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International Herald Tribune: Increased Asian oil drilling fails to slow demand

By Christian Schmollinger and Leony Aurora
Bloomberg News

KUALA LUMPUR Asia’s expanded oil drilling, spurred by record prices, has failed to increase supplies and ease the region’s growing reliance on the Middle East, Fereidun Fesharaki, chief executive officer at the oil consultancy Facts, said Monday at the Asia Oil & Gas Conference.
Fesharaki, who is presiding over the conference, said that Saudi Arabia, Iran and other Middle East producers will provide 70 percent of any additional oil demand over the next five years.
Asia’s annual oil demand may grow as much as 800,000 barrels a day, more than double Sweden’s consumption, he said.
“Higher prices have kept production flat” in Asia, Fesharaki said. “If prices were any lower, there would definitely be a decline” in output.
Asia is becoming more dependent on Africa, Russia and the Middle East for energy as investments fail to keep up with rising demand for gas, diesel and gasoline. Royal Dutch Shell, Petroliam Nasional and China Petroleum & Chemical are increasing shipments to Asia from fields as far away as Sudan and Angola.
Manouchehr Takin, an analyst with the Center for Global Energy Studies, said from London: “As a percentage of total world production, Asia’s contribution will be less and less over the next 10 to 15 years. Asia will become more and more of an importer, in spite of any growth in oil or gas production.”
Oil prices have more than tripled from their 2001 low and touched an all- time high of $75.35 a barrel on April 21 and April 24 in New York.
The boom triggered by higher prices could push exploration spending 23 percent higher this year in the Asia-Pacific region, Citigroup, the world’s largest financial services company, said in a report last week. Worldwide spending could total $163 billion this year, Citigroup said.
Increased spending in Asia by explorers such as Shell, Exxon Mobil and Chevron reflect soaring costs as they chase oil in deeper waters offshore and prices of steel and raw materials rise.
“The spending will go up, but I don’t think they’re drilling more wells,” David Morrison, chairman of Wood Mackenzie, an oil consultancy, said in an interview in Kuala Lumpur on Sunday. It’s because of “the cost inflation in the service sector.”
Costs for the Shell-led Sakhalin II oil and gas project in Russia doubled to $20 billion because of higher contractor rates and prices for raw materials.
The company, based in the Hague, said last month that it may not meet a target of replacing all the oil and gas it pumps because rising costs were forcing it to hold back on some projects.
“Costs to find, develop and produce oil and gas has increased by an average of 50 percent over the last two years,” said Hassan Marican, chief executive of Petroliam Nasional, Malaysia’s state- run oil company. “The increase in capital expenditure and shortage in capacity in contracting services may result in the deferment and delays of some projects.”
Asia will be the world’s fastest-growing oil market this year, followed by the Middle East, the former Soviet republics and Africa, according to data from the International Energy Agency. Asia’s imports from the Middle East may more than double to 28 million barrels a day by 2030, from 12 million currently, the IEA said.  

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