A non-OPEC progress report
It doesn't work to leap a twenty-foot chasm in two ten-foot jumps.
— American Proverb
A data-driven analysis of new oil projects outside of the Organization of the Petroleum Exporting Countries (OPEC) reveals that production growth is now surpassing the dismal performance exhibited in 2005 and 2006.
New project schedules and the EIA's supply data make it possible to take a close look at the non-OPEC supply situation, and thus make a rough estimate of how 2007 will turn out.
Many developments are scheduled to come on-stream in the 2007-2009 period, but new projects peter out thereafter. It's important to keep our eye on the ball by examining how declines or delays affect overall non-OPEC production growth during these crucial years.
A little noticed news item appeared in Rigzone on September 5, 2007—Petrobras Lowers 2007 Domestic Output Targets.
Brazil's federal energy company Petrobras (NYSE: PBR) has reduced its 2007 production target from 1.9 Mb/d to 1.84 Mb/d, company E&P director Guilherme Estrella told reporters. [Mb/d = million barrels per day]
"We had a first half full of operational problems that will not happen again. We had problems in the ramp-up of oil platforms P-34, P-43, P-48 and P-50," Estrella said. Problems included fires and project postponements...
Petrobras forecasts average domestic oil production of 2.05 Mb/d next year... Petrobras ended 2006 with average domestic oil production of 1.91 Mb/d.
Brazil's national oil company Petróleo Brasileiro S.A. (Petrobras), is a superstar in the non-OPEC world. (See the Wall Street Journal report How a Sleepy Oil Giant Became a World Player, published on August 30, 2007.) Petrobras is a leader in offshore technology, and Brazil is one of the few countries outside of OPEC that can actually raise yearly production. It comes as a surprise that Petrobras' domestic production target is lower for 2007 than it was in 2006. This can't be good news.
The non-OPEC supply situation going forward is a major concern. OPEC1 has cut its output, placing the burden squarely on the rest of the world to keep up with increased demand. Growth outside the cartel has barely outpaced production declines accompanying depletion in the existing production base. This problem is illustrated by a modified version of Chris Skrebowski's Oil-a-Gator, first introduced in The Power of Declines (graph left from ASPO-USA, April 4, 2007). Global output must fall if declines overwhelm the flows of new oil coming on-stream over time—regardless of the reasons why output has fallen.
OPEC's cuts have exceeded the rest of world's ability to satisfy growing demand, so yearly world oil production has been gradually declining since the beginning of 2005. OECD countries are currently drawing down inventories (EIA) to make up the difference. According to the EIA data, oil (crude + condensate + natural gas liquids) production was 81.430 million barrels per day in 2005 and 81.321 million in 2006. Production stands at 81.209 million barrels per day through May of 2007 (five-month average). OPEC's output has fallen 1.190 million b/d during these 29 months. Global oil production is down 221 thousand b/d from the historical peak in 2005. The numbers indicate anemic growth in non-OPEC supply resulting in a net addition of 0.969 million b/d during the period, an average increase of 33,400 barrels (.0065%) per month.
The IEA's Medium-Term Oil Market Report sets the decline rate outside of OPEC at 4.6%. Skrebowski's Megaprojects database, which excludes fields producing less than 40,000 b/d, indicates that 2.905 million b/d was scheduled to come on-stream from non-OPEC countries during 2005 and 2006. Declines in existing production or project delays took away the rest.
An Oil & Gas Journal special report Upstream production capacities to advance in many countries "lists numerous announced major upstream projects in 50 countries" along with scheduled target dates and peak production flows (July 23, 2007). The list provided by author Guntis Moritis allows us to see how non-OPEC oil production is progressing. Table 1, shown after the text below, evaluates every new liquids development ≥ 20 thousand b/d listed by Moritis for 2007 except Sakhalin I, which came on-stream in 2005 and peaked in February, 2007 at ≅ 250 thousand b/d. This analysis is necessarily preliminary, but permits a reasonable rough estimate of how this year will turn out.
2007 Non-OPEC Supply Analysis
Non-OPEC production is up 0.638 million b/d over 2006 through May of 2007 according the EIA data. This is an impressive number, representing about 66% of all the growth since the beginning of 2005. The Table 1 data indicates that this net addition may be close to the ceiling for non-OPEC additions in 2007, which appears to be in the vicinity of 700 thousand b/d.
A note on assessments: The graph (left) shows a typical field production profile. Production will ramp-up, achieve peak flows and then decline monotonically (in this example). The start-up may be extended, peak flows may last longer or not be achieved at all, or exceeded, etc. Declines may not be monotonic over time (e.g. exponential at a constant rate) depending on applications of oil recovery technologies. All of this depends on the geology of the reservoir and many other factors
In his Oil & Gas Journal article, Moritis states that "if all the projects listed had a peak production rate in the same year, the total world production capacity would increase by 30 million b/d" for the entire list. Projects peak at different times of course and do not always arrive on schedule. The total 2007 non-OPEC addition of 2.409 million barrels per day from new field developments must be viewed in this light. Projects that were delayed or did not achieve peak flows in previous years are added to this year's tally, while production from many new 2007 projects will be pushed into subsequent years for the same reasons. The oil supply is a moving target.
Table 1 [below] indicates that roughly 780 thousand barrels per day have come on-stream during 2007 as of September 1st, with about 1.63 million b/d scheduled for later this year or delayed into subsequent years. Here are some of the details. (Figures cited are compared to the year-end 2006 number.)
- Russia's output has risen 182 thousand b/d, the 2nd largest increase among non-OPEC countries this year. In so far as Russia has no new projects in 2007, most of this growth must have come from Sakhalin and some growth in its existing production base. See For Russian, An End to Growth is In Sight (ASPO-USA, August 15, 2007).
- Buzzard has experienced minor difficulties, but is operating at about full capacity (look at Table 1). The UK's production is up 78 thousand b/d. The rest of the 200 thousand b/d from Buzzard is offset by declines elsewhere.
- Azerbaijan is up 201 thousand barrels per day, the largest increase among non-OPEC countries. Most of this must be coming from the ACG Phase II expansion at East Azeri (look at Table 1).
- Canada's production has increased 127 thousand b/d this year, with some of that coming from the tar sands. It appears that conventional production from existing fields in Atlantic Canada has contributed much of the increase.
- There is no indication that the Gulf of Mexico developments, Atlantis and Neptune, will ramp-up this year or contribute significant quantities of oil if they do. The same remarks apply to Alvheim (Norway). Some projects such as Puffin (Australia) or Piranema (Brazil) will probably contribute small oil flows in the 4th quarter.
- Malaysia's production is slightly down, but the current EIA data does not reflect Kikeh, which was successfully put into production in August. Production at the field will peak somtime in 2008 and does not add much to this year's total.
- Brazil has already stated (link op. cit.) that they expect a small daily production decrease this year, and expect to average 2.05 million b/d in 2008, an increment of only 21 thousand barrels. Golfinho and Roncador (P-52) are set to come on-stream in October, but obviously won't affect this year's non-OPEC production hike much.
These considerations point to an increase of at most 700 thousand b/d in non-OPEC supply for 2007, a substantial improvement over the 2 previous years. Growth beyond this ceiling requires that new oil or existing field upgrades must surpass non-OPEC declines. If the IEA's estimate of the decline rate for non-OPEC production is accurate, the world must put 2.324 million b/d on-stream each year to offset depleting fields. This number is higher than the peak flows total in Table 1. It seems clear that new oil from projects scheduled in previous years is making up much of the difference. With so many 2007 projects experiencing delays, declines may offset additions for the rest of the year, thus lowering the non-OPEC increment. Updates to the EIA data will allow us to follow the situation more closely.
Production growth is stronger than it was in the previous two years, but that doesn't mean that the non-OPEC supply picture is rosy for the indefinite future. New developments become scarce after 2009 according to both Skrebowski's and Moritis' schedules for upcoming upstream projects. These schedules are reasonably accurate because of the long-lead times required to get new oil into production. Analysts like the IEA and the Centre for Global Energy Studies (CGES) have been forced to revise their non-OPEC forecasts downward in recent years (ASPO-USA, April 11, 2007). We await the final verdict for non-OPEC supply, which won't be in until the 1st quarter of 2008.
Table 1 (with links to project reports)
Project Peak Flow Country Notes Polvo 50 Brazil on-stream, Devon, first foreign operator Espadarte Sul 100 Brazil on-stream, first oil in January, 2007; Petrobras (and others below) Golfinho 100 Brazil first oil in October, 2007; Cidade de Vitória FPSO Roncador P-52 180 Brazil first oil in October, 2007; peak in 2nd half of 2008 Roncador P-54 180 Brazil delayed, inaugurated FPSO P-54 rig in August Piranema 30 Brazil first oil in September, 2007 Puffin 40 Australia FPSO in place, first oil in late September, 2007 ACG Phase 2 260 Azerbaijan Azeri-Chirag-Gunashli, East Azeri; part done and being completed now Peng Lai 72 China Phase 2; delayed to 2009; ConocoPhillips in tax dispute with CNOOC Xijiang 23-1 100 China target was late 2007, no news after 2005 Wenchang 120 China same as Xijiang, will be produced in "coming years" — CNOOC Okume 60 Equatorial Guinea first oil late 2006, peak in 2008 Mangala 80 India delayed until 2009, requires a pipeline Kikeh 120 Malaysia on-stream in August, 2007, peak in 2008 Tui 50 New Zealand on-stream in August, 2007, peak in 2007 Alvheim 85 Norway delayed until 4th quarter, FPSO not ready Ormen Lange 35 Norway gas liquids, commercial gas production in 4th quarter 2007; peak gas flows in mid-2008 Statfjord 70 Norway "late life project", compression trains requiring upgrades delivered in September, 2007, becoming a gas field with associated oil Buzzard 200 United Kingdom first oil in January, 2007; some recent troubles but outlook is good Chestnut 30 United Kingdom production platform being readied for first oil late 2007 Neptune 50 United States ultra-deepwater, delayed, BHP Billiton was still drilling in April; costs up 35% Atlantis 200 United States BHP Billiton still expects first oil in 2007; little information; costs up 9% Ca Ngu Vanf 70 Vietnam means "golden tuna"; was just getting underway in 2006 with first oil "expected" in 2007; unknown Surmont 25 Canada oil sands SAGD, phase 1, delayed; 300 thousand b/d expected "within the next decade" Cold Lake 30 Canada oil sands (Imperial oil) expansion, unknown Long Lake 72 Canada oil sands, huge cost overruns, cost inflation, first oil delayed to mid-2008, peak 12-24 months afterwards
1. This story is not affected by the announced OPEC production increase of 0.5 million b/d. I will write about that in next week's column.
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