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World Oil Supply - Aug 05

Source: OPEC_RP050810 8/17/2005, Location: Europe

Non-OPEC
Forecast for 2005
Non-OPEC supply is expected to average 50.54 mb/d, representing an increase of 0.73 mb/d over the previous year.On a quarterly basis, adjustments made in the first and second quarter of 2005 reflect actual, preliminary data and baseline revisions, whilst adjustments to the outlook in the third and fourth quarters of 2005 reflect slightly better expectations in Brazil and the loss of production in India due to an accident in the Bombay High field, all of which contributed to the overall change.

OECD
The outlook for the OECD has been revised down slightly. Oil supply is estimated to average 20.89 mb/d, which represents a decline of 0.4 mb/d versus the previous year and a downward revision of 25,000 b/d. Unplanned maintenance and technical repairs, the impact of weather-related shutdowns, and field production restrictions due to safety issues, have contributed to production losses in the OECD, causing the bulk of the adjustments to the outlook. Excluding the impact of the above mentioned issues, the performance of the OECD would arguably have been better. But be that as it may, the expected loss in the OECD in 2005 is the largest in history and is the major drag on the overall performance of non-OPEC.

In the USA, weather related shutdowns during the month of July resulted in the loss of 7 mb and contributed to delays in the installation of several offshore facilities and maintenance work. Overall, US oil supply is still expected to average 7.65 mb/d, which represents a decline of 20,000 b/d from 2004. However, the outlook for the third quarter of 2005 could be subject to downward revisions as a result of shut-downs in the Gulf of Mexico. While the impact of hurricanes is impossible to predict, it is worth highlighting that the 2004-2005 period represents a record as far as volume is concerned. The latest forecast calls for more hurricanes, a total of 18 to 21 tropical storms, of which 9 to 11 may become hurricanes compared to earlier expectations for just 5 to 7 hurricanes. The oil supply forecast for Mexico and Canada remains unchanged. Mexican oil supply is expected to average 3.78 mb/d, for a decline of 60,000 b/d versus 2004. Actual data for the second quarter of 2005 indicates that production performed slightly better than expectations resulting in an upward adjustment of 35,000 b/d for the quarter. However, in July Pemex had to shut down 80% of its production for five days as a precautionary measure ahead of Hurricane Emily resulting in the loss of approximately 10 mb, or 27,000 b/d on a full year basis. Canadian oil supply is expected to average 3.05 mb/d, a decline of 20,000 b/d versus 2004. The outlook remains unchanged despite the announcement by Shell that it will delayed major maintenance on its Athabasca project (160,000 b/d) from the third quarter of 2005 to the second quarter of 20063, given that other repairs at the plant will still take place in 3Q05 shutting production down.

Adjustments to second quarter of 2005 data in Norway and the UK have resulted in a slight downward revision to the forecast of OECD Europe. Total oil supply in OECD Europe is now expected to average 5.86 mb/d, which represents a decline of 270,000 b/d versus last year and a negative adjustment of 28,000 b/d. Oil supply in Norway is expected to average 3.09 mb/d, a decline of 100,000 b/d versus 2004. Unplanned shutdowns and production restrictions across several facilities have led to a poor performance so far this year. But the bulk of these temporary losses are expected to diminish early in the third quarter of 2005. The latest set back was the shutdown of the Veslefrikk oil field after a crack was found in the lowering system of a lifeboat of the platform, but the field is now back on stream. Importantly, this has prompted Statoil to conduct a full review of emergency equipment across offshore installations but it is not known if this may result in further shutdowns. UK oil supply is expected to average 1.92 mb/d, which represents a decline of 170,000 b/d versus 2004 and a negative revision of 13,000 b/d. The UK is also suffering from abnormal field shutdowns. At the time of writing, the field Schiehallion (120,000 b/d) was shut due to a fire and the operator indicated that it will remain shut until the end of August to conduct repairs. This is a problematic field and previous experiences show that repairs may take longer to fix. Elsewhere in the OECD, oil expected to average 550,000 b/d, which represents a decline of 30,000 b/d.

Developing Countries
The full year outlook for The outlook for Developing Countries (DCs) has been revised up slightly. Oil supply is estimated to average 12.50 mb/d in 2005, which represents an increase of 0.60 mb/d versus 2004,and an upward adjustment of 19,000 b/d. A number of small adjustments have been made to the second quarter of 2005 data in several countries to reflect actual, preliminary data and baseline revisions, but the outlook for Brazil and India has also been revised. Positive adjustments are distributed in Brunei, Argentina, Brazil, Yemen, Egypt, and Equatorial Guinea, and negative adjustments in Vietnam, Trinidad, and Sudan. In all cases, except Brazil, the adjustments are small (less 15,000 b/d). Brazilian oil supply is now expected to average 1.99 mb/d, a growth of 190,000 b/d versus 2004. The performance in the second quarter of 2005 was better than expected, with the two new deepwater fields (Barracuda and Caratinga) now reported to have reached peak production. A revision of 73,000 b/d in the second quarter of 2005 to reflect actual data and a revision of 47,000 b/d to the base in the third quarter of 2005 have led to an upward revision for the year of around 30,000 b/d. On the other hand, the accident in the Bombay High complex in India, which resulted in the loss of around 100,000 b/d, has led to a negative revision of 48,000 b/d in the third quarter of 2005 and 30,000 b/d in the fourth quarter of 2005. It is expected that by late August about 70% of the lost volume can be temporarily restored by re-routing to other facilities, but in the longer term another platform will have to be installed to restore full capacity. As a consequence, the forecast for 2006 has also been revised down by 30,000 b/d.

Other Regions
The outlook for the FSU has been revised down. FSU production is now expected to average 11.5 mb/d, an increase of 350,000 b/d versus 2004 and a downward revision of 17,000 b/d. The forecast for Other Regions (Other Europe and China) remains unchanged. Total oil production is estimated to average 3.78 mb/d in 2005, which represents an increase of 140,000 b/d from 2004. The outlook for Russia remains unchanged. Russian oil supply is expected to average 9.36 mb/d, an increase of 170,000 b/d versus 2004. Preliminary data for the month of July indicates that production was 9.45 mb/d, broadly unchanged from the jump in June but in line with expectations. For the rest of the year, we expect virtually no growth in Russian production which should also translate into nearly flat crude exports. However, several important announcements, mostly bearish, made recently are worth mentioning:

(1) Crude export tariffs for August-September have set a new record at $19.1/b. This is likely to add further pressure on crude exporters, particularly via rail. For instance, shortly after this announcement Russian Railways cut its forecast for 2005 shipments to China by 60,000 b/d to 140,000 b/d.
(2) The government has indicated that the lag in production has not been unnoticed and that the export tax system needs to be reconsidered, but that this is unlikely to be done before early 2006.
(3) The latest forecast by the ministry indicates that production is likely to grow in 2005 to 9.5 mb/d, just above the current level. (4) The Shell-led Sakhalin 2 project, which was expected to start year-round production in 2006, will not start until 2007. In contrast, the Exxonled Sakhalin 1 project confirmed that it is on track to start on time in the third quarter of 2005 and reach its peak by end-2006.

In the Caspian region, the outlook for Azerbaijan remains unchanged but has been revised down for Kazakhstan following lower than expected production in June and July. The estimate for the second quarter of 2005 was revised down by 63,000 b/d, resulting in an adjustment of 16,000 b/d for the full year. The lower than expected performance appears to be related to temporary production shutdowns due to gas flaring restrictions. Kazak oil production is now expected to average 1.27 mb/d in 2005, or 70,000 barrels more than last year. Whilst it is not clear if the entire loss is due to gas flaring restrictions only, the two most obvious producers that have seen a lower than expected performance in the second quarter of 2005 5 compared to the first quarter of 2005 are PetroKazahstan and the Eni/BG-operated Karachaganak field. Given uncertainties, we continue to expect Kazak production to rebound to 1.29 mb/d in the third quarter of 2005 and stay at this level for the rest of the year, but we remain cautions.

Forecast for 2006
Non-OPEC oil production is expected to average 51.51 mb/d, an increase of 0.97 mb/d over 2005, and a downward revision of 148,000 b/d from last month’s report. Non OPEC supply (including OPEC NGLs and non-conventional oils) is expected to average 56.04 mb/d, an increase of 1.3 mb/d over 2005. The adjustment reflects the impact of the delay in the start up of Thunder Horse in the USA and the loss of some production in India due to the accident at Bombay High field. On a regional basis, the largest contributor is expected to be the African region at 0.44 mb/d, followed by the FSU at 0.34 mb/d, Latin America at 0.17 mb/d and North America at 30,000 b/d, whilst OECD Europe and Pacific and the Middle East are expected to show a net decline of approximately 30,000 b/d, 20,000 b/d and 110,000 b/d, respectively. Oil production growth is underpinned by the start-up of several projects in deepwater, bitumen extraction and syncrude projects, as well as the continuing expansion of the Caspian region. Deepwater alone is expected to account for approximately 60% of net growth.

Revisions to the 2006 forecast
On a quarterly basis, the forecast for non OPEC supply has been revised down by 269,000 b/d in for the first and second quarters of 2006 and by 29,000 b/d for the third and fourth quarters of 2006 resulting in a full year loss of 148,000 b/d. The revisions are primarily due to a six-month delay in the start up of the Thunder Horse field in the Gulf of Mexico (250,000 b/d at peak) to July 2006 and production losses in India due to the accident at the Bombay High complex. Thunder Horse was originally expected to contribute from early 2006, but the recent accident has caused severe delays to the overall installation and completion of the work. We now expect the field to start around July 2006 at a reduced rate and increasing close to full capacity at the existing wells by the end of 2006 with further upside in 2007. In India, it is expected that 70% of the lost volume can be restored in 2005, but in the longer term another platform will have to be installed to restore full capacity. As consequence, and assuming that it will take one and half years to solve the problem, the base for India has been revised down by 30,000 b/d.

FSU net oil export (crude and products)
In 2005, FSU net oil exports are expected to average 7.59 mb/d. On a quarterly basis, net oil exports are expected to average 7.49 mb/d in the first quarter of 2005, 7.79 mb/d in the second, 7.61 mb/d in 3Q05 and 7.46 mb/d in 4Q05. This represents a year on year increase of 0.3 mb/d, 0.49 mb/d, 0.2 mb/d and 0.09 mb/d, respectively. Russian net oil exports averaging 6.3 mb/d, which represents a year on year increase of 0.17 mb/d based on data available for Rail, and Pipeline exports. The forecast for 2006 shows FSU net oil exports averaging 7.88 mb/d, which represents an increase of 300,000 b/d over 2005, and a positive revision of 50,000 b/d versus last month report. Next year we expect the bulk of the increase to come from Caspian producers, notably Azerbaijan.

OPEC crude oil production
Total OPEC crude production averaged 30.2 mb/d in July, which represents an increase of 210,000 b/d from last month, according to secondary sources. Production increased primarily in Iraq, Iran, Saudi Arabia, and UAE. Iraqi oil production averaged 1.95 mb/d, an increase of 106,800 b/d versus June.

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