If Saudi Aramco's $7-billion (U.S.) Khursaniyah oil project had come on stream at the end of 2007 as scheduled, the world economy might not be staggering under $135 crude prices.
The planned 500,000 barrels a day of Khursaniyah production would have been like a cool drink of water for an oil market thirsting for additional supply.
Instead, the project was stalled by delays in the construction of a processing plant needed to treat the natural gas liquids that Khursaniyah would produce along with the light, relatively sweet crude oil.
Not far from Khursaniyah, in the eastern part of the kingdom, the state-owned oil monopoly, Saudi Aramco, is spending $17-billion to develop the vast Khurais field.
That project aims to add one million barrels a day of crude oil by the end of 2009, but analysts question whether the complicated project - which requires tremendous amounts of sea water to be injected into the reservoir to produce the oil - will meet a demanding construction deadline.
Even in Saudi Arabia, where oil is more plentiful than water, getting the next barrels out of the ground is becoming an increasingly expensive and complex undertaking.
From the Middle East to the U.S. Gulf of Mexico to the Canadian oil sands, project delays and skyrocketing costs have become epidemic in the global oil business. And as a result, the industry has had a hard time bringing on new capacity to meet demand growth that is fuelled by the booming emerging markets like China, India and the Middle East itself.
The industry faces a daunting set of challenges: Companies are increasingly forced to target unconventional resources like oil sands and deep water fields; years of underinvestment left drilling and oil field construction sectors unprepared for the current boom; the work force is aging; and material costs and bottlenecks are rising throughout the global infrastructure sector.
"If I had to single out what is the one key problem that is impeding the world's ability to expand oil supply, it's this slippage in new projects," David Fyfe, senior supply analyst for the Paris-based International Energy Agency, said in an interview.
Next weekend, ministers from top producing countries and major consumers will meet in Saudi Arabia to discuss how to cool off oil markets that have sent prices to record levels that were virtually unimagined a year ago. The stunning runup in crude oil has ignited inflation and contributed to an economic slowdown that is compounded by the credit crunch and housing market slump in the U.S.
(Canada, despite being the largest source of imported oil for the largest consumer on the planet, will not attend the meeting in Saudi Arabia.)
Facing unrelenting pressure from the U.S. government to boost production and ease soaring crude prices, Saudi Oil Minister Ali al-Naimi recently said the Khursaniyah project had begun to pump small volumes of oil.
An unsourced report in the Middle East Economic Survey yesterday suggested the Saudis will promise an increase in production of 500,000 barrel a day at the meeting, likely by announcing the full startup of Khursaniyah. The additional Saudi supply - combined with weakening global demand - would likely be enough to relieve some pressure from overheated markets.
But few analysts expect oil prices to drop below $100 a barrel over the next year.
In trading yesterday on the New York Mercantile Exchange yesterday, the benchmark West Texas Intermediate settled at $134.86 a barrel, down $1.88 on the day. While off from the record $138.54 hit last Friday, the Nymex price is still more than double its year-ago level of $66.65 a barrel.
As crude prices climbed inexorably through the first half of this year, U.S. politicians blamed the Organization of Petroleum Exporting Countries for restraining supplies, while OPEC ministers pointed the finger at speculators who, they say, are driving up prices beyond what is justified by market fundamentals.
The IEA, which represents rich consuming countries, has fingered another culprit: chronic underinvestment across all aspects of the industry - from construction of drill rigs that explore for the resource, to the development of new sources of crude, to the updating of the refineries that process it.
"The underlying problem is that we continue to have undercapacity across the entire oil value chain," IEA president Nobuo Tanaka said in a presentation in Tokyo last week,
At the same time, oil companies - both state-owned and the multinationals - are forced to develop increasingly more complex and technically challenging projects in the absence of the "low hanging fruit" of easily accessible new conventional oil fields. As they take on such major construction projects, the oil companies are operating in a booming international infrastructure market, where engineering, labour and materials are in short supply and costs are rising dramatically.
As a result, projects that would be adding supply to the market are facing bottlenecks and cost overruns.