Forecast for 2005: Non-OPEC supply in 2005 is expected to average 50.2 mb/d, representing an increase of 0.37 mb/d over the previous year and a downward revision of around 1 mb/d since it was first made in July 2004. Non-OPEC supply including OPEC NGLs and nonconventional oils is expected to average 54.5 mb/d, an increase of 0.5 mb/d. No material revisions have been implemented in this month’s report.
OECD oil supply is expected to average 20.48 mb/d, which represents a decline of 0.79 mb/d versus the previous year, unchanged from last month’s report. Improvements in the US Gulf of Mexico oil production during November came close to our assumptions, whilst preliminary data for Mexico and North Sea for the months of October and November came close to our estimates. The OECD, in particular the North Sea and USA, has been a major drag for non-OPEC supply growth this year, with both regions accounting for the bulk of the revisions in non-OPEC. A full recovery for the OECD to pre-Katrina levels is still not expected until the third quarter of 2006.
Total US oil supply is expected to average 7.34 mb/d in 2005, which represents a drop of 310,000 b/d versus 2004. US Gulf of Mexico oil production partially began to recover in the later part of November. Actual losses for November are estimated at 0.71 mb/d compared to our assumption of 0.75 mb/d. At the time of writing, average losses for December are estimated at 0.47 mb/d versus our assumption of 0.4 mb/d for the entire month. The recovery in November was primarily due to the restart of several oil fields connected to the now-operational Empire terminal, which handles up to 500,000 b/d of crude and which was damaged during Katrina/Rita storms. Looking ahead, the recovery of the Gulf of Mexico is still dependent on many factors including the repair of significant amounts of infrastructure under tight market conditions, and therefore remains subject to uncertainty. Even then, two important fields (Mars and Typhoon) will not return before the middle of next year, limiting the full recovery of the area until then. In addition to the affected oil production, there are also significant gas field shutdowns and damaged onshore infrastructure affecting the production of natural gas and natural gas liquids; in contrast to the improving trend in the recovery of oil production, the recovery for these hydrocarbons has been much slower than expected.
Mexico and Canada
Mexican oil supply is expected to average 3.77 mb/d this year, which represents a drop of 70,000 b/d versus 2004. The forecast for Mexico remains unchanged, despite the recent underperformance. Our forecast for the fourth quarter of the current year is 3.72 mb/d similar to the third, but preliminary production data for October and November indicates that production averaged around 100,000 b/d below this estimate. Mexican production has dropped for three consecutive months since August following damages to US refinery customers, as well as
limited crude storage facilities and a lack of opportunities for placing heavy crude outside the USA. Whilst some of these issues seem to be improving, a full recovery of US Gulf of Mexico refineries is not expected until early 2006. Considering the complexity of the issue, it is difficult to see actual Mexican production exceeding our expectations for the quarter. Thus, the combination of hurricane-related shutdowns in the summer, natural field declines and virtually no new production has resulted in a bad year for Mexican oil production. The outlook for Canada remains unchanged, with oil supply expected to average 3.05 mb/d in 2005, representing a drop of 30,000 b/d versus 2004. Year-to-date conventional crude production has performed better than original expectations, and a continuation of this positive trend is expected in 2006.
Total oil supply in OECD Europe is expected to average 5.75 mb/d in 2005, a drop of 390,000 b/d versus last year and unchanged from last month. Norwegian oil supply is expected to average 3 mb/d in 2005, a drop of 200,000 b/d versus 2004. UK oil supply is expected to average 1.90 mb/d, which represents a drop of 190,000 b/d versus 2004. Following months of underperformance in Norway and the UK, preliminary data for the months of October and November shows positive trends in crude oil production that are in line with the estimates. In Denmark, oil supply is expected to average 390,000 b/d in 2005, unchanged from 2004.
Oil supply in the Asia Pacific region is expected to average 590,000 b/d in 2005 or 10,000 b/d higher than in 2004 to remain broadly unchanged from last month’s report. This month we have made a minor downward adjustment to Australian data for the third quarter of 2005 with no material impact on the full year outlook. However, it is worth pointing out that the outlook for Australian production has been revised up before to reflect better-than-expected production and this has resulted in a stronger outlook for the entire region. Arguably, the performance of Australian fields has been much better than anticipated and we believe that this trend, compounded by the start up of projects, will continue in 2006. In fact, it is worth noting that of the OECD regions, Asia Pacific shows the most significant improvement in the outlook for this year and the next when compared to initial expectations, and even to the last few years.
The outlook for the Developing Countries (DCs) remains broadly unchanged. Total oil supply is expected to average 12.52 mb/d in 2005, which represents an increase of 0.54 mb/d over 2004 and a revision of just 17,000 b/d. All revisions took place in Latin America, particularly in Colombia and Ecuador.
In Colombia, we revised the first quarter of 2005 down, the second up and the third up by 6,000 b/d, 18,000 b/d, and 36,000 b/d respectively. Colombian oil production, which has been on the decline since 1998, has more or less stabilized since 2004 at around 0.51-0.54 mb/d. Our forecast for 2005 has been revised up slightly in the past and we now expect Colombian oil supply to average 520,000 b/d in 2005, or 10,000 b/d less than in 2004. In Ecuador, we revised up in first, second and third quarters of 2005 by 6,000 b/d, 7,000 b/d and 26,000 b/d
respectively. Ecuadorian production appears to have recovered faster than previously thought after the strike earlier this year. Elsewhere in Latin America we are not making any changes, but it is worth noting that preliminary data in Argentina for September shows crude oil production hitting a 12-year low of 650,000 b/d, which would imply that total oil supply may have underperformed by 60,000 b/d versus our estimated third-quarter average. Final data should provide confirmation of this trend.
Elsewhere the forecast for all developing countries remains unchanged. With the year now ending, it is important to emphasize that the performance of Developing Countries has remained solid despite various project delays throughout the year. Several important counties stand out such as Angola, Brazil, Malaysia, and Sudan, all of which are likely to show above average growth rates in 2005 and 2006. In addition, at the time of writing, at least four important projects were expected to come on stream at the end of the fourth quarter of 2005 that have not yet done so. These include the BBLT Phase 1 in Angola, Adar Yale in Sudan, Ruby Phase I in Vietnam, and Acis South in Malaysia. Some of these may eventually start in early 2006.
The outlook for the FSU remains unchanged. FSU oil supply is expected to average 11.56 mb/d in 2005, an increase of 0.41 mb/d over the previous year. The forecast for Other Regions (which includes Other Europe and China) remains unchanged, with total oil supply expected to average 3.79 mb/d in 2005 representing an increase of 150,000 b/d from 2004.
Russian oil supply is expected to average 9.42 mb/d in 2005, an increase of 230,000 b/d versus 2004. The latest data shows flat oil production in November versus October at around 9.58 mb/d. We have now seen all the growth that Russian companies can deliver in 2005, and from here to around April 2006 we should see a seasonal drop due to the impact of winter on operations and water transport. Looking ahead, the industry continues to struggle and face uncertainties. However, the worst may be over in terms of the impact generated from capital restraint on production from the part of Yukos, Sibneft, and others. As detailed in several MOMR reports, the Russian industry is expected to grow at a more measured pace in the next few years, but in the short term the industry is still responding to a new environment, as seen by the abrupt slow-down in the rate of growth from 8-10% per year in 2000 to 2004 to below 3% in 2005. In 2006, Russian growth is expected to average 120,000 b/d, and while the risks remain on the down side, recently we have seen some indicators that could reverse this picture to a higher growth rate for 2006.
In the Caspian region, Azeri oil production is still expected to average 440,000 b/d in 2005, an increase of 130,000 b/d from 2004. The latest data shows Azeri oil production at 0.5 mb/d, which is inline with our fourth quarter 2005 estimates. Kazak oil production is expected to average 1.22 mb/d in 2005, an increase of 40,000 b/d over the previous year. Last month, we made a downward revision to the full year outlook primarily due to underperformance at the Karachaganak field between May and September due to gas flaring restrictions, technical faults, and more recently maintenance, among other reasons. Karachaganak is now reported to have returned to more normal levels of production during October, resulting in a rebound in Kazak oil production to around 1.27 mb/d, just above our estimate for the quarter.
Forecast for 2006
Non-OPEC oil supply in 2006 is expected to average 51.6 mb/d, an increase of 1.4 mb/d over 2005 broadly unchanged from last month. Non-OPEC supply including OPEC NGLs and nonconventional oils is expected to
average 56.2 mb/d, an increase of 1.7 mb/d. On a regional basis, the largest contributor is expected to be
the African region with a growth of 0.54 mb/d, followed by the FSU with 0.37 mb/d, North America with 0.35 mb/d (mainly because of the unwinding of US Gulf of Mexico production), and Latin America with 0.11 mb/d. OECD Europe and the Middle East are expected to show a drop of 0.13 mb/d and 0.09 mb/d respectively. Oil production growth is underpinned by the start-up of over 35 greenfield projects.
Revisions to the 2006 forecast
On a quarterly basis, the forecasts for the first and second quarters have been revised up 24,000 b/d and 44,000 b/d respectively, while the forecasts for the third and fourth quarters have been revised down by 6,000 b/d and 136,000 b/d respectively, resulting in a full year negative adjustment of 19,000 b/d. The adjustment is entirely the result of a downward revision in the outlook for Kazakhstan. On a full year basis, the estimate for Kazak oil production in 2006 has been revised down by 25,000 b/d to 1.28 mb/d, for a growth of just 60,000 b/d under the assumption that the expansion of Tengiz field is likely to start in early 2007 instead of mid-2006. The construction of the main compressors and related infrastructure is due to be completed by end of 2006. This expansion is now expected to add another 200,000 b/d to the current field production of around 250,000 b/d by the end of 2007.
FSU net oil exports (crude and products)
In 2005, FSU net oil exports are expected to average 7.71 mb/d. The forecast for 2006 shows net exports averaging 8.01 mb/d, which represents an increase of 300,000 b/d over 2005.
OPEC natural gas liquids and non-conventional oils
The growth forecast for OPEC NGL production in 2005 and 2006 remains unchanged at 200,000 b/d and 330,000 b/d, respectively. This increase should result in average production in 2005 and 2006 of 4.3 mb/d and 4.62 mb/d, respectively.
OPEC crude oil production
Total OPEC crude production averaged 30 mb/d in November, broadly unchanged from last month, according to secondary sources. Production increased in Nigeria, Qatar, and Saudi Arabia, while Iraqi output averaged 1.7 mb/d.