Nearly three decades ago, Alan Kay - the inventor of the laptop computer and architect of the modern Windows system - said: 'The best way to predict the future is to invent it. Smart people with reasonable funding can do just about everything that doesn't violate many of Newton's laws.'

In the post-oil embargo era Gulf oil producers have taken him at his word. Blessed with 723,000 million barrels or more than 60 per cent of the world's proven conventional oil reserves, the giants of OPEC have dictated the movements of international markets and the long-term development of the industry.

Until now, that is. With oil prices pushing $70 a barrel, questions are being raised in all quarters of the industry about the ability of producers to step up to the supply challenge. Spare capacity constraints, ageing reservoirs and growing shortages of equipment, trained manpower and new contracting capabilities have all taken their toll on oil producers. Probably for the first time in the past three decades, both the upstream and the downstream sectors are in the grip of a major capacity crunch.

Thin cushion

The spare capacity of the six main Gulf producers in August stood at a total of just 1.7 million barrels, according to the London-based Centre for Global Energy Studies (CGES - see table). This is its lowest ebb since 2003. Undoubtedly, a prime driver is the role played by OPEC in the past two years in meeting the growth in global demand for energy. But even though producers are close to the wire, the scenario downstream is unlikely to change anytime soon, with the US' Energy Department recently projecting the demand for refined products to reach 115.5 million barrels a day (b/d) by 2025, from current levels of 82.8 million b/d. Put simply, there will be a need to add some 1.6 million b/d of new capacity each year.

Upstream, the challenges go beyond the need to boost capacity. 'The region's giant reservoirs are clearly maturing in line with their sustained production,' Sadad Ibrahim al-Husseini, a former vice-president (exploration and production) of Saudi Aramco, said at a leading industry conference* in London in late September. 'Several producers are encountering challenges in expanding capacities, while sustaining high production rates and maintaining resource recovery targets.' Many older producing fields are deteriorating rapidly as a result, while producers are being forced to adopt new extraction techniques.

The situation is critical in Iraq and Iran, which together hold reserves of at least 248,000 million barrels. For Iran, to tap into reserves at the giant fields of Azadegan and Ahwaz, the biggest challenge will be its limited access to any advanced oil field development technology, primarily due to the US embargo that remains in force. In Iraq, any future oil production will be heavily dependent on the construction of oil gathering infrastructure to serve the numerous small field development projects. There will also be a need to deploy enhanced oil recovery (EOR) techniques and develop heavy crude reservoirs.

Heavy oil is of even greater significance in Saudi Arabia, with Aramco steaming ahead with plans to increase production capacity to 12.5 million b/d by 2009/10, from 11 million b/d at present. 'Due to the distribution of reserves, Aramco will eventually increase production of heavier crudes to sustain its overall growth in capacity,' said Al-Husseini. A similar strategy has already been adopted in neighbouring Kuwait. Early this summer, state-owned Kuwait Oil Company unveiled plans for a pilot scheme to develop heavy crude reserves. Called early production facilities, the scheme will have an initial capacity of 50,000 b/d. Similar projects are under consideration in other Gulf states. 'In total, heavy and medium crudes make up more than 50 per cent of conventional reserves,' Al-Husseini pointed out.

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