Recently, the International Energy Agency’s Chief Economist Fatih Birol said: “In the next 10 years, more than 90% of the growth in global oil production needs to come from MENA [Middle East and North African] countries. There are major risks if this investment doesn’t come in a timely manner.”

The Oil Drum challenges the possibility of this happening. (Kidding Ourselves About Future Middle East/North Africa Oil Production).  The Oil Drum gives seven reasons for this conclusion.

1. MENA’s oil production, as a percentage of world oil production, has not increased since the 1970s, suggesting that MENA really cannot easily ramp up production.  See graph below. MENA’s oil production amounted to more that 40% of the world’s oil production back in the mid-1970s, but is now down to 36% of world oil supply even though prices had increased dramatically over the past 30 years.

 

 

2. MENA claims huge oil reserves, but these reserves have not been audited, and there is little evidence that they can really be transformed into corresponding oil production in any reasonable time-frame.

3. Saudi Arabia has said it does not intend to increase its capacity for oil production.

4. While Saudi Arabia claims current production capacity of 12.5 million barrels a day, this amount is not audited, and its actual capacity is quite possibly lower. Its highest recent production is 9.84 million barrels a day.

5. MENA’s own oil consumption is rising due to its rapid population increase, so even if MENA’s production should rise, the rest of the world would not necessarily get much benefit from it.

6. Instability is a huge problem in the Middle East, leading to rising and falling oil production. This is especially the case for Iraq, a country which has planned large production increases. Iraq plans to increase its oil production to 6.5 million barrels a day by 2014, and to reach 12 million barrels a day by 2017. Neither of these targets will be possible without huge investment and political and economic stability. These targets are seen as unreasonably high by many.

7. High oil prices lead to high food prices, and a recent study shows that high food prices are associated with riots. So the high oil prices required to produce the difficult-to-extract oil are likely to sow the seeds of governmental overthrow (repeat of “Arab Spring”) and political instability in MENA countries. See graph below.

 

 

For all of these reasons, depending on MENA for 90% of the growth in global oil production between now and 2020 seems unwise. I have shown in previous posts that what the world really needs is a rising supply of low-priced oil, if we are to avoid long-term recession. But MENA is unlikely to supply this. The Middle East claims huge oil reserves and Iraq offers high production targets, but in the end, we are likely to be kidding ourselves, if we believe that these will fix world oil problems.

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