Oilfield suppliers and manufacturers contacted by Oil&Gas Middle East have confirmed fears about massive shortages of rigs and other equipment in the region. Former Saudi Aramco official, Sadad Al Husseini raised the issue last month, saying that a crunch in supplies could delay efforts by Saudi Arabia to raise crude output.
Husseini, former vice president of Saudi Aramco and more recently a harsh critic of Saudi oil policy, also said Saudi Arabia may fall behind its schedule to raise output capacity by 1.5 million barrels per day (bpd) by 2009 due to shortages of oil rigs and equipment.
This is not the first time that the suppliers’ crunch has thrown a spanner into the works of the Middle East oil industry. Qatar, one of the fastest growing economies in the Middle East and a chief producer of gas, announced in May that the country was not undertaking any upstream projects for a few years, owing to the overheating of the market, where in some cases the operating oil companies had to invest in the suppliers’ infrastructure to ensure timely delivery of stocks.
“Every new increment is going to be more expensive and complex and yield smaller amounts,” Husseini told Reuters. “And you will have to replace easy production and large capacity declines with much more difficult production,” he said.
He said that the shortage of supplies could leave state-oil firm Aramco two-to-three years behind its plan to lift capacity to 12.5 million from 11 million bpd now.
Husseini has explained that the shortage of rig and associated equipment may leave Saudi Arabia at least three years behind schedule. Multi-million dollar gas-to-liquid projects in Qatar have also been stalled, because of contractor shortages and expensive pricing of equipment.
Kuwait Foreign Petroleum Exploration Company chairman, Bader Al Kashti was quoted as saying, “The rig shortages in the market post the hurricanes was the worst in 20 years.”
Hurricanes are not the only reason for this shortage, according to most major oil companies, which have enjoyed windfall profits owing to high oil prices. The oil and natural gas industry is awash in cash.
But even with all that money, energy companies cannot simply snap their fingers and bring on more supplies to meet strong demand.
The crunch ranges from something as complex as an oil rig to just getting contractors to bid for tenders. Each piece that is needed to explore, drill, pump, carry, refine and ship hydrocarbons has become scarce due to years of under investment.
Today, just about everything between the wellhead and the oil tanker is in short supply.
Schlumberger, one of the major oil services companies, has stated that the oil exploration and production service industry is facing challenges in the wake of high oil prices. Andrew Gould, chairman, Schlumberger, at the company’s annual meeting in Houston this year, while discussing the various challenges faced by the service industry said, “The service industry is not particularly ready to meet the needs of a rapid ramp up in activity.”
Gould went on to explain that the shortage in manpower is also a cause of this shortage. That, coming from a company of the size of Schlumberger, shows the magnitude of the problem.
Most industry analysts trace the problem back to the days when oil prices crashed overnight to just over US $10, making many of the small suppliers and manufacturers pack their bags.
Today, with oil hovering at around US $60 and companies announcing projects every other month, there are just not enough people to supply all the operators.
Yogesh Odhrani of Esma Industrial Enterprises in Dubai, which stores over 22,000 line items from manufacturers all over the world, said, “We have had to say no to some of the projects, because we just don’t have the quantity to supply the market.” Odhrani also traces this to the sudden spiking of oil prices and pressure on all producing countries.
“When consumers pressurise producers to increase production, everyone, including product suppliers, gets stretched,” explains Odhrani.
Most oilfield supply companies in the region have had similar experiences, where high oil prices combined with large projects have left them unprepared for the boom.
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