Among the gloom in the market where prices fell by almost $40 (Dh146.93) a barrel in the last few months, a report titled ‘Oil: The Next Revolution’ written by Leonardo Maugeri of the Harvard Kennedy School of Government was issued in June 2012. It predicts oil production capacity growing fast, with worldwide projects of up to 45 million barrels a day (mbd) under development upto 2020. However, the author sees risks on the way and only 29 mbd may be realised. The majority of the projects cited are driven by the price of oil in the last decade and most of them need a minimum price of $70 a barrel to be viable. Four countries stand out in this prediction — almost 13.3 mbd capacity increase will be contributed by Iraq, USA, Brazil and Canada. Iraq is forecast to increase capacity from 2.5 mbd in 2010 to 7.6 mbd in 2020, thus downgrading the numbers set out in contracts signed between Iraq and oil companies, where over 12 mbd was targeted by 2017. However, there is a new revision in the offing and the Ministry of Oil in Iraq is now targeting 8 mbd in 2020, thereby exonerating Iraqi experts who criticised the companies’ targets in the first place. While nobody doubts Iraq’s potential, it remains to be seen whether logistical problems of supplies, water injection and export facilities can be resolved for the more modest numbers to be realised. Shale oil formation The US is a different story where production capacity could increase to 3.5 mbd in the period under consideration. The capacity increase from shale oil formations was known a long time ago, but their production technology was not well developed and expensive as well. The situation is now different and shale oil production, following in the footsteps of shale gas production, is now in full swing. But, there are still problems facing the “fracking revolution” as the process is known. The environmental risks and water supply logistics are always challenging factors and public opposition to hydraulic fracturing could also slow development. The author admits that “a revolution in environmental technology and emission curbing technology is required to sustain the development of most unconventional oil”. The quality of oil produced (light and low sulphur) and the inadequacy of the US pipeline system may also slow development. US refineries are used to heavier and more sour crudes and it is not possible by law to export crude oil from the US even if it is to exchange it by a more appropriate grade. Brazil deep water pre-salt discoveries are enormous and capacity could increase by 2.5 mbd. The country already demonstrated its determination and ability to go ahead with development to bring Brazil’s capacity to 4.5 mbd in 2020. Canada is also going ahead in further development of its tar sands in the face of declining conventional oil production. Canada’s production capacity is likely to increase from 3.3 mbd to 5.5 mbd by 2020 unless the widespread environmental opposition slows down development. Mature oil fields Other capacity increases are much smaller and distributed among a large number of countries, with the exception of Norway, UK, Mexico and Iran where production capacity is predicted to fall. The first two countries’ fields are mature and have been declining for some time and new discoveries and developments are not sufficient to counter the trend. Mexico’s decline may be for the same reasons in addition to the lack of sufficient investment and the absence of international oil companies, according to the author of the report. Iran’s decline is strictly attributed to the various sanctions on the country where new technology and fresh investment are finding it increasingly difficult to enter the play. Iran needs $180 billion in investment to maintain production from current fields and develop new ones inside the next few years. This does not seem to be possible. According to the author, the consequences of such a scenario are that spare production capacity will increase from the current 4 mbd (too high by most estimates) to over 10 mbd in 2020 and a possible decline or even collapse of oil prices to below $50 a barrel. While such predictions should be taken seriously and development should be carefully monitored by oil producers, the author uses a depletion factor of 2 to 3 per cent a year for current oil fields. While this is welcome to preserve producers’ resources, other analysis by the International Energy Agency suggest that depletion factors are much higher and could reach 10 per cent by 2030. Therefore, the future may not be as bright as the author suggests for production and may not be gloomy for prices either if his depletion factor is adjusted realistically.