American Political And Economic Chautauqua: Total says oil output near peak

By Carola Hoyos in London

Published: February 15 2009 23:37 | Last updated: February 15 2009 23:37

The world will never be able to produce more than 89m barrels a day of oil, the head of Europe’s third largest energy group has warned, citing high costs in areas such as Canada and political restrictions in countries like Iran and Iraq.

Christophe de Margerie, chief executive of Total, the French oil and gas company, said he had revised his forecast for 2015 oil production downward by at least 4m barrels a day because of the current economic crisis and the collapse in oil prices.

He noted that national oil companies, which control the vast majority of the world’s oil, and independent producers, which play a key role in finding new sources, were “substantially limited in their ability to fund investments in the current [financial] environment”.

Oil prices have fallen from a record $147 a barrel in July to about $35 a barrel on Monday, with the world consuming 84m barrels of oil a day. This year oil consumption is expected to fall from 2008 levels.

Mr de Margerie warned that the glut of oil caused by the dramatic reduction in demand would be short-lived and that, in spite of the economic crisis, in the long-term demand would remain constrained by supply. Three years ago, the International Energy Agency expected consumption and production to hit 130m b/d by 2025. It has since dropped its forecast to a little more than 100m b/d by 2030.

Delays and cancellations in projects to extract oil from Alberta’s tar sands and Venezuela’s Orinoco belt – both expensive and environmentally difficult operations in which Total is active – will cut 1.5m b/d of supply that would have come on stream had oil prices remained strong. The rest of the revisions from Total’s mid-2008 estimates came from the more pessimistic view of the political situation in Iran and Iraq, which hold the world’s second and third largest oil reserves.

Meanwhile, Mr de Margerie now expects a faster decline in production at older fields, such as those in the North Sea. At lower price levels, companies will find it harder to justify the greater cost of keeping such fields pumping.

Total’s chief executive has long been an outspoken advocate of maintaining investment, rather than repeating the mistakes of previous cycles by cutting costs so much that the industry is unable to meet global demand when economies recover. But he is also in the midst of trying to renegotiate contracts in Canada and is considering further investments in Venezuela.