News

— Total SA, the French oil giant in pursuit of Canada's UTS Energy Corp., thinks the world is closer to peak oil production than most energy companies expect and is maintaining its investment budgets in anticipation of a price rebound.

At a media briefing in London a day after last week's release of Total's fourth-quarter results, chief executive officer Christophe de Margerie said "the capacity that the oil industry has to go to 93 to 95 million barrels per day is already over."

His new forecast for peak oil production is about 89 million barrels a day, far lower than most other estimates. Last year, global oil supplies were slightly higher than 86 million. The International Energy Agency said in November that world supply and demand would rise to 106 million barrels a day by 2030.

Mr. de Margerie's lower production calculation is largely based on delays and cancellations of oil projects as prices fall, plus relentless production declines at many of the large, old fields - such as the North Sea. The IEA has said decline rates at the "supergiant" fields are 3.4 per cent a year. Merrill Lynch has said the rates at the merely "large" fields are much greater, at 10.4 per cent a year.

The IEA estimates that oil projects worth $100-billion (U.S.) have been shelved in the past year as prices fall. Oil reached a peak of $147 a barrel in July and then plunged as the recession hit demand. Yesterday, West Texas intermediate crude traded at about $35 a barrel, as Brent crude, considered a better indicator of global prices, was at about $40 - it fell, but was above recent lows.

Among the biggest oil companies, Total has always been the most pessimistic about the industry's ability to raise production to meet ever-rising demand. Britain's BP PLC, for example, believes there is no resource constraint; oil production will simply peak when demand peaks, it has said.

In anticipation of a demand and price rebound, Total (in which Canada's Desmarais family has an indirect 3.9-per-cent stake) plans to invest €13.6-billion ($21.6-billion Canadian) in oil projects this year - almost identical to 2008.

The IEA is more bullish on supply than Total, but also thinks prices are poised for a rebound due to project cancellations and delays. "Currently, the demand is very low due to the very bad economic situation," Nobuo Tanaka, the IEA's executive director, said in London this week. "But when the economy starts growing, recovery comes again in 2010 and then onward, we may have another serious crunch if capital investment is not coming."

In a research note published Feb. 13, Barclays Capital said "longer-term capacity prospects are dimming" as oil drilling slows. In the U.S., 425 oil and gas rigs became idle in the last six weeks. "Our concern remains that, short of a long-lived and very deep demand depression, the oil market may well be setting itself up for a significant capacity crunch in coming years," Barclays said.

Total has been expanding its presence in the Alberta oil sands to secure long-term supplies as conventional fields run short of oil. It already owns Deer Creek Energy and Synenco Energy Inc., giving it stakes in two oil sands plays. Recently, Total bid $1.30 a share for UTS, another oil sands player. UTS rejected the offer and is seeking rival offers. West Face Capital, UTS's largest shareholder, said the shares are worth $2.50 or more.

UTS Energy (UTS)

Close: $1.69, down 2¢