined for Europe, more than two-thirds of Middle East petroleum exports go to the Asian/Pacific basin. It is important to consider the oil resources and production capacities of the Middle East in the context of this area's gradual integration with the Asian/Pacific basin, which is becoming the biggest oil market in the world.

"By 2005, when the Asian/Pacific region will have become far bigger a market for oil, oil and condensate production capacities in the Middle East will have reached 31.65m b/d. By then, oil demand in Asia/Pacific will have risen to 26.25m b/d, if the region's oil consumption growth averages 5% per annum, compared to 19.9m b/d in 1997.

"Oil production in Asia/Pacific has risen from 6.1m b/d in 1997 to 6.3m b/d this year and the same figure should be expected for 2001. But in the following years, production in that region will decline, particularly in China and Indonesia, while its dependence on the Middle East will grow considerably.

"China will become the world's biggest oil market during the first half of this century. It will overtake Japan in terms of oil consumption before 2005 and in terms of oil imports before 2010. By 2005, oil demand in China will have exceeded 6m b/d if its consumption growth has averaged 5% per annum.

"According to Cambridge Energy Research Associates (CERA), oil demand in China will increase to 7.2 million b/d in 2010 and to 10.7 million b/d. I am not sure about this scenario as APS Energy Group anticipates at least another major economic recession in Asia/Pacific between now and 2010.

"At any rate, Asian/Pacific demand for Middle East oil and condensates will grow considerably in the years ahead. This will mean closer integration between the economies of the two regions.

"It is important for us all to reflect on this perspective now and consider a joint mechanism that should make sure relations between the two regions progress towards a fair integration for both sides. The security of petroleum supplies from the Middle East to Asia/Pacific is a matter of mutual interest. Such a mechanism should foresee problems likely to arise in future and should avoid them before it is too late. Joint projects to promote a fair economic integration between the two regions should be encouraged.