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Tuesday, November 13, 2018

Non OPEC oil production increasing

On January 8, The U.S. Government’s Energy Information Administration (EIA) released its latest Short-Term Energy Outlook (STEO), which includes the first short-term forecast for 2009.


The STEO projects a moderate decline in oil prices, starting in late 2008 and extending into 2009. In part, the projected price decline is predicated on the forecast of substantial increases in non-OPEC oil production, which the EIA expects to rise by 0.860 million barrels per day (mbd) in 2008 and a further 1.55 mbd in 2009 - far more than the growth seen in recent years. Given the recent track record by many analysts, including the EIA, of over-predicting non-OPEC oil production growth, there may be reasons to be somewhat cautious regarding these figures.


Most oil market analysts, including the EIA, have pointed to the slow growth in non-OPEC production in recent years as a key cause of the current high oil price environment. The imbalance between growth in world oil consumption and non-OPEC oil production has led to greater reliance on production by OPEC and a drawdown of OECD commercial inventories. These conditions have contributed to upward pressure on world oil prices in recent years.


During 2008 and 2009, many new oil production projects are scheduled to come online (in some cases projects don’t come online until late 2009, so the bulk of their impact actually occurs in 2010 and beyond).


Production growth will likely be concentrated in a few countries, particularly Brazil, the United States, and Russia. The EIA expects oil production in those three countries to grow by 1.61 mbd during 2008-2009, representing two-thirds of total non-OPEC net production growth over that period.


A few large projects represent the majority of growth in these countries, including:


·         Brazil: Golfinho II, Roncador P-52, Roncador P-54, Golfinho III, Marlim P-51, Marlim P-53, Frade, BC-10

·         United States: Atlantis, Thunder Horse, Tahiti

·         Russia: Sakhalin I, Sakhalin II, Vankorskoye, Yuzhno-Khylchuya




Non-OPEC supply growth includes the continued ramping up of production at fields that came online at the end of 2007 as well as these new projects. Not all non-OPEC producers are expected to see net production increases, In particular, oil production in the United Kingdom is expected to decline by 0.29 mbd during 2008-2009, while Mexico’s production is expected to decline by 0.24 mbd during that period.


Because the EIA’s non-OPEC production forecast depends on a relatively small number of key projects, it is very sensitive to any delays in project schedules and these projects should be watch carefully. The EIA forecast does include allowances for project delays, but delays are difficult to predict with much accuracy. Certainly, high world oil prices provide a strong incentive to complete projects on schedule. Still, project delays can arise due to numerous factors, such as delays in procuring necessary materials. All else being equal, if non-OPEC production growth rates do in the end fall short of current expectations, then world oil prices are likely to be higher than are currently projected.


The EIA is also projecting that surplus production capacity (i.e.ability to produce) could grow from its current level of under 2 mbd to over 4 mbd by the end of 2009. World oil consumption is expected to rise by 1.6 mbd in both 2008 and 2009 compared with the estimated 1 mbd increase recorded last year. The larger volume gains expected in 2008 and 2009 compared with 2007 mainly reflect higher consumption expected in the Organization for Economic Cooperation and Development (OECD), particularly Europe, where weather factors constrained oil consumption last year. Projections of continued strong world economic growth will spur oil consumption gains in a number of non-OECD markets, including China, non-OECD Asia, and the Middle East countries, over the next 2 years.


The EIA’s forecast of non-OPEC growth is rather negative for the tanker market. U.S. oil consumption is projected to increase by 0.38 mbd until 2009, whereas domestic oil production is forecast to increase by 0.51 mbd. This will mean reduced U.S. oil imports. Mexico’s oil production is projected to decline by 0.24 mbd, but Canada’s production is projected to increase by 0.29 mbd. Brazil is expected to become self-sufficient, and also obtain export capacity - it consumes some 2.3 mbd and produces about 2.2 mbd.


The U.K.’s strong decline in oil production (-0.29 mbd) will mean increased oil imports but these will probably sourced from Russia which is forecast to increase production by 0.48 mbd 2007-2009, according the EIA.


It is important to note that the initial forecast for non-OPEC growth in 2007 was some 1.4 mbd, while the actual growth in the end was only 0.58 mbd.


Contact: Erik Ranheim