OPEC maintaining its role as a major oil supplier through to 2040, although output from non-OPEC producers will help ensure adequate supply in the years to 2030, said global natural resources consultancy firm Wood Mackenzie
In its Macro Oils Long-Term Outlook H1 2018, Wood Mackenzie said it expects the US Lower 48 to enjoy continued growth through the medium-term, with its crude and condensate production reaching a plateau of over 11 mmbbl per day in the mid to late-2020s. Once the US plateaus, total non-OPEC liquids production will lose its growth momentum and begin to decline post-2030.
With demand continuing to grow through to its peak in the mid-2030s, the industry must find increasingly expensive oil to offset declines from a maturing asset base. To balance the market in the long-term, there is increasing reliance on OPEC continuing to exploit its available reserves.
The consultancy said that as reliance on OPEC ramps up, so does the importance of geopolitical risk as a key determinant for both supply and price.
“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,” said Wood Mackenzie.
However, the consultancy pointed out that growth in US Lower 48 crude oil production has been relentless. Activity surged in the last 18 months, supported by rising crude oil prices and a continuation in intensity and pace of completions. Strong rig additions through early-2018 have translated into supply gains: annual average Lower 48 growth in 2018 is forecast at 1.3 mmbbl per day. Overall, the US Lower 48 will add 4.2 mmbbl per day 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 seven mmbbl per day in 2017 to 11 mmbbl per day in 2024, reaching a peak of 11.7 mmbbl per day 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.
Self-help measures have boosted operating efficiencies, and 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 five per cent until the end of this decade. 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 underpin medium-term conventional non-OPEC supply growth, adding the most production outside of the US by 2030. A strong pipeline of pre-salt developments sees Brazil's production grow each year to 2030 by an average of 130,000 bpd. Canada 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 bpd.
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 bpd 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 two mmbbl per day.
So how has the outlook for new conventional projects changed? A marked uptick in major project sanctions towards the end of last year suggests confidence is returning to the upstream sector. 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.
This recovery in conventional projects will continue; at least 30 major project FIDs are expected in 2018. So far this year, we have seen 15 projects sanctioned. Within the project pipeline, there is potential for up to a further 20 FIDs by the end of the year. This points 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.
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.
Frontier basins and further exploration play a key role in the longer-term outlook. By 2040, non-OPEC yet-to-find and frontier production contribute 12 mmbbl per day 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.
