Non-OPEC supplies curbed by price fall, decline rates

LONDON - Non-OPEC oil supplies are expected to stagnate in 2009, heightening concerns they are nearing their peak as low crude prices and scarce credit slows efforts to replace output from rapidly maturing fields.

By (Reuters)

Published: Fri 6 Feb 2009, 7:17 PM

Last updated: Thu 2 Apr 2015, 3:54 AM

Producers outside the Organization of the Petroleum Exporting Countries are forecast to increase output by just 130,000 barrels per day (bpd) to 50.04 million bpd in 2009, a Reuters poll of analysts, banks and industry groups showed.

The latest 2009 consensus is down from an earlier Reuters poll in November which forecast 2009 non-OPEC supply growth at around 400,000 bpd.

‘We think that non-OPEC supply will increase only marginally in the next few years, with new projects largely offset by high decline rates,’ said Giovanni Serio, Executive Director of commodities research at Goldman Sachs.

‘Should oil prices remain under pressure for a prolonged period of time, capital expenditure in the industry could be further constrained, threatening new projects as well,’ he added.

Supply growth from non-OPEC countries has been anaemic in recent years, despite nearly a decade of strong global economic growth which sent crude prices spiralling to a peak of almost $150 a barrel in July 2008.

New supplies brought online to meet almost 25 years of global oil demand growth have also had to supplant output declines from large mature fields, where analysts estimate production is shrinking by between 4 and 5 percent a year.

Analysts are now arguing that this rate of decline is set to increase, as the collapse in oil prices to around $40 a barrel and tight credit conditions cut investment in maintaining production as newer, smaller fields begin to decline.

‘All these factors point to steeper oil output declines going forward—new oilfields are small, expensive and have a short life span,’ said Merrill Lynch commodity analysts in a research note published this week.

‘Decline rates for fields developed prior to 1998 that have reached their peak production average roughly 4 percent, while peaked fields developed after 2002 are experiencing declines of 18 percent on average.’

Future supply crunch

The International Energy Agency—adviser to 28 industrialised nations—has said that outside OPEC, production has already peaked in most countries and would peak in most others before 2030.

Output from Russia, the world’s second largest crude oil producer after OPEC kingpin Saudi Arabia, declined in 2008 for the first time in 10 years.

Most analysts see Russian production as flat or lower in 2009, with growth in oil supplies from the former Soviet Union coming instead from Azerbaijan and Kazakhstan.

‘The further out in time you go, more and more demand will have to come from OPEC which will give them more control over the market,’ said Deutsche Bank energy analyst Adam Sieminski.

While new projects and the ramping up of some existing output this year—such as BP Plc’s Thunder Horse field in the U.S. Gulf of Mexico—are expected to offset declines in Mexico and the North Sea, concerns remain for the future.

‘Projects that have been delayed for years are finally coming on stream, but we are becoming more realistic in our future outlook for non-OPEC supply growth,’ said Antoine Halff at Newedge.

While global oil demand is expected to fall by at least 500,000 bpd in 2009 due to the world economic slowdown, a lack of investment in new production could create a future supply crunch just as the world begins to recover.

‘I don’t know anyone who isn’t worried about the possibility that prices will spike way back up again at some point in the next 5-years,’ said Sieminski at Deutsche Bank.

‘Investment is being cut, projects are being cancelled and we’ll be right back into the soup where prices have to go back up to curtail demand again.’

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