OPEC’s Battle For Control Of The Oil Market - Wood Mackenzie
Wood Mackenzie has just raised our forecasts for non-OPEC production, the latest in a series of incremental increases. It said “Cumulatively, we’ve increased volumes for 2025 by an astonishing 9 million barrels per day compared with our forecasts in 2016, the oil price nadir. Non-OPEC supply has already bounced from the 2016 low of 54 million barrel per day and will touch 60 million barrel per day this year. Our latest Macro Oils Long Term Outlook expects a peak of 66 million barrel per day in 2025, 5% above our forecast last year. Oil demand too has grown more quickly than expected, up 6 million barrel per day on 2016 forecasts. Production keeps on growing despite structurally lower oil prices and upstream investment still 40% below peak.
Did we, like many others, underestimate the industry’s ability to adapt and innovate in the face of financial adversity and keep on producing oil? Maybe. But where on earth is it all coming from? Dougie Thyne, Director of Oil Supply Analysis, identifies four main buckets.
US Lower 48: tight oil and natural gas liquids together contribute 4.3 million barrel per day, half of the increase versus 2016. This primarily reflects the emergence of the Permian basin as the dominant tight oil play. The delineation of sweet spots, more efficient drilling, and the present shift to industrialized exploitation have led to a significant improvement in Permian well economics.
Innovation has boosted expected recovery from the more mature Bakken, Eagle Ford and Scoop-Stack plays to a lesser extent. NGLs associated with the gassier parts of the Permian and shale gas plays make up about one-third of the US Lower 48 increase.
Russia:
our forecasts for 2025 are 1.4 million barrel per day higher than three years ago, in spite of sanctions which restrict inward investment and the transfer of the latest technological advances. The weakness of the ruble has buoyed upstream margins in Russia since the price fell, supporting higher investment, including an intense drilling program in deeper, low-permeability plays in West Siberia. Sanction of some greenfield projects has been deferred by Russia’s involvement in OPEC+, effectively pushing new volumes out by a few years.
Guyana: only the original Liza discovery was in our 2016 forecasts. We’ve added another 0.5 million barrel per day by 2025, reflecting multiple subsequent deepwater discoveries. First production is due in 2020, setting Guyana on track to enter the top 12 non-OPEC producers with over 1 million barrel per day by the end of the decade.
Mature producers: Together, these have added over 2 million barrel per day compared with our 2016 forecasts. Colombia, UK, Norway, US and Canada are among a plethora of countries which have surprised on the upside.
Cost cutting, efficiencies, reduced maintenance outages, high-grading and streamlining of new projects, new discoveries tied into existing infrastructure and, in some cases, reduced tax rates have combined to slow decline rates and boost production. There are valid questions whether production from ultra-mature basins is sustainable at these rates, or volumes are merely being accelerated. As a result, some of these producers are slated to see steeper declines.
Non-OPEC supply won’t grow at this rate forever, in fact, it stops after 2025 as tight oil plateaus, with decline setting in by 2030. In the meantime, the OPEC+ strategy to boost revenues by constraining production and buoying up price has helped its competitors boost production and gain market share. We estimate non-OPEC production will swallow up 4.3 million barrel per day, or 76%, of contestable demand over the next five years. OPEC’s scope to increase volumes through this period is limited to just 1.3 million barrel per day.
Source : Strategic Research Institute