Neither OPEC nor non-OPEC can arrogate to itself the power to keep the global oil industry either on a geometrically progressive advancement curve or a retrogressive downward slope especially at a time of growing economic and geopolitical tensions exacerbated by the increasing awareness of policy cum socio-cultural divergences across regions of the world.
But the global natural resources consultancy group Wood Mackenzie believes that OPEC can still maintain its role as a key oil supplier through to 2040, although it can’t do this without that modicum of oil coming from non-OPEC producers from time to time.
In its forecast the energy consultants say they expect US Lower 48 to enjoy continued growth through the medium-term, with its crude and condensate production reaching a plateau of over 11 million barrels per day (b/d) in the mid to late-2020s, while total non-OPEC liquids production loses its growth momentum that becomes visible after 2030.
With demand continuing to grow through to its peak in the mid-2030s, Woods said the industry must find increasingly expensive oil to offset declines from a maturing asset base. Adding that OPEC must exploit all its available reserves to be able to balance the market in the long-term.
“As non-OPEC production growth slows and the importance of OPEC’s output increases from 2023, OPEC’s role in managing prices becomes more focused on ensuring upstream investment keeps up with replacing lost barrels from onstream declines, and the growth in oil demand over the next decade or so,” the report said.
While pointing out the restlessness in the growth in US Lower 48 crude oil production, Woods said the activity had surged in the last 18 months, supported by rising crude oil prices and a continuation in intensity and pace of completions, with strong rig additions through early-2018 translating into supply gains as annual average Lower 48 growth in 2018 is forecast at 1.3 million b/d. Overall, the US Lower 48 is expected to add 4.2 million b/d of crude oil and condensate to global supply by 2025.
“While the pace of growth eases over the next five years, onshore Lower 48 crude oil production remains the key driver of global oil supply growth into the middle of next decade. Crude oil and lease condensate production grows from about 7 million b/d in 2017 to 11 million b/d in 2024, reaching a peak of 11.7 million b/d in the early-2030s,” the report said.
Global upstream investment plummeted by about 50% in the wake of the oil price collapse. The expectation was that this would have a material impact on supply to 2020. However, non-OPEC supply has proven itself to be remarkably resilient. Wood Mackenzie expects it to remain resilient with non-OPEC supply set to remain broadly flat to 2030 outside of the US, Wood says.
Noting that self-help measures have boosted operating efficiencies, and that production momentum from projects launched prior to the price crash – some with zero decline such as the Canadian oil sands and Brazilian deepwater – will keep decline rates around 5% until the end of this decade. Adding that the near-term ramp-up in US tight oil production will more than compensate for the sharp fall in new project sanctions during 2015-2016.
Brazil and Canada Wood says underpin medium-term conventional non-OPEC supply growth, adding the most production outside of the US by 2030. Again, a strong pipeline of pre-salt developments sees Brazil’s production grow each year to 2030 by an average of 130,000 b/d. And Canada herself has seen a recovery in drilling rates and production continues to rise from oil sands projects. Output is forecast to increase a further 750,000 b/d over the next decade, the gas analysis team said.
Russia’s production increases into the early 2020s, after the restrictions from production cuts are lifted, before reverting to decline. Some mature provinces, such as the North Sea, will be able to maintain output levels into the mid-2020s. From the mid-2020s, new producers including Guyana, Uganda and Kenya begin to add significant volumes, rising to around 700,000 b/d combined. This all helps to counter structural declines from mature producers through 2030, most notably China, Indonesia, Colombia and Mexico, where declines amount to around 2 million b/d, Wood Mackenzie says.
For Woods, the outlook for new conventional projects has changed because a marked uptick in major project sanctions towards the end of last year is a sign that confidence is returning to the upstream sector. Maintaining that a total of 32 project sanctions in 2017 resulted in close to 6 billion barrels of liquids reserves reaching FID, double the reserves sanctioned in 2016.
And this recovery in conventional projects they say will continue; at least 30 major project FIDs, points out Woods, are expected in 2018. “So far this year, we have seen 15 projects sanctioned”, the team noted. Within the project pipeline, there is potential for up to a further 20 FIDs by the end of the year, pointing ultimately to a swelling hopper of new commercial conventional developments, which will help bolster non-OPEC supply.
“New projects are now smaller, reflecting the trend towards incremental projects and phased developments. Average project liquids reserves have decreased from around 500 million barrels pre-price crash to about 230 million barrels in 2017”, the group said.
“There has also been a significant shift in the time it takes new projects to reach peak production. Pre-price crash projects averaged nine years to reach peak production from the year they received FID. Now, projects are forecast to reach peak production five years from FID as operators aim for faster project payback. This acts to lessen the post-2020 effects from the sharp downturn in new project sanctioning during 2015-2016. Although the projects are smaller, they will deliver a stronger production impact within a five-year timeframe.”
By the late-2020s, talking about the evolution of cost supply, non-OPEC supply is reliant on additional new sources of supply from reserves growth, contingent resources, and yet-to-find volumes. Adding that though reserves growth is relatively cheap by its nature, other forms of supply are expected to be costlier. By 2030 Wood team says, around 6 million b/d of supply is expected to break even above US$70 per barrel, made up of predominantly yet-to-find, contingent resources, and fringe plays in the US Lower 48 onshore. By 2040, 11 million b/d of supply has a breakeven higher than US$70/bbl.
By 2040, non-OPEC yet-to-find and frontier production is expected to contribute 12 million b/d to the supply outlook. Key regions like Latin America and West Africa hold vast potential, but higher prices are needed to support activity as the cost curve is now higher.