During the height of the peak oil scare, a pundit commented to me that the lack of billion-barrel discoveries in recent years seemed alarming, and my reassurance that this primarily reflected the shift of drilling from the Middle East to other, less prospective, areas was less than compelling. Additionally, while many industry observers focus on the ‘elephant’ fields, which have historically counted for the bulk of supply, it is also possible to be ‘nibbled to death by ducks,’ that is, smaller fields that are much more numerous.
Not that there aren’t elephants, most notably in the new ‘presalt’ plays offshore South America and West Africa, especially Brazil. There, a number of multi-billion barrel fields have been found and are in the process of being developed. The Carwash scandal has slowed operations offshore Brazil, but the financial strain on the national oil company, Petrobras, has caused it to sell off some of its assets to foreign, mostly private, companies, so an influx of capital will allow for production to increase by about 1 mb/d over 5-6 years.
And Exxon’s giant 1.4 billion barrel Liza discovery offshore Guyana has increased attention to other deepwater areas off the South American coast, even as Exxon confirms two more discoveries in its block. Neighbor Suriname is now expecting its first deepwater wells, and could deliver similar results.
Kazakhstan’s supergiant oil field Kashagan has been cited as indicative of the challenges the industry faces in increasing supply, and pessimists have sneered at the repeatedly delayed start-up date as if that were proof it would never contribute new supply.
However, it has now entered production, currently about 160 tb/d, and is expected to reach 370 tb/d by year-end. This will represent the largest single-field increment of supply outside the Middle East in many years, even if the long-term target of 1.5 mb/d is never reached.
The East Coast of Canada has also become a major hot spot, with the Hebron oil field planned for start-up this year, and the Bay du Nord field undergoing appraisal. Combined, they contain at least a billion barrels of recoverable oil, and oil companies have recently committed $1.2 billion to seven leases, although predictions that the region could approach North Sea production levels seems optimistic.
Mexico’s energy reform means that its production is likely to increase significantly.
Despite over a century of production, the nation remains a relatively immature oil province. Shallow water finds of 100-200 million barrels are far above what was found in the U.K. twenty years ago, and drilling has only recently begun in the country’s deepwater—yielding two discoveries already. Additionally, the country has unexploited shales, the supergiant but geologically challenging Chapultepec field, and many mature fields whose redevelopment should yield significant new amounts. Mexico’s production might not grow as Venezuela’s did in the 1990s after its reform, when supply rose by 1 mb/d in five years, but an enduring growth trend will represent a significant difference in net production, after a 1.2 mb/d decline from the peak in 2004.
Other areas, like the Falklands and East Africa, will add modest increments to global supply levels, offsetting declines in mature provinces like Colombia and Australia, while a recovery of some of the 1 mb/d of shut-in supply in South Sudan, Syria and Yemen should also make a positive contribution.
In Europe, attention has long been focused on the peak and decline in production, particularly for Norway and the U.K. However, discovery of fields like Johann Sverdup and Edvard Grieg have seen Norwegian production stabilize and growth is expected for the next few years. The Goliat field in the Barents Sea has begun production, and heralds the opening of a new province.
U.K. production has likewise stabilized after years of sharp decline, and exploration in the West of Shetlands could result in at least modest growth. Hurricane Energy has recently announced a billion barrel find in that area, and explorationists are showing renewed interest.
Still, North Sea production will not do much more than gradually increase, but after a decline of 3 mb/d from its peak, this represents a significant gain in net production. As the previous post noted, production growth is not just the result of rising supply in some areas, but the degree to which production declines—or doesn’t—elsewhere.
The IEA’s 2016 medium term oil report projects an increase from 2017 to 2021 of 2.6 mb/d in non-OPEC supply, much of that coming from the United States. Naturally enough, It assumes that South Sudan, Syria and Yemen will not resume production, something nearly impossible to predict but with the potential for an upside surprise. More surprisingly perhaps, they foresee modest declines in Mexico and the Former Soviet Union, both of which seem likely to increase given current developments.
Overall, my expectation is that non-OPEC production will increase by more than 4.5 mb/d from 2017 to 2021, two million barrels per day more than the IEA foresees, and meaning that demand for OPEC oil will only increase modestly. (As the table below shows, I am also more optimistic about global demand.) Recovery of currently shut-in production from some combination of Libya, Nigeria and Venezuela could easily be sufficient to balance the market, will rising production in Iran and Iraq will mean pressure on other members of OPEC to restrain their supply.
As always, there will be many a slip ‘twixt cup and lip, and some of these areas will not deliver as promised, but the supply picture now is more positive than it has been for many years. Certainly, expectations of a tighter oil market within 2-4 years appear much too optimistic and if U.S. shale oil continues current trends, it might be difficult to maintain the current $50/barrel price.