World Oil Supply- March 2016

Source: OPEC_RP160307 3/14/2016, Location: Europe

Non-OPEC oil supply growth for 2015 was revised up by 100 tb/d to 1.42 mb/d from the previous report to stand at 57.09 mb/d. This was mostly driven by upward 4Q15 revisions in the OECD (+258 tb/d), Developing Countries (+48 tb/d) and the Former Soviet Union (+26 tb/d). Non-OPEC oil supply for 2016, despite several upward and downward revisions, remained unchanged to contract by 0.70 mb/d and average 56.39 mb/d compare to last month MOMR. However, this forecast is subject to many uncertainties. OPEC NGLs production, which is estimated to grow by 0.15 mb/d in 2015 to average 6.15 mb/d, is also expected to grow by 0.17 mb/d to reach 6.32 mb/d in 2016. In February, OPEC crude production decreased by 175 tb/d to average 32.28 mb/d, according to secondary sources. As a result, preliminary data indicates that global oil supply decreased by 0.21 mb/d in February to average 95.73 mb/d.

World oil supply in 2015 and 2016
Non-OPEC supply
According to the latest historical data for 4Q15, total non-OPEC oil supply in 2015 was revised up by 110 tb/d to average 57.09 mb/d. This revision was mostly driven by upward changes in 4Q15 for OECD countries such as the US, Canada, Norway and the UK, as well as Malaysia, Thailand, Brunei and Colombia. Russia, Brazil, Azerbaijan and FSU others showed revisions in all quarters. These figures were partially offset by downward revisions for Australia, Argentina and the Sudans by a total of 0.33 mb/d. Despite weaker oil prices, non-OPEC supply in 1Q16 was a higher-than-expected by 0.41 mb/d to average 56.94 mb/d.

Non-OPEC oil supply in 2015 is estimated to have averaged growth of 1.42 mb/d over the previous year. Updated production data for 4Q15 primarily led to this upward adjustment of 330 tb/d, with the OECD experiencing the greatest increase of 258 tb/d, followed by 48 tb/d in developing countries (DCs) and 26 tb/d in the FSU. There were also upward revisions to non-OPEC supply figures for 1Q15 and 2Q15 of 63 tb/d and 31 tb/d, respectively.

The expectation of reduced cash flow in 2016 has prompted many companies to reduce investments, deferring major new projects until a sustained price recovery can be maintained. Hence, a strong contraction of 0.70 mb/d is expected for 2016. Although this contraction remained unchanged, however the absolute supply level was revised up by 0.11 mb/d to average 56.39 mb/d due to 2015 based level change. However, this forecast is subject to many uncertainties. On the one hand, the oil market has witnessed lower capital expenditure on the part of IOCs, as well as a decline in the US rig count, higher output from legacy wells than new tight oil wells and increased geopolitical tension. On the other hand, there has been a reduction in production costs, mainly in the US, as well as increased hedging, with producers choosing to produce with losses rather than stopping production. This has caused the non-OPEC supply forecast in 2016 to become more uncertain.

On a regional basis, OECD Americas’ oil supply saw the greatest increase among all non-OPEC regions in 2015 at 0.91 mb/d. But in 2016, this region is expected to see the greatest decline among regions at minus 0.48 mb/d. FSU’s output is expected to see the second-highest decline in 2016 at minus 0.12 mb/d on a regional basis.

In 2015, on a country basis, following the US at more than 1 mb/d of growth, Brazil, Russia, UK, Canada, China, Norway, Malaysia, Oman and Vietnam were the main contributors to growth, while Mexico, Yemen and Kazakhstan witnessed the main declines. In 2016, the US, Mexico, UK, Kazakhstan, Azerbaijan, Russia, China and Colombia are all expected to see large declines, while Brazil, Canada, Malaysia and Australia will see the biggest growth.

OECD
Total OECD oil supply in 2016 is projected to decline by 0.56 mb/d over the previous year, unchanged compared with the previous MOMR to average 24.65 mb/d, despite a downward revision in OECD America and an upward revision in OECD Asia Pacific which offset each other. This is driven partially by adjustments carried over from historical data in January and February. Overall, the OECD supply profile remains relatively unchanged, with a strong decline expected from OECD Americas and OECD Europe. Based on the 4Q15 revision, the OECD’s oil supply in 2015 was revised up by 60 tb/d to average 25.21 mb/d, indicating growth of 1.01 mb/d.

OECD Americas
Oil production in OECD Americas is projected to decline by 0.48 mb/d y-o-y to average 20.52 mb/d in 2016, revised down by 10 tb/d compared with the previous month. The oil production outlook for this region in 2016 remains uncertain due to the high break-even costs, which are estimated to be higher than current oil prices in most areas of the US and Canada as well as Mexico, although the upstream industry has seen a remarkable reduction in drilling and completion costs during 2015. Oil production in OECD Americas is estimated to grow by 0.91 mb/d to average 20.99 mb/d in 2015. Production during 1H15 and 2H15 increased by 1.29 mb/d and 0.54 mb/d, respectively, over the same period a year earlier.

US
US total liquids production, excluding processing gains, was pegged at 13.97 mb/d in December 2015, down by 135 tb/d m-o-m, with crude output lower by 43 tb/d at 9.26 mb/d. The slowdown came mainly from Texas, North Dakota, New Mexico and Colorado, while oil production in Gulf of Mexico (GoM) increased by 112 tb/d in December to 1.63 mb/d, higher by 0.18 mb/d y-o-y. On a yearly basis, crude oil output mainly increased in Texas, GoM and North Dakota by 291 tb/d, 143 tb/d and 87 tb/d, respectively. At the same time, production in Alaska, Louisiana, Kansas and Utah all declined y-o-y. Total NGLs production in December after seven consecutive months of increasing dropped by 61 tb/d to approximately 3.38 mb/d from the previous month, according to national source data.

Total US liquids production for 2015 is estimated at 13.99 mb/d, revised up by 50 tb/d m-o-m. With this, US oil supply growth in 2015 reached 1.03 mb/d, down by 700 tb/d y-o-y. Crude oil output averaged 9.43 mb/d, of which tight crude is estimated at 4.6 mb/d. The remainder of 4.83 mb/d was conventional crude oil, including 1.54 mb/d of GoM production. According to this data, US crude oil grew by 725 tb/d in 2015 of which only 77 tb/d was the growth of conventional crude. The annual average output of conventional NGLs, with a decline of 73 tb/d, is estimated at 1.35 mb/d while the growth of US unconventional NGLs was 0.33 mb/d in 2015, reaching 1.93 mb/d. The average of total other liquids like biofuels is estimated at 1.28 mb/d and grew by 46 tb/d in 2015.

Despite an annual increase in US liquids production in 2015, mainly from unconventional sources, y-o-y production growth was 0.70 mb/d lower, compared to the previous year. In 2016, US total liquids output is expected to decline by 0.42 mb/d to average 13.57 mb/d, revised down by 20 tb/d m-o-m, with the fall coming primarily from a drop in tight crude production in different regions of the US.

The planned capital expenditure (capex) of several operators in North America was reduced for 2016 compared to 2015. For instance, EOG Resources Inc. showed a y-o-y reduction of 45-50% to reach $2.4-2.6 billion, cutting 2016 capex in half. Elsewhere, Encana Corp. of Calgary will further cut its capex for 2016 to around $900 million to $1 billion, a drop of 55% compared to a year earlier. Similarly, Chesapeake reported planned total capital expenses for 2016 will be $1.3-$1.8 billion, 57% lower than its year ago level. It further announced that its programme of activities will be dedicated to more completions and less drilling, with total completion spending representing 70% of the company's total drilling and completion programme. According to Baker Hughes, the latest survey for the week ended 26 February 2016 indicated that the number of active US oil rigs fell for the tenth consecutive week, despite an increase of one rig in the GoM, falling by another 13 rigs to reach a total of 400 following last week's decline of 26. Moreover, the total rig count, including natural gas rigs, fell by 12 to 502, approximately 68% below the peak of 1,609 reached in October 2014. The oil rig count compared to a year ago fell by 59% and this percentage is down 60% y-o-y from a previous total rig count of 1,267 rigs.

Canada and Mexico
Canadian oil production in 2016 is expected to increase by 70 tb/d y-o-y to average 4.47 mb/d, unchanged from the previous MOMR. The expected growth is supported by oil sands developments. Oil output in December 2015 declined by 0.14 mb/d from the previous month to average 4.44 mb/d, due to lower production from conventional oil fields. Conventional crude oil was 0.22 mb/d lower than in the same month a year earlier. On the contrary, synthetic oil from bitumen extraction increased in November m-o-m but declined by 0.12 mb/d in December. This may extend to the months of January and February due to Long Lake, which was taken offline following a recent explosion.

Canada’s 2015 oil supply growth was lower than expected, with annual output growing only by 90 tb/d to average 4.40 mb/d due to weak output in 2Q15 because of wildfires.

Mexico’s oil supply is estimated to decline by 0.2 mb/d to average 2.60 mb/d in 2015, unchanged from the previous month. Annual oil production for 2016 is expected to decline at a slower pace of 0.13 mb/d, with average supply anticipated at 2.47 mb/d. Mexican liquids production in January was unchanged at 2.59 mb/d compared to last November and December, although crude oil output declined by 16 tb/d m-o-m. NGLs production increased by 16 tb/d to average 0.32 mb/d in January. A y-o-y comparison of Mexico’s oil production in January indicates an increase by 8 tb/d in crude oil. This was mainly due to maintenance issues in January 2015 that affected the KMZ complex. Output of NGLs in Mexico declined by 32 tb/d compared to January 2015.

According to a preliminary production data from Pemex provided by other sources, in February a heavy production decline was seen in Cantarel, KMZ and Ligero Marino as well as in fields such as Chuc, Homol and Ixtal linked to the Abkatun platform due to fire at the beginning of the month. As a result, crude output declined to 2.22 mb/d.

OECD Europe
OECD Europe’s oil production is anticipated to decline by 0.08 mb/d to average 3.67 mb/d in 2016, remained unchanged compared with the previous MOMR, following more-than-expected oil production in 1Q16 from Norway. The expected decline will mainly come from the UK, although supply difficulties are being encountered in the North Sea due to deep cuts in capex, following the sharp decline in oil prices. Nevertheless, OECD Europe’s oil supply grew by 0.14 mb/d to average 3.75 mb/d in 2015, registering remarkable growth of 100 tb/d and 60 tb/d in the UK and Norway, respectively.

Preliminary January total liquids output figures for Norway indicate a decrease of 9 tb/d m-o-m to average 2.04 mb/d. Of this, 1.63 mb/d was crude oil and the remainder consisted of 0.38 mb/d of NGLs and 0.03 mb/d of condensate, according to the Norwegian Petroleum Directorate (NPD). Norway decreased investment in oil and gas development and production for 2016 by 9.3% y-o-y. Moreover, the country is planning to start production from only three projects with a total capacity of 0.13 mb/d, exactly half the capacity of a year ago. Hence, minor growth is expected in 2016, assuming the natural annual decline of mature fields. At the beginning of March 2016, the Deepsea Atlantic drilling rig commenced on the first of a total of 35 wells to be drilled in the first phase of the Johan Sverdrup field development.

Preliminary annual production rates indicate Norwegian output in 2015 saw growth of 60 tb/d reaching an average of 1.95 mb/d. Output is anticipated to be unchanged at 1.95 mb/d in 2016.

The UK’s oil supply, with around 40% less capex compare to 2014, is expected to decline by 50 tb/d to average 0.92 mb/d in 2016, following robust growth of 100 tb/d despite low oil price conditions in 2015. Throughout 2015, UK liquids production grew at a surprising rate of 10%, despite an observed average yearly decline rate of 12%. This was mainly due to stable output from the Buzzard field and less maintenance during the year. Oil production in January declined by 60 tb/d m-o-m to 0.97 mb/d. The decline in output was due to several reasons in different fields – from leakage of gas in the Brae Alpha platform to an unplanned shutdown at the Kinneil terminal. Prospects for 2016 production are negative due to more expected maintenance, annual decline rates similar to those of 2015 and a lack of big new project start-ups.

OECD Asia Pacific
Oil production in the OECD Asia Pacific region is seen decreasing by 40 tb/d in 2015 to average 0.46 mb/d, indicating no change compared with the previous MOMR. OECD Asia Pacific’s total oil supply in 2016 is anticipated to decline by 10 tb/d to average 0.46 mb/d.

Australia’s crude oil production fell 9.1% in 2015 to 209 tb/d, the lowest level seen since 1970. According to EnergyQuest, condensate production fell by 8.5% in 2015 to average 113 tb/d with lower production in all basins except Bass and Perth. Australia’s total liquids supply declined by 50 tb/d to average 0.38 mb/d in 2015. For this year, expected growth of 20 tb/d is seen leading to an average output of 0.40 mb/d. This could boost the country’s oil supply. It is expected that the Crux oil field in the Bonaparte basin will start production in 2016 with output of 32.5 tb/d at peak. Production in other Asia Pacific will decline by 20 tb/d to average 0.06 mb/d in 2016.

Developing Countries
Total oil production in DCs grew by 0.19 mb/d in 2015 to average 11.52 mb/d, indicating an upward revision of 10 tb/d in historical data from the previous MOMR. In 2016, a decline of 20 tb/d is expected for DCs. In fact, the expected growth from Other Asia and Latin America will be offset by declines in the Middle East and Africa.

Other Asia
Other Asia’s historical oil supply data was revised up by 10 tb/d and grew by 100 tb/d y-o-y to average 2.70 mb/d in 2015. Expected growth for this year will be slower at 30 tb/d following weak oil prices. Total oil supply is forecast to reach 2.74 mb/d in 2016. In this region, oil production is expected to increase mainly in Malaysia and to a lesser degree in Asia others, in the current year.

Latin America
Latin America’s oil supply historical data saw a negligible upward revision and growth of 0.18 mb/d in 2015, making it the second strongest region following OECD Americas, with an average supply of 5.18 mb/d. The growth forecast was lowered by 20 tb/d compared to last month. In 2016, growth is expected to shrink to only 20 tb/d, reaching average supply of 5.20 mb/d, with the growth coming only from Brazil.

Brazil’s supply is estimated to average 3.06 mb/d in 2015, indicating an increase of 0.21 mb/d over the previous year, revised up by 20 tb/d due to the upward revision in 4Q15 historical data from the previous MOMR. Liquids output in December increased by 150 tb/d m-o-m to average 3.15 mb/d, with y-o-y growth remaining broadly flat. Crude oil output, NGLs and biofuels production in December registered output of 2.53 mb/d, 0.087 mb/d and 0.53 mb/d, respectively. Due to a continuation of declines in oil production from post-salt reservoirs, led by the Marlim Sul field, Brazil plans to have more pre-salt activity. It thus needs more investment and partnerships. Hence, Shell, the second largest oil producer in Brazil, has partnered with Petrobras in the 8-12 bn barrel Libra block, which is expected to start producing 27°API crude in 1Q17. Lower oil prices continue to present a challenge to sub-salt economics.

In 2016, the addition of 0.38 mb/d at peak capacity will be implemented through three new floating production storage and offloading (FPSO) terminals, all in the Santos basin. Nevertheless, growth in 2016 is not expected to be more than 80 tb/d to average 3.14 mb/d, revised down by 20 tb/d compared to the previous forecast due to preliminary lower-than-expected oil production in 1Q16, according to Petrobras. In February, the 0.15 mb/d Cidade de Maric? field started up, as did a smaller 20 tb/d early production system in Sépia in March, according to Energy Aspects.

Colombia produced 1.03 mb/d of crude on average the previous year to register growth of 10 tb/d, unchanged from the last estimation in February. Colombia’s total oil output in January declined by 10 tb/d to 1.01 mb/d due to pipeline restrictions and field maintenance, according to the Hydrocarbons Ministry. The Finance Ministry recently revised down its 2016 oil production target on sustained low oil prices. Assuming the new official production target and oil prices of $30-40/b, Colombian oil services chamber Campetrol estimates the country's reserves-to-production ratio at 4.9 years, compared with 6.4 years at the end of 2014, according to Argus. It is anticipated that total oil supply will decline by 20 tb/d y-o-y to 1 mb/d in 2016.

Middle East
Middle East oil supply declined by 80 tb/d y-o-y to average 1.26 mb/d in 2015. The main decline of 100 tb/d in the previous year came from Yemen. The total decline for 2016 is expected to be 50 tb/d, revised down by 10 tb/d due to ongoing geopolitical conflicts. Thus, total oil supply is expected to fall to 1.22 mb/d.

Africa
Africa’s oil supply decreased by 10 tb/d y-o-y to average 2.37 mb/d in 2015 and is expected to experience a further decline of about 20 tb/d in 2016 to average 2.34 mb/d. This has been revised up by 10 tb/d over last month’s estimation. Declines are expected from Egypt, Equatorial Guinea, Gabon and the Sudans.

FSU, other regions
Total FSU oil production is seen averaging 13.68 mb/d in 2015, an increase of 0.13 mb/d over a year earlier. This indicates an upward revision in historical production data of all quarters compared with the previous MOMR. The main growth came from Russia, with minor growth from other FSU regions. The FSU remains the leading region next to OECD Americas, Latin America and OECD Europe in terms of production growth among non-OPEC regions in 2015. However, FSU’s total supply despite of an upward revision by 50 tb/d in this month, is forecast to decline in 2016 by 0.12 mb/d. This was due to an upward revision of 40 tb/d in 1Q16 in Russia, the second highest on a regional basis. Thus, the area will average 13.56 mb/d. The greatest decline is expected to be seen in Kazakhstan and Azerbaijan at 40 tb/d each, followed by Russia and FSU and other regions.

Russia
Russian oil production is estimated to grow by 0.15 mb/d to average 10.83 mb/d in 2015, revised up by 30 tb/d from the previous MOMR, due to upward revisions in the historical production data for all quarters. There was robust incremental production that came onstream from Russian oil companies in 2015, for instance. Also, the launch of the Yaro- Yakhinskoye, Termokarstovoye and Yarudeiskoye fields contributed to a record 51% growth in Novatek’s liquids production in 2015, according to Nefte Compass. Russian oil supply in January 2016 reached an average of 11.07 mb/d, up by 100 tb/d mo- m, following the start-up of the Yarudeiskoye field with a peak capacity of 70 tb/d. Following this new high level record in January, total oil output in February again grew by 10 tb/d to 11.08 mb/d, according to the Energy Ministry. For 2016, Russia’s oil supply saw an upward revision due to higher-than-expected oil output in 1Q16. For the whole year, Russia’s oil supply is expected to decline by 20 tb/d to average 10.81 mb/d, revised up by 40 tb/d.

Caspian
Oil production in Kazakhstan in 2015 declined by 30 tb/d to average 1.60 mb/d and is anticipated to see a further decline of 40 tb/d in 2016 to reach 1.55 mb/d, both years unchanged from the last evaluation. In January, crude oil output decreased by 24 tb/d to 1.35 mb/d and NGLs production remained steady at 0.27 mb/d. Therefore, total oil supply in January declined by 22 tb/d to 1.62 mb/d. According to Nefte Compass, the biggest producer, Chevron-operated joint venture Tengizchevroil, was 8% higher at 0.59 mb/d. But other major players were mostly flat or lower than the previous year. Oil production in Kazakhstan will continue to decline until the start-up of Kashagan oil field in 2017.

In Azerbaijan, the total oil supply declined by 10 tb/d to average 0.86 mb/d in 2015. Despite higher output in January 2016 of 20 tb/d m-o-m due to a return from maintenance at ACG’s oil field complex, the y-o-y decline is anticipated to increase to 40 tb/d in 2016 to average 0.82 mb/d, due to higher maintenance expectations and the lack of replacement for mature field losses.

Other Europe’s supply is expected to remain steady, averaging 0.13 mb/d in 2015 as well as in 2016.

China
China’s oil supply is seen growing by 70 tb/d to average 4.37 mb/d in 2015, unchanged from the last MOMR. Despite a remarkable volume of 110 tb/d coming from production ramp-ups of Bozhong, Kenli, Weizhou and other small fields offshore, as well as the incremental output from onshore fields (mainly from Daqing and Changqing), no growth is expected for 2016 in China. Despite new volume coming from old projects’ ramp-ups, a decline of 20 tb/d is expected for the current year to average 4.35 mb/d.

As mentioned last month, in the context of a reduction of capex by Chinese companies in 2016, Sinopec has decided to shut down four small sized oilfields having around 0.2% of annual output (440 tb) with the onshore Shengli oilfield this year reducing its losses. According to Sinopec, in January of 2016 alone, the Shengli oilfield posted additional losses of 2.9 billion yuan amid low oil prices. Daqing oilfield, which is operated by PetroChina, has embarked on a reduction of annual crude oil output by 11 mb for the next couple of years. The annual decline rate in the Daqing oilfield is around 4%. China National Offshore Oil Corporation (CNOOC) also plans to produce less than last year’s production.

OPEC NGLs and non-conventional oils
OPEC NGLs and non-conventional oils were estimated to average 6.15 mb/d in 2015, representing growth of 0.15 mb/d over the previous year. In 2016, OPEC NGLs and non-conventional oils are projected to average 6.32 mb/d, an increase of 0.17 mb/d over the previous year. There are no changes in 2015 estimations and 2016 expectations for OPEC NGLs and non-conventional production compared with the previous MOMR.

OPEC crude oil production
According to secondary sources, total OPEC crude oil production in February averaged 32.28 mb/d, a decrease of 175 tb/d over the previous month. Crude oil output decreased mostly from Iraq, Nigeria and UAE, while production increased in Iran, Saudi Arabia and Kuwait.

World oil supply
Preliminary data indicates that global oil supply in February 2016 decreased by 0.21 mb/d, compared with the previous month, to average 95.73 mb/d. Non-OPEC supply declined by 0.04 mb/d, while OPEC production decreased by 0.17 mb/d. The share of OPEC crude oil in total global production decreased slightly to 33.7% in February compared with the previous month. Estimates are based on preliminary data from direct communications for non-OPEC supply, OPEC NGLs and non-conventional oil, while estimates for OPEC crude production are based on secondary sources.


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