SYDNEY: Global spare oil production capacity may double by 2010, helping reduce the “fear premium’’ that is helping boost crude oil prices, according to BP Plc, Europe’s largest oil company.
Spare oil production capacity may rebound to the historical average of about 3mn barrels a day by the end of the decade, from about 1.5mn at present, Mark Finley, head of energy analysts at London-based BP, said yesterday in Sydney.
The level of unused capacity was cut by the “exceptional’’ growth in world oil demand in 2004, which was double the 10-year average, he said.
Some officials in consuming nations, including US Energy Secretary Samuel Bodman, have said a lack of spare capacity is to blame for record high prices.
The US consumes one-fourth of the world’s energy. China, India, Germany, Japan and Bangladesh have a combined population of 2.9bn, and together consume less energy than the US, with a population of 290mn.
Scientists said that to keep up with demand, the US must diversify its energy portfolio by developing technologies in natural gas, biofuel and nuclear, wind and solar power.
Crude oil traded in New York has averaged $66.76 a barrel this year, up 31% from a year earlier. Spare output capacity, held in the Organisation of Petroleum Exporting Countries, provides a cushion to cope with supply losses caused by hurricanes, military conflict or political turmoil.
Opec decided to keep production quotas unchanged at 28mn bpd at a meeting in Venezuela this month, to try to soothe markets roiled by threats to supplies from Iran and Nigeria. The organisation supplies about 40% of the world’s oil.
“Over the next several years we think the restoration of more of a historical level of surplus capacity should help to moderate some of the risk premium that we believe is reflected in the price today,’’ Finley said in an interview after giving an address. ``With more of a cushion there’s less reason for a risk premium in oil.’’
Oil traded in New York reached a record $75.35 a barrel in April amid reduced production in Nigeria and concerns that exports from Iran may be disrupted because of a dispute over its nuclear program.
“We think that for the next few years the fundamentals are reasonably well supported,’’ Finley said. “Beyond that it’s very unpredictable.’’
In the longer term, in a period of decades and after ``significant’’ new investments are made in oil-producing and consuming nations, it is difficult to envisage crude oil prices remaining much above $35 a barrel, Finley said. As a result, BP still tests the economics of its oil projects using oil prices as low as $25 a barrel, he said. – Agencies