Conventional oil makes up around two-thirds of the world’s recoverable oil resources and accounts for 93 percent of today’s oil mix. More than half of this oil comes from oil fields that are past their peak and declining, revealed by a loss of about 3 million barrels of output last year. To accommodate this yearly natural decline from old wells and to satisfy rising demand, the world needs a fresh supply of 5.7 million barrels each year according to the International Energy Agency (IEA).
Where Will the Growth Come From?
With so much attention focused on the exceptional growth in U.S. tight oil supply to 11.5 million barrels per day (MMbpd) this year and forecasts of 12 MMbpd in 2019, it is easy to forget the pivotal role of the Middle East in global oil supply. Rystad Energy analysts expect Middle Eastern oil production to grow by 2.7 MMbpd by 2025, driven largely by supply additions of 1.5 MMbpd from Iraq and another 1.2 MMbpd from the re-opened Neutral Zone—the area between Saudi Arabia and Kuwait—as well as the UAE and Iran.
OPEC countries hold nearly 82 percent of the world’s crude oil reserves of which the bulk 65 percent are in the Middle East, led by Saudi Arabia, Iran, Iraq, Kuwait and the UAE. The world’s cheapest oil producers, with costs between $9 and $10 a barrel in 2016, were respectively Saudi Arabia, Iran and Iraq because their oil lies close to the surface and is pooled in mega fields. Moreover, the Middle East’s producing countries have some of the lowest oil decline rates in the world, which matters greatly since, as one estimate suggests, the difference between a 5.7 percent (2017) and a 7.5 percent (2016) decline rate yields another 900,000 barrels online.