Non-OPEC oil supply development
The year 2020 saw a sudden and unprecedented decline in oil demand due to the outbreak of the COVID-19 pandemic, which necessitated oil producing countries around the world to voluntarily shut in, or adjust, oil production in an effort to safeguard the market balance. Consequently, global liquids supply fell by 6.4 mb/d, y-o-y, in 2020 with non-OPEC supply declining by 2.5 mb/d, following growth of 2.1 mb/d in 2019.
US liquids production in 2020 fell by 0.8 mb/d, compared to growth of 1.7 mb/d in 2019, mainly through the voluntary temporary shut in of wells. US tight oil production declined by 443 tb/d in 2020, which is 0.1 mb/d more than the 350 tb/d decline witnessed in 2016. However, it is worth noting that production in the Permian managed to register an increase of 0.1 mb/d, y-o-y, indicating that some US tight crude production may have become more resilient to a lower oil price environment.
In addition to the considerable production adjustments from non-OPEC countries participating in the Declaration of Cooperation (DoC), cumulative curtailments in Canada’s production in March-June 2020 averaged around 1.8 mb/d. Colombia and the UK have also contributed to the production declines in 2020. However, cumulative supply growth by 0.5 mb/d in 2020 came from Norway, Brazil, China and Guyana.
With this, E&P oil and gas investment in non-OPEC countries dropped in 2020 to the lowest level seen in the last 15 years at US$311 bn, and is expected to remain unchanged in 2021. This compares to a high level of US$718 bn seen in 2014.
In response to investor demands to raise free cash flow, US independent oil companies had already begun to reduce spending in 2H19. With the onset of the demand destruction due to the COVID-19 pandemic, US producers also throttled drilling and completion, as well as field servicing, and embarked on M&A activity to shore up balance sheets. The subsequent steady oil price recovery since 2Q20 has led to the US oil rig count rebounding to 342 units in the week to 30 April 2021s, nearly double the August 2020 low. Moreover, US core oil identified frac ope rations indicate m-o-m increases in fracked wells since the low in May 2020except for December and February due to seasonal bad weather. This incremental boost in activity has the potential to nudge 2021 capex levels higher, especially if the current price level continues until the end of the year. This will mean a larger operational well inventory going into 2022.
For 2021 in the OECD, US liquids output is expected to drop by 0.1 mb/d, due to outages in the amount of 2.2 mb/d in February, on the back of the unexpected arctic freeze in Texas. US crude oil production is expected to decline by 0.3 mb/d, y-o-y, while NGLs and biofuels are forecast to increase. Elsewhere in North America, Canadian oil production,particularly Alberta’s bitumen and synthetic crude, is forecast to grow by 0.3 mb/d in 2021. Production growth in the North Sea and OECD Europe countries is projected to be less than 0.1 mb/d, mainly coming from Norway.
In the non-OECD, Latin America remains the key driver supply growth, with a y-o-y growth forecast of 0.2 mb/d. This is mainly from one large project –Sepia, located in the pre-salt horizon in offshore Brazil – which is estimated to come online in 2H21. With this, non-OPEC liquids supply in 2021 is forecast to grow y-o-y by 0.7 mb/d, to average 63.6 mb/d, although uncertainties persist particularly with regard to levels of investment which is expected to determine the non-OPEC supply outlook for the years to come. Nevertheless, OPEC and non-OPEC countries participating in the DoC will continue to closely monitor these developments to ensure a secure and stable oil supply for the benefit of consumers and producers alike.
Source: Organization of the Petroleum Exporting Countries (OPEC)