EXCESS OIL PRODUCTIVE CAPACITY OUTSIDE THE PERSIAN GULF

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86T01017R000201350001-9
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 9
• Document Creation Date: December 22, 2016
• Document Release Date: January 19, 2011
• Sequence Number: 1
• Publication Date: August 29, 1986
• Content Type: MEMO

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Central Intelligence Agency
DATE Fr C (-~
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DIRECTORATE OF INTELLIGENCE
2 9 AUG 1986
MEMORANDUM FOR: Donald Pearlman
Executive Assistant to the Secretary
Department of the Interior .
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SUBJECT: Excess Oil Productive Capacity Outside the
Persian Gulf
Attached is our current assessment of surplus crude oil
productive capacity available outside the Persian Gulf to help
offset a disruption of Gulf oil supplies. We believe that
capacity outside this region has fallen somewhat over the past
year--particularly in Nigeria, Indonesia, Libya, and Mexico--
primarily because of budget measures stemming from lower oil
revenues. We estimate that total excess oil productive capacity
outside the Gulf is just over 3 million b/d, compared with Gulf
exports of almost 11 million b/d last month. If you or members
of your staff have questions concerning this report, please call
Chief, Strategic Facilities Branch, OGI
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Attachment:
Non-Persian Gulf Excess Oil Productive Capacity
GI M 86-20196, August 1986,
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SUBJECT: Oil Productive Capacity Outside the Persian Gulf
OGI/SRD/SFB
(20 August 1986)
Distribution:
1
- Donald Pearlman, Interior
1
- Marion V. Creekmore, State
1
- William Ramsey, State
1
- Alan P. Larson, State
1
- Robert Ludan, State
1
- David Vance, State
1
- Charles Schotta, Treasury
1
- Charles Boykin, DOE
1
- Ben B
on
k, DOE
1
- John
Br
odman, DOE
1
- Guy C
ar
uso, DOE
1
- David Pumphrey, DOE
1
- Dave Tarbell DOD
1
1
1
- Lou P
ug
liaresi, NSC
1
- DCI
1
- DDCI
1
- D/DCI
-D
DCI Executive Staff
1
- SA/DD
CI
1
- EXDIR
1
- DDI
1
- DDI/P
ES
1
- OIR/E
RD
1
- NESA
1
- DO
1
- NIO/N
ES
A
1
- NIO/E
CO
N
1
- DD/OG
I,
D/OGI
1
- CPAS/
IS
S
5
- CPAS/
IM
C/CB
3
- OGI/E
XS
/PG
1
- C/SRD
1
- OGI/S
RD
/SFB
1
- OGI/S
RD
/EMB
1
- OGI/S
RD
/PRB
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Central Intelligence Agency
DIRECTORATE OF INTELLIGENCE
20 August 1986
Excess Oil Productive Capacity Outside the Persian Gulf
Summary
Excess oil productive capacity outside the Persian Gulf
remains far short of that needed to offset a major disruption of
Gulf supplies. By our calculation, crude oil productive capacity
outside the Persian Gulf has fallen by about 500,000 b/d over the
past year because of lower oil revenues and disincentives arising
from the slack oil market, cutbacks in well maintenance programs,
and declining output from maturing fields. Nigeria, Libya,
Mexico, and Indonesia have suffered significant declines in
capacity, offset slightly by a rise in Venezuelan capacity.
Production outside the Gulf also has slipped as a result of slack
demand and the Saudis' bid to capture a larger market. Surplus
oil productive capacity outside the Gulf is approximately 3
million b/d. About two-thirds of excess capacity in non-Gulf
producers is concentrated in Venezuela, Libya, Nigeria, Algeria,
and Egypt.
In the event of a disruption to Persian Gulf supplies, we
believe that all non-Gulf producers, except possibly Libya, would
be strongly motivated to raise oil production for financial
reasons, charging what the market would bear. Available excess
productive capacity, even with a drawdown of US strategic
reserves, is not likely to prevent price runups if disruptions
limit Persian Gulf exports to about 8 million b/d or less. Price
pressures could build even in the absence of an actual shortage
because of uncertainties about the duration and size of the
disruption.
This memorandum was prepared byl (Str
ategi
c Facilities
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Branch, Office of Global Issues. The information contained
herein is updated to 20 August 1986. Comments may be directed to
25X1
Chief, Strategic Resources D
ivisio
n
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I I
Oil Productive Capacity Outside the Persian Gulf
Introduction
Persian Gulf countries export 11 million b/d or about one-
fourth of total non-Communist oil supplies (Table 1). Since most
excess productive capacity also resides in the Gulf, a major
restriction of Gulf supplies could be offset only partially by
excess productive capacity elsewhere--even in conjunction with a
drawdown of strategic stocks (Table 2).
Recent Losses in Productive Capacity
Available productive capacity outside the Gulf has evolved
slowly over the past year. The conventional measure of
productive capacity is the level of production a .country can
attain within 90 days of a decision to raise output. We estimate
that available productive capacity outside the Persian Gulf has
suffered a net loss of about 500,000 b/d over the last 12 months
(Table 3). This dropoff in available capacity is due primarily
to financial constraints, increasing well maintenance problems,
and declining production from maturing oilfields.
Libya's available productive capacity has fallen to only 1.6
million b/d because of deteriorating well performance and the
need for additional drilling and modifications to existing
pumping and pipeline systems
Oil production in Indonesia has risen to about 1.5 million
b/d, which is the limit of the country's available capacity
according to Oil Minister Subroto. Our Embassy reports that
restoring an additional 100,000 b/d of capacity would take at
least six months to complete.
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Mexico's oil productive capacity has slipped by about
200,000 b/d over the past year to about 3 million b/d based on
new information and our reservoir engineering analysis.
Maintaining even this level of production would require many well
workovers and refurbishing of surface oil collection facilities,
as well as the discovery and development of new oilfields to
offset production declines at existing fields.
Distribution of Excess Capacity
Excess capacity is the difference between a country's
available capacity and its current rate of production. This
means that estimates of excess capacity are sensitive to
production fluctuations caused by market or operating
conditions. This factor is generally less important in measuring
excess capacity outside the Gulf, however, because OPEC's
marketing practices cause less variation in output by non-Gulf
producers. (See Table 2.)
The largest concentration of surplus capacity outside the
Persian Gulf is in North and West Africa, which accounts for
about 1.5 million b/d. One-third of this excess capacity is in
Libya and the rest is divided among Nigeria, Algeria, and Egypt.
The Nigerians have
severely restricted expenditures for maintenance and
development because of their financial problems.
o We estimate that Algeria could increase oil production
by about 400,000 b/d from recent output levels within a
short period. Algeria's maturing oilfields have a
productive capacity of about 1.1 million b/d of crude
and condensate.
0 Egypt could increase its production by about 300,000 b/d
according to the US Embassy. Marketing problems caused
by higher production from Saudi Arabia and other Persian
Gulf producers are primarily responsible for the
emergence of surplus capacity in Egypt.
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We estimate surplus available capacity in the Western
Hemisphere at about 1.1 million b/d--located primarily in
Venezuela and Mexico.
o I Venezuela's oil
production could increase immediately by 200,000 b/d
from the current level of about 1.6 million b/d. In
addition, another 700,000 b/d of output could be
achieved in about six weeks
US Embassy reporting,
confirm that Venezuela is one of the few exporters to
increase capacity despite the slumping market.
o Mexico's spare capacity is currently about 200,000
b/d. We believe Mexico could raise output by this
amount fairly quickly. Sharp cutbacks in maintenance
expenditures and outlays for spare parts have reduced
Mexico's capability to sustain higher levels.
Impact of a Persian Gulf Oil Disruption
The prospects that excess capacity outside the Persian Gulf
would be made available during a Gulf disruption are good. In
general, we believe most producers--including Algeria, Mexico,
Nigeria, and Venezuela--would be strongly motivated to raise
output for financial reasons. Libya's response to a disruption
is uncertain. Libya may not be willing to help offset a supply
shortfall instigated by Tehran, despite its precarious financial
position. As a result, we believe less than 3 million b/d of
excess capacity would be made available within 90 days to offset
the loss of Persian Gulf oil exports.
Strategic stockpiles, including 500 million barrels held by
the United States, 129 million barrels in Japan, and 55 million
barrels in West Germany, could play a large role in helping to
offset a disruption. Commercial stocks, however, are relatively
low compared with levels of a few years ago and their
contribution to offset lost exports would be limited. Saudi
Arabian stocks of about 70 million barrels held outside the
Persian Gulf could also help offset a short term loss. At a
drawdown rate averaging about 2 million b/d, the US Strategic
Reserve would last about eight months. If other strategic stocks
were drawn down over the same period, these reserves could
provide a total of about 3 million b/d in supplies.
Considering both non-Gulf excess capacity and strategic
stockpiles, additional supplies of about 6 million b/d appear
available. The psychology of the oil market, however, requires a
cushion of roughly 2-3 million b/d in available supplies to
maintain stable prices. Consequently, additional non-Gulf
supplies are available to offset a loss of only about 3-4 million
b/d of Gulf supplies without putting severe upward pressure on
prices.
*') cvi
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With Persian Gulf exports now running at 11 million b/d,
this means that exports from the Gulf of at least 8 million b/d
are needed to balance the market near recent export and price
levels using some combination of non-Gulf excess supplies and
strategic reserves. With current export capacity from the Gulf
totalling about 16 million b/d, this represents a present Gulf
cushion of about 8 million b/d in surplus capacity. Substantial
damage to export systems in Iraq, Iran, and Kuwait, and even some
loss in Saudi Arabia, technically could still be handled, but the
psychological impact of such events on the market might still
drive prices upward. Major damage to Saudi export facilities in
addition to those of the northern Gulf producers would go well
beyond what non-Gulf excess supplies could offset, even with use
of strategic reserves.
Table 1
Persian Gulf Exports
(million b/d)
90-Day
Export
Capacities
July
Exports
TOTAL
16.0
11.0
Saudi Arabia
7.6
4.9
Iran
2.6
1.5
Iraq
1.6
1.5
Kuwait
1.4
1.0
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Table 2
Estimates of Surplus Capacity
(million b/d)
Available
90-Day
Production incl. NGL*
Under OPEC
Surplus
Capacity Under
Capacity
July
Quotas
July
Production
OPEC
Quotas
54.05
45.71
42.46
8.34
11.59
18.40
13.50
10.98
4.90
7.42
Saudi Arabia
8.50
5.80
4.35
2.70
4.15
Iran
3.40
2.20
2.30
1.20
1.10
Iraq
1.90
1.80
1.80
0.10
0.10
Kuwait
1.60
1.50
0.90
0.10
0.70
UAE
1.70
1.50
0.95
0.20
0.75
Qatar
0.60
0.30
0.28
0.30
0.32
Neutral Zone
0.60
0.30
0.30
0.30
0.30
Bahrain**
0.10
0.10
0.10
0.00
0.00
35.65
32.21
31.48
3.44
4.17
9.00
6.80
6.07
2.20
2.93
Algeria
1.10
0.70
0.66
0.40
0.44
Ecuador
0.30
0.30
0.23
0.00
0.07
Gabon
0.20
0.20
0.14
0.00
0.06
Indonesia
1.50
1.40
1.19
0.10
0.31
Libya
1.60
1.10
0.99
0.50
0.61
Nigeria
1.80
1.50
1.30
0.30
0.50
Venezuela
2.50
1.60
1.56
0.90
0.94
Canada
1.80
1.80
0.00
Egypt
0.90
0.60
0.30
Malaysia
0.55
0.51
0.04
Mexico
3.00
2.80
0.20
North Sea
4.00
3.60
0.40
United States
10.70
10.50
0.20
Others
5.70
5.60
0.10
* Based on information availiable 8 August.
** Non-OPEC.
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Table 3
Erosion of Available Capacity Outside the Gulf
(million b/d)
June 85
July 86
Change
TOTAL
34.5
34.0
(.5)
Indonesia
1.6
1.5
(.1)
Libya
1.8
1.6
(.2)
Nigeria
2.2
1.8
(.4)
Venezuela
2.4
2.5
+.1
Mexico
3.2
3.0
(.2)
Other Non-OPEC
Non Communist
+.3
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