“According to recent estimates from the API, “an estimated 4,577 new U.S. oil wells have been completed in the first quarter of 2008, up 12% from 2007, the largest increase since 1986.” In addition, huge new supplies of oil are being discovered off the coast of Brazil, elsewhere in the United States, the Caribbean, and Asia that will greatly contribute to increasing world and U.S. supplies. And finally, world surplus oil production capacity has gone from a very tight 1.5 million barrels per day a couple of years ago to more than 3 million barrels today, said petroleum economist Michael Lynch in March 2008.”
The production in oil fields declines over time, so we need new wells to replace production decline in existing wells. While 4,577 new wells seems like a lot, it tells us nothing about the QUALITY of those wells. Speaking form experience, I participated in the drilling of 2 “new” wells last year. One has not yet gone on production and the other produces about3 barrels of oil a day. We hope to get it up to 10 eventually. Thats about 3500 barrels a year in a world economy that uses 80 million barrels a DAY. Not exactly the kind of thing to drive prices down.
Internationally, only Brazil has found reserves that will have any significant impact on prices. These wells cost about $10,000,000 each to complete and will require multiple platforms in 5000′ deep water. These will cost in excess of $1 billion dollars each, along with an undersea pipeline that will coast hundreds of millions of dollars. Don’t count on Brazil selling this oil cheaply!
It is not current supply versus current demand that is driving price. There are countries in the world that have time horizons that exceed 15 minutes. China lacks oil potential. For all their failings, the Chinese politicians take a long view and are looking to secure resources for the next 50 years, through both political and military means. Likewise the Saudis realize that maximizing the life of their fields is in their best political interests. Yes they can produce more, but why should they? Almost no one can increase production significantly. Pemex (Mexico) is utterly incompetent. Production declined over 6% last year alone. There is no hope whatsoever that Mexico, or Venezuela have the ability to increase production. The province of Alberta killed the golden goose of tar sands by retroactively changing the terms of leases. No Shell and others have abandoned any new projects in Canada.
