Non-OPEC Oil Supply Gains

A lot has been written and discussed recently about here possible non-OPEC-supply gains occurring between 2005 and 2006.  There are definitely new projects coming on stream in several countries, including Angola, Azerbaijan, Russia, Brazil, as well as some other countries that might help make this happen.  However, I am sitting here looking at a report from a well-known consultant (one that shall remain nameless for now - but you know who I am talking about) and I notice a slight of hand going on.  
They forecast production, country-by-country through 2007 (total liquids) and show significant increases from 2005 to 2006 and 2006 to 2007.  Although the expected increases are shown in expected countries listed above, they show slight but significant changes in trends in almost all countries across the board.  For example, they show Ecuador's production decreasing from 2004 to 2005 but increasing in the following 2 years.  Mexico, India and Norway also show dramatic turnarounds in 2006.  The UK turns around in 2007.  So does Argentina and Oman. And of course there is the all-inclusive "Others" category which constantly increases throughout the forecast period and picks up almost 300 kbd between 2004 and 2007.

Just to give you an idea, the Oil and Gas Journal gives the following percentage declines from 2004 to 2005.  (caveat - the O&GJ numbers are crude only and the other report is total liquids)

  • Ecuador                -2.9%
  • Mexico              -1.9%
  • India               -4.0%
  • Norway              -8.3%
  • UK                  -11.8%
  • Argentina               -3.8%
  • Oman                    +0.1%
  • Western Europe Total    -8.7%
  • Western Hemisphere      -2.5%
  • Africa Total              +6.8% (dominated by Nigeria, Lybia, and Algeria {OPEC} and Angola {non-OPEC]

  • Eastern Europe and FSU    +4.2% (dominated by Russia)
  • Asia Pacific                +1.2% (dominated by China)
  • Total Middle East        +1.6% (dominated by OPEC and esp, Saudi Arabia)

  • Total OPEC               +2.1%
  • Total non-OPEC            -0.1%
  • Total World             +0.8%

(Sorry, but I can't seem to format a table properly)

I don't know about you, but for this type of forecasting, the devil is in the details, and it looks like there is a Pandora's Box full of sin hidden in the details of this consultant's report.  It is clear to me that they have assumed very modest decline rates for most of these countries, and that they have assumed non-project-specific growth models for almost all countries.  This gets into arm-waving territory where a forecast becomes opinion rather than fact driven.  
I just downloaded the EIA's 2006 Annual energy Outlook 2006, and they project that total global petroleum production will increase by 42% between 2004 and 2030, from 82.99 mbd to 117.83 mbd (conventional and unconventional) - 35 mbd total.  27 mbd from conventional sources and 8 mbd from unconventional sources.

Don't know where they get the mojo for that set of projections.  Would appreciate enlightenment!

The US Department of Energy, Energy "Information" Agency was even less realistic the previous year.
...Oil is now projected to cost an inflation adjusted $54.08 per barrel in 2025 vs. last year's estimate of $32.95...
That would be Sino$ which will be trading at approximately 40 US$ to 1 Sino$ in January 2025, making the oil price about US$ 2200 ;)

I wonder what inflation adjustment thet are using? Consumer CPI, core CPI, GDP deflator CPI... or a realistic CPI measure?

But taking a more practical pespective... they couldn't suddenly switch to a realistic estimate - that would have made their previous estimates look silly ( ho ho ho ) so they'll probably increase their estimate by about 50% per year and: hey presto, by 2024 it will be nearly accurate ;)

Did some more analysis of the numbers.  The EIA expects most of the increase in conventional production to come from OPEC Middle East (10 md), the Caspian Sea region (5.1 mdb), and Africa (4.5 mbd).  Most of the unconventional production is projected to come from Canada and South America.

I might believe the Caspian Sea region and Africa.  Not the rest.  Also, almost no decline in other areas. Uh-huh.

Geopolitically, the European declines are astounding to see in print, even for those of us used to the fact that North Sea decline is in fact speeding up:

Norway              -8.3%
UK                  -11.8%

With Western Europe down 8.7%

This surely must change the geopolitical situation for Europe, and therefore, for the world.  At this pace, if we want to see how an advanced set of nation will try to cope with "peak oil" or depletion, we should be watching Europe.

How long will it be (especially given the Russian/Ukraine natural gas debacle in which Europe was the one to get smacked in the face), and given Europe's increasingly dire position on energy, before some Euro-lectuals start saying and writing that the U.S and the Russians are essentially trying to choke Europe out of existance?

Unless the growth in production is spectacular in other places in the world, it is hard to see how the North Sea decline does not have the effect of giving MASSIVE POWER to the OPEC nations, with the money that comes from it.

What are Europe's options?
>  First, the "dash for gas", meaning essentially a bit of foot kissing of the Russians and the Caspian Sea nations, and some fast building of pipelines and LNG terminals and ships...

>Second, a fantastic push into Africa, and signing long term contracts with the mentioned nations, Algeria in particular for the gas (this leaving us with Trinidad and Tobago as an even bigger lynchpin in our LNG plans, and running behind in the race to get long term LNG contracts unless we get in the fight soon (in 2003, it was said by Energy Secretary Spencer Abraham that the U.S. will face a shortfall of 25% by 2030, but that was using "old" depletion numbers.  Like Britain and Norway, our depletion seems to be speeding up rapidly, so the 25% could get here much earlier...remember, that even a 10% to 15% shortfall, which looks possible by the 2010 is a major emergency.  Weather will be everything in stretching this number out)
>Third, Fourth, and Fifth, NUCLEAR, NUCLEAR, NUCLEAR.  Europe may be the land of the militant "Greens" but even the Greens don't want to freeze to death or see Europe become a slave state to Russia/U.S.
Europe bears much study and watching (we may even may want to try to help them, if we are still able), the wolf is on the hunt there first.

You are quite right to watch Europe closely. Specialy UK, oil and gas is over the peak there right now.
But I think you forget the most important alternative; it wil be coal, coal and coal. It is what made Europe big and it will be used again.

We will see a whole new (new?) social lower class: coal mine workers, mark my words.

What coal? Coal has totally depleted in France and Belgium, almost totally in the UK, production has peaked in every European country long ago - in the UK already 1913. A lot of remaining coal (in Germany and Greece, for instance) is really lignite. Donbass coal in Ukraine peaked in the '70s and the have to dig as deep as over 1000 meters, as in Germany. This is very expensive and makes the possible production increases very slow and costly.
In fact, African gas production is not that high at the moment - only 145 Bcm in 2004 or considerably less than the EU domestic production. And part of it already heading to the US.

Ageria has been in decline from 1999. And there is also the domestic demand. If Africa wants to develop, it needs its own gas. Look at South America - they are building their regional pipeline system for their own use. This is where Bolivian gas is heading, for instance.

It is not only world natural gas production nearing to the peak, but also increasing domestic and regional use outside Europe end the US.  

Isn't Nigeria just flaring gas right now. Can't someone tap into that?
My understanding is that NG is mostly profitable when it can be delivered throught pipelines straight to the customer. However, There is almost no market for NG in Africa. The only option is to develop a costly Liquified NG infrastructure.
Nigeria is flaring over 40% of its gas production. But it is also planning to increase considerably its electric power capacity by using gas. LNG transports are expensive and a real alternative should be to build local pipelines and power grids for transimission of gas-powered electricity. It is presently rapidly increasing its LNG capacity, so flaring will be reduced.
Another well known consultant, Simmons, has an interesting interview in Barron's:

part two of the interview is paid content...
The last Q & A in the article:

"Why does ExxonMobil have a different view of where the oil price is headed?

I don't have the vaguest idea why they could ever think we are going back to $25 oil other than their business model desperately needs that to happen to have their long-term strategy work. High oil prices are very bad news for big oil. The higher the price, the more proven reserves they've already booked they lose in these foreign concessions, because once their projects hit their payout targets, then the host government's share rises. I think the major oil companies are lost in the wilderness right now."

Can anyone elaborate on how these foreign concessions agreements are typically structured?

Ask Venezuela:

Venezuela will save a minimum of 3 billion U.S. dollars under the terms of the deal, because the oil companies used to sell 500,000 barrels per day (bpd) to the government at international prices rather than at cost prices.

(Sorry, but I can't seem to format a table properly)

Use TT or CODE to get monospace.  Also use only spaces not tabs.

Ecuador                -2.9%
Mexico                 -1.9%
India                  -4.0%
Norway                 -8.3%
UK                    -11.8%
Argentina              -3.8%
Oman                   +0.1%
Western Europe Total   -8.7%
Western Hemisphere     -2.5%
Africa Total           +6.8% (dominated by Nigeria, Lybia, and Algeria {OPEC} and Angola {non-OPEC]

Eastern Europe and FSU +4.2% (dominated by Russia)
Asia Pacific           +1.2% (dominated by China)
Total Middle East      +1.6% (dominated by OPEC and esp, Saudi Arabia)

Total OPEC             +2.1%
Total non-OPEC         -0.1%
Total World            +0.8%

How specifically do you use those? Is there a "How to" somewhere online?

Also a typo repeated from above - it is Libya, not Lybia.

If that page is too complicated you could try this one:
Thanks for the analysis! is there any tentative of explanations for the predicted turnarounds from this consultant? How could UK increase productionafter a double digit drop!
The reason I can't give more detail on the report has to do with specific restrictions on its use and distribution.  I'd be setting myself and my company up for liabilities if I put it out on the web.

Sorry about that.  

That said, this is the most-discussed consulting firm that has a very public and optimistic view of oil production going forward.

The report, which is quite lengthy, does not go into project level detail as to where this extra production will be coming from.  They don't talk about their country level decline assumptions.  They also don't talk about growth assumptions except on a region or major-country basis.  

We all know about the major projects and those can be accounted for.  However, it is what is going on in the background that really controls their forecast.  The low declines and subtle turn-arounds in the countries that most people don't pay attention to are the major reasons that this firm show's increasing production worldwide beyond 2010.

My point in trying to share this is that, in some sense, they are trying to pull a Saudi Arabia on us.  They are trading on their name, and saying "Trust Us. We know what is going on. You don't really need to know the details."


Re: "does not go into..." "they don't talk about..." "trust us..."

Rest of this post on non-OPEC production left intentionally blank

How much did you guys pay for this, Bubba?
Who knows?  We get everthing they publish, which is about 3 reports a week.  It all comes under an umbrella agreement which I am sure comes with a high price tag.  

I searched their web site to see if there was somewhere to download some of the raw data, but if it was there, I couldn't find it.  I may try emailing them.

The report is full of descriptive verbage about the global economy, demand forecast, pricing forecasts, refinery capacity, and forecasts country by country.  However, the forecasts do not go any deeper than country level - except for the general mentions of the major projects we all know about (e.g. Kizomba B, Salym, Tengiz, Barracuda, Caratinga, White Rose etc.)

So it very much sounds like there's a problem of outright intellectual dishonesty, not just excessive optimism. I rather wondered after I'd studied their implausible UK production graph.

For those not sure, "FUD" means fields under development, which can be seen not to do much, but includes Buzzard probably, the only giant oilfield found in the region for about 20 years.

"FUA" means fields under assessment, which is where it all comes from  starting only next year, from fields which evidentally aren't even evaluated yet, but which of course must have enormous amounts of oil.

YTF is yet to find.

I'm not convinced.  Thanks Stuart, I was considering trying to find this post again and put it up.

UK Department of Trade and Industry Figures give:-
August 2005       1.21 million barrels/day
September 2005 1.38 million barrels/day

If they cannot get current production right what confidence
can you place in their predictions.

Does anyone know if there is a location online for the predictions of oil output from Texas for each year in the 1970-1980 range? I seem to recall it being said that even after peak, each year it was predicted that there was going to be an increase in output within the next few years.

Slightly off topic, but an interesting note regarding the CERA predictions which I haven't seen explicitly voiced. They make a decent mention about the risks which might affect their predictions on the downside, but they don't discuss events which might affect their predictions on the upside.

Sorry, don't have any links to data on 30+ year old predictions for texas or anywhere else. Someone with access to hardcopy data of that time would probably need to dig it out. Would be interesting, people like Colin Campbell might have some such data. Unfortunately inaccurate predictions tend to vanish without much trace within a couple of years.

I can help with the CERA predictions: there are no upside risks in their recent production forecasts - which is why they don't mention them and why many here feel they are irresponsible and unrealistic. There is, however, potential for demand destruction by economic slowdown or worse, that might (if severe enough) give their estimated PO date a sporting chance.

The MMS has announced a solicitation for comments regarding rulemaking non-oil related uses of OCF. That includes offshore wind farms!!

Perhaps those of us in favor of making it easy for windfarmers and other providers of alternative energy, to obtain the necessary permits, should submit comments to the MMS. Article on comment solicitation via Rigzone:

Thanks, Bubba. Re: "Mexico, India and Norway also show dramatic turnarounds in 2006." Mexico?

This news report based on a recent Pemex announcement.
Petroleos Mexicanos, the state-owned oil monopoly, said crude production in 2006 will surpass 3.4 million barrels a day, up from output of 3.33 million barrels a day through October this year, even as its largest field declines.

Pemex's Cantarell offshore oil field, which accounts for about 60 percent of oil production, is forecast to produce 1.9 million barrels a day in 2006, a 6 percent decline from 2.03 million barrels a day so far in 2005, Pemex said in an e-mailed statement.

Pemex forecasts Cantarell will produce 1.68 million barrels per day in 2007 and 1.43 million barrels daily in 2008. The decline in Cantarell's production will be made up with investments in other oil fields, including Ku-Maloob-Zaap, Crudo Ligero Marino and Complejo Bermúdez, Pemex said.
So, Cantarell (Gulf of Campeche) is toast. What about the others? From Pemex in September 2004 here
State Pemex has awarded 20 contracts for a total of $620-mil for the construction of offshore oil platforms during the first half of this year, according to documents released as annexes to President Vicente Fox's State of the Union address, which he delivered on Wednesday. The documents said 91% of the contracts went to Mexican companies, "providing an important boost that will revive domestic industry and generate jobs." The contracts form part of a program for the construction of 47 offshore rigs and 56 pipelines totalling more than 600 km. The aim is to develop the Ku-Maloob-Zapp and Crudo Ligero Marino fields in the Sound of Campeche, as well as the Lankahuasa gas field offshore the southern Gulf state of Veracruz. All three fields are to be in full production by 2006. By that time, the documents said, their output should total 1.5-mil b/d of crude and 1.4 Bcf/d of gas.
Well Ku-Maloob-Zaap (in the Gulf) is still in development according to Rigzone.
Mexico's state-owned oil company Pemex plans to add a floating, production, storage and offloading (FPSO) ship to the Ku-Maloob-Zaap project in Campeche state to start operations in 2007, a Pemex spokesperson told BNamericas.

The FPSO ship would produce 200,000 barrels a day of crude oil and 120 million cubic feet natural gas a day, and have storage capacity for 2.2 million barrels of crude, according to spokesperson.
Assuming a hurricane doesn't delay any of this. From the EIA
The two other major oil production centers in the Gulf of Campeche are the Ku-Maloob-Zaap and Abkatun-Pol-Chuc fields. Located adjacent to Cantarell, the Ku-Maloob-Zaap field produced 304,400 bbl/d of crude oil in 2004. Production at the field has risen by 50 percent over the past decade, and Pemex hopes that continued development of the field will replace some of the decline in Cantarell production. Off the coast of Tabasco state, the Abkatun-Pol-Chuch field produced 321,800 bbl/d of crude oil in 2004. Production at the field has declined steadily, down over 50 percent from 1996.
Frankly, I don't know what we can expect from Mexico in 2006 and I don't think Pemex knows either. Your consultant (who shall not be named) is no doubt getting their data from Pemex.