Oil Update

A couple of interesting pieces of news this week providing further evidence for a fragile global oil supply outlook. On Tuesday the FT reported the vice-president of Lukoil as saying that he believed that last year's Russian oil production of 10m barrels a day was effectively the most that would ever be produced and that Russia had therefore "peaked". Even the Russian Government admits that oil production has reached a plateau. As other oil producing regions reach maturity we can expect more stories like that from Russia, although this is highly significant because Russia had been seen as an important source of oil to supply the ever increasing demands from China.

Then today an internal report prepared for the Nigerian government highlights the risk that by 2015 Nigeria could lose a third of it's oil output unless it can find ways to further boost investment in the sector. The Nigerian situation is interesting because it shows how countries which try to take more control over their oil resources tend to under invest themselves and also have difficulty in attracting the foreign capital they need to reach full potential. Nigeria has in any case lost a lot of production because of the security situation in the Delta Region forcing Shell for example to shut down some facilities.

The importance of this factor is often not fully appreciated by those sceptical of "Peak Oil" theories such that, even if there is enough oil in the ground, the cost and difficulty of extracting it is increasing fast and whilst the high oil price should theoretically provide the rewards and incentives, in certain countries and indeed globally, there might not be enough investment and skilled resources available to make it happen.