In spite of many naysayers who proclaim that the world will run out of oil soon, global oil-production capacity will in fact increase sharply during the next 10 years, according to a new report by Cambridge Energy Research Associates (CERA). Worldwide, capacity could increase by as much as 20%, or 16 million barrels per day. Total OPEC daily liquids capacity is expected to reach 45.6 million barrels by 2010; and non-OPEC daily capacity will add 7.5 million, thanks to more contributions from Russia, the Caspian, Brazil, Angola and Canada. Saudi Arabia's daily capacity may rise between 1.5- and 2 million barrels, while daily capacity in the U.S. is likely to fall from an expected 7.55 million barrels in 2005 to 7.15 million in 2010. "North America is not the scene of large capacity growth out to 2010," says Robert Esser, director, global oil and gas resources. "As a matter of fact, we're going to see growth of less than 1 million barrels a day. It is, however, the location of two world-class plays, one being the oil sands of Canada and the other, the deepwater Gulf of Mexico." Jim Burkhard, CERA director of global oil-market research, says conditions for $50-plus oil are likely to stick for the next year, especially if demand growth remains above trend as it has so far this year. During the next three to four years there may be price weakness relative to where the market is right now, he adds. Esser and Peter Jackson, CERA director of oil industry activity, expect supply to outpace demand growth in the next few years, which would take the pressure off prices around 2007-08 or thereafter. They add that, after more development of current major discoveries worldwide, capacity expansion in the medium term will be the result of field upgrades over exploration. "Today's high prices are the result of an exceedingly tight and precarious supply-demand balance," says Daniel Yergin, CERA chairman. "Yet significant new capacity will be coming onstream-much of it launched a few years ago on price assumptions much lower than today's market prices. The addition of that new capacity is what is required to improve the supply-demand balance." In looking ahead, condensates, natural gas liquids, extra-heavy oils and the ultra-deepwater are likely to have a more prominent role in supply growth. By 2020, they could account for almost 35% of total supply compared with 22% currently and less than 10% in 1990. Jackson and Esser say that instead of approaching a near-term peak in world oil production, it is more reasonable to expect an "inflexion point" in the third or fourth decade of this century. In lieu of a sharp peak, it will be more like an "undulating plateau" that should go on for decades. After that, a slow decline is expected to occur through new technological improvements in exploration, field upgrades, stranded gas and increased heavy-oil projects. "In the years ahead, the scale of the business will continue to grow as long-term, multibillion-dollar projects become more and more common-and more and more necessary-and an expanding effort is put into upgrading existing fields." One of the reasons behind their optimism has everything to do with readily available financing and other resources, Jackson says. "Given the fact that these projects are already approved and in the budgets of the major companies, it's safe to say that they expect the resources to be available. But, in light of the current oil-price situation and the increase in the amount of activity, especially from the independent groups, these resources will be on call more and will, at some point, become limited." The authors add that one of the biggest challenges will be to find the giant projects of the next decade, which puts a new kind of pressure on the search for high-quality opportunities. They expect 20 to 30 major new projects to come onstream each year through 2010, adding up to 4 million barrels per day of liquids capacity each year. After 2010, there will be fewer large-scale projects in the works, CERA reports. "We have some concerns as to whether the deepwater and Russian 'miracles' can continue to shore up non-OPEC liquids capacity expansion past 2010, when non-OPEC capacity growth will start to slow significantly," the authors say. "This rate of growth will be closely related to the emergence of new deepwater plays in existing and new areas, and also the rate at which the huge potential of Russia is unlocked. However, OPEC can continue recent rates of capacity expansion after this time." Much of the driving force behind rising oil prices has been partly due to a lack of refining capacity to absorb the growing quantities of oil. The authors report, "Given the time needed to build additional refinery capacity, this will not change in the short to medium term and, as Saudi Arabia, Venezuela and Canada step-up heavier crude production in the longer term, the prospect of wider light-heavy spreads will encourage either investment in refinery conversion capacity or upgrading capacity nearer the wellhead." Burkhard adds that while at the global level he sees additional refining capacity coming onstream in the medium term, the additions-similar to the situation on the upstream side-do not materialize overnight.