Forecast for 2006
Non-OPEC oil supply is expected to average 51.3 mb/d in 2006, representing an increase of 1.1 mb/d over 2005 and a slight upward revision versus the last assessment. A series of adjustments have been made including the addition of historical data for biodiesel in OECD countries as well as revisions to oil project schedules in a number of countries, but primarily in he USA and Australia. The 4Q06 forecast for the USA has been revised up – Alaska’s Prudhoe Bay is back earlier than previously assumed. Additionally, preliminary September data shows a stronger-than-anticipated rebound in total US supply and a portion of this has been carried through to 2007. In Australia, most production losses associated with earlier hurricane activity in the Carnavon Basin have been resolved and this has resulted in a significant upward revision to the 3Q06 estimate and the full year forecast. Preliminary data for the month of August and September puts total non-OPEC supply at around 50.9 mb/d and 51.7 mb/d, representing a y-o-y growth of 0.9 mb/d and 2.8 mb/d respectively. Unplanned shutdowns in non-OPEC are now estimated to have been reduced to less than 0.1 mb/d from an average of 0.6 mb/d in the first half of the year.
OECD oil supply is expected to average 20.4 mb/d, unchanged from last year and an upward revision of 0.2 mb/d versus the last assessment. The estimate now includes new data for biodiesel covering the USA and EU countries that were previously excluded. Unlike data for ethanol, which is widely available and is already part of the assessment, biodiesel production statistics for OECD countries have only just recently become reliable and can be included with a higher degree of confidence in the supply statistics. Other positive revisions in the OECD include upward adjustments to 3Q06 data of several countries and outlook for projects in the USA and Australia. Total oil supply for OECD countries in August and September is estimated at 20 mb/d and 20.7 mb/d, respectively.
Total oil supply is expected to average 7.4 mb/d in 2006 representing an increase of 0.1 mb/d versus last year and an upward revision of 95,000 b/d versus last month’s assessment. On a quarterly basis, total US supply is expected to average 7.5 mb/d and 7.6 mb/d in the third and fourth quarters.
The revision is due to three reasons. First, the giant Prudhoe Bay field is now back on-stream, and only around 50,000 b/d of production is likely to remain shut until the end of the year versus an earlier assumption of 200,000 b/d. The upward revision assumes that the recent power failure that shut down the field’s production on 11 October will be short-lived. Second, total output from the Lower onshore 48 continues to perform better than expected (see previous MOMR) and thirdly, most of the oil production that was shut in in 2005 due to hurricane activity has recovered. Finally yet importantly, the US Gulf of Mexico (GoM) has not been exposed to a single hurricane this year therefore assumed losses for the third and fourth quarters are no longer justifiable or realistic and as such have now been added back. The season is officially over in a few weeks, but climatic and weather conditions are not conducive for the development of intense hurricanes. Preliminary data indicates that US oil supply averaged 7.3 b/d in August and 7.6-7.7 mb/d in September.
Mexico and Canada
Mexican oil supply is expected to average 3.7-3.8 mb/d in 2006, unchanged from last month’s assessment. In contrast to conventional wisdom, total oil supply remained just above 3.7 mb/d in September and as previously indicated is not expected to oscillate much outside this range. No material maintenance is expected during the rest of the year, one of the key reasons for significant month-on-month fluctuations recently. It should be mentioned that, given the type of Mexican crude, recent demand trends and inventory levels in the USA, that future production from the country could show a slight decrease in the months ahead.
Canadian oil supply is expected to average 3.2 mb/d in 2006, representing an increase of 0.18 mb/d versus 2005 and unchanged from last month’s assessment. The country produced 3.2 mb/d in September, a level that will rise further once the production that has been shut in or in maintenance (Terra Nova, Syncrude Upgrader, Suncor Coker, etc) comes back and new fields in the tar sands ramp up from October onwards. Year-to-date, total production from the tar sands has averaged 1.1 mb/d, which is 0.17 mb/d higher than in the same period in 2005. The tar sands account for 33% of total Canadian supply and represent the only source of growth in Canada. The recent decline in world oil prices in no way jeopardizes current or future projects as even the most expensive ones have good economics at $30/b WTI.
Oil supply in OECD Europe is expected to average 5.5 mb/d in 2006, representing a decline of 0.3 mb/d versus 2005. However, the base line has been revised up following the inclusion of historical data for biodiesel production in a number of EU countries. Total biodiesel production in OECD countries is assessed at 14,000 b/d in 2000, 17,000 b/d in 2001, 21,000 b/d in 2002, 30,000 b/d in 2003, 39,000 b/d in 2004, 71,000 b/d in 2005 and 83,000 b/d in 2006 of which EU countries account for 90% of the total. Importantly, this data has only just recently become reliable and may be included with a higher degree of confidence in the statistics from now on.
Looking at conventional oil, Norwegian oil supply is expected to average around 2.8 mb/d in 2006, broadly unchanged from last month’s assessment. Preliminary data for August and September shows that production was around 2.75 mb/d, respectively. Statoil, the largest operator in Norway, reduced its forecast for the year and the next one based on a number of factors, including technical issues at the new Kristin field. More recently, the Snorre Field and Draugen fields have been shut for safety review and are unlikely to be back before the end of the month – as a result the forecast may be subject to revisions. UK oil supply is expected to average 1.7 mb/d, unchanged from last month’s estimate. Preliminary data for August and September indicates that UK oil supply averaged 1.6 mb/d in both months. Year-to-date, UK oil supply has averaged 1.7 mb/d. The large Buzzard field (200,000 b/d) is on track to start before year-end (November) and this will make a sizeable contribution in 2007.
Oil supply in the OECD Asia Pacific region is expected to average 0.57 mb/d in 2006, which represents an upward revision of 36,000 b/d compared to last month’s assessment. Australian oil supply is now seen averaging 510,000 b/d in 2006. As reported in previous MOMR, oil production in the Carnavon basin, Australia’s largest producing area, was hit in January due to a combination of hurricane-related damages and technical problems in some fields. Given the severity of the reported damages and the lack of information, it was assumed that this production would come back gradually in 2007. However, the most recent official statistics show a significant recovery in oil production in the Carnavon basin that has led us to believe that most problems have been resolved. Additionally the new Enfield project (100,000 b/d capacity), also located in the Carnavon basin, is producing above 70,000 b/d and this combined with the recovery at other fields pushed total Australian oil supply in July to much higher levels than previously anticipated. As a result, the forecast for the 3Q06 has been revised up 0.1 mb/d to 0.57 mb/d and the 4Q06 by 38,000 b/d to 0.58 mb/d.
Oil supply in the Developing Countries (DCs) is expected to average 13.1 mb/d in 2006, an increase of 0.5 mb/d over 2005, and slightly lower compared to last month’s report. Downward revisions have been made to the outlook of Vietnam, Brazil, Angola, and Ivory Coast. On a quarterly basis, total oil supply in DCs is expected to average 13.1 mb/d and 13.4 mb/d in the third and fourth quarters respectively which represents a downward revision of 0.1 mb/d in the third and 0.2 mb/d in the fourth quarter. Total oil production for the Developing Countries in August and September is estimated at 13.0 mb/d and 13.1 mb/d respectively.
Vietnam’s oil supply is expected to average 0.38 mb/d in 2006, unchanged from last year and 20,000 b/d lower versus last month. The most recent estimate shows that production has been averaging around 0.38 mb/d, which is below our forecast of 0.4 mb/d for 3Q06 and 4Q06. Much of the data remains preliminary, but given the trends, lack of projects this year, and the end of maintenance, it is unlikely that oil production will rebound to match expectations. January was the last month in which we saw production of 0.39 mb/d, but this has been followed by weaker production in subsequent months.
Brazil’s oil supply is expected to average 2.18 mb/d in 2006, representing an increase of 0.15 mb/d versus 2005 and 38,000 b/d lower versus last month’s estimate. As noted in the last MOMR as well as previous reports, the weak performance seen in the first half of this year was due to extended maintenance and slow ramp up of new projects, but since July Brazil’s oil supply has been on the rise. August data and preliminary September estimates show total oil supply levels of 2.1 mb/d and 2.13 mb/d respectively compared to an average of 2 mb/d for the first part of the year. The P 50 field (180,000 b/d) which started in 2Q06 was producing at half its rate not long ago. The delay in the ramp up of this field has affected Brazilian oil production, but all indications are that it will reach capacity by year-end. A similar situation applies to the new Goldfinho 1 (100,000 b/d) field. A month ago it was still producing at half its capacity but all indications are that production is on the rise again. As a result, the estimate for Brazil for 3Q06 has been revised down 80,000 b/d. For 4Q06, the impact of 3Q06 revisions as well as a delay in the start up of the small Piranema B (20,000 b/d) to next year has impacted the estimate slightly.
Angola’s oil production is expected to average 1.4 mb/d in 2006, representing an increase of 0.17 mb/d versus 2006 and 25,000 b/d lower than last month’s estimate. The forecast for 3Q06 and 4Q06 has been revised down 20,000 b/d and 80,000 b/d, respectively. It was previously assumed that the Marimba tie back (80,000 b/d) would start at the end of this year but that looks more likely end 2007. More importantly, the late start up of the Dalia field (240,000 b/d) during 4Q06 (Nov-Dec latest estimate) results in a lower contribution to the 2006 estimate than previously thought.
The historical data and outlook for the Ivory Coast has been revised down following reports that its only deepwater field, Baobab, is underperforming due to technical problems with sand control. The field started in 3Q 2005, has a capacity of 60,000 b/d, but recent reports suggest that it has been producing at less than half of this level for some time. Ivory Coast’s total oil production increased from 45,000 b/d in August 2005 to 100,000 b/d by year-end. However, given the technical troubles at Baobab, total supply from the country has inevitably come down to around 70,000 b/d since early this year. A new satellite field, West Spoir, started in 3Q2006 making a small contribution but not enough to replace the drop at Baobab. It is expected that a number of well interventions will be needed, and that may only be possible next year, perhaps end of 2007.
Sudan’s oil production forecast has been revised slightly up based on preliminary production estimates for the new fields that have come on-stream this year. In 2006, Sudan is expected to produce on average 0.42 mb/d, representing an increase of 80,000 b/d versus 2005 and an upward revision of 13,000 b/d. All new fields are now producing (Neem Block 4; Block 3 and 7; Thar Jath in Block 5Ba) and will more than offset mature production in the country for years to come. Sudan’s oil production, which averaged 0.36 mb/d in the first part of 2006, may have reached the 0.5 mb/d mark in September as it is expected to continue to increase close to 0.6 mb/d next year. The new crude resulting from these new fields is termed Dar Blend, a medium-heavy sweet grade crude with a high TAN content. Several cargoes were offered to Asian customers in September, but given the poor quality and adequate supply availability, Dar Blend was offered at very large discounts and is still struggling to find customers.
FSU, Other Regions
FSU oil supply is expected to average 12 mb/d, an increase of 0.5 mb/d versus 2005, unchanged from last month. The forecast for Other Regions (i.e. China and Other Europe) also remains unchanged with total oil supply expected at 3.8 mb/d in 2005 representing an increase of 70,000 b/d versus 2005. Total oil production for the FSU in August and September is estimated at 12.2 mb/d.
Russian oil supply is expected to average 9.7 mb/d in 2006, an increase of 0.2 mb/d versus 2005 broadly unchanged from last month’s estimate. The latest data shows that production averaged 9.78 mb/d in September, which is a new record-high. Year-to-date, Russian output has increased 0.24 b/d. Oil production growth should moderate in the months ahead but will continue to grow driven by the Sakhalin 1 project. In the previous MOMR it was highlighted the fact that the net y-o-y contribution of state controlled or oil companies in which the state has strong influence, became positive in April 2006 after 13 months of no growth. For much of this period all other producers saw average y-o-y growth of 0.3-0.4 mb/d each month, but in June and July their contribution decrease to just 0.1 mb/d. Although the main technical reason for this slowdown is unknown at this stage, it is still a worrying sign. Non-technical factors that affect the Russian oil industry are well known and have already been incorporated to a large degree in next year’s forecast.
Azeri oil production is expected to average 0.64 mb/d in 2006, representing an increase of 0.2 mb/d versus last year. The outlook for Azeri oil production growth has been revised down slightly following a recent announcement by the operator to shut the 0.13 mb/d Chirag field in October for 10 days for maintenance. Year-to-date, Azeri oil production has risen 0.2 mb/d compared to the same period last year. Preliminary data for September puts total Azeri oil production at around 0.69 mb/d. Recent reports indicate that the new East Azeri field will start end of 2006, which is earlier than previously estimated. This phase will provide another 0.2 mb/d boost to the giant ACG field, which is producing well over 0.55 mb/d. The impact of an early start is a positive one for Azerbaijan; but this report continues to assume that the main contribution will come from early 2007 onwards.
Elsewhere, Kazak oil production is expected to average 1.3 mb/d in 2006, an increase of 80,000 b/d over last year. Data for the month of September puts oil production at 1.36 mb/d. Year-to-date, Kazak oil production has risen 70,000 b/d compared to the same period last year. The next expansion phase of the Tengiz field is now undergoing testing for 4 months before it starts in the middle of next year. Maintenance levels and short-term production failures at the two biggest fields, Tengiz and Karachaganak, continue to occur. Unfortunately, this news is only made available after the fact.
The estimate for China remains unchanged. Total oil supply is expected to average 3.7 mb/d, representing an increase of 70,000 b/d over last year; September data shows average oil production of 3.71 mb/d. Year-to-date, output has risen by just 60,000 b/d compared to the same period last year. The impact of typhoons has affected some of China’s offshore oil fields and may have caused more shut-downs than expected thus reducing slightly supply growth.
It is worth mentioning that in the case of China, the historical or current production data shown in the MOMR does not include biofuels, which is estimated at around 50,000 b/d (2005) mainly ethanol from wheat. It is known that China may reduce the production of ethanol and shift to biodiesel, where the constraints are less, so in effect we me see a reduction of biofuels in the short term. Additionally, coal to liquids is excluded from current oil production estimates. In both cases, this data will need to be included at some stage once reliable statistics become available and as projects start.
Forecast for 2007
Non-OPEC oil supply is expected to average 53 mb/d in 2007, representing an increase of 1.8 mb/d versus 2006 and broadly unchanged from last month. On a quarterly basis, non- OPEC supply is expected to average 52.5 mb/d, 52.6 mb/d, 53 mb/d, and 54.1 mb/d in the first, second, third and fourth quarters, respectively.
The FSU region is expected to grow 0.5 mb/d to 12.6 mb/d with Caspian countries together expected to deliver more growth than Russia. Oil supply in the African region is forecast to grow by 0.5 mb/d to 4.6 mb/d; most of the increase is expected to come from deepwater Angola, Equatorial Guinea and onshore Sudan. Oil supply in the North American region is expected to grow by 0.4 mb/d to 14.7 mb/d. The increase is driven by unwinding of losses and additions in the US GoM deepwater and expansion of Canadian oil sands. Oil production in the Latin American region is expected to grow by 0.1 mb/d to 4.6 mb/d; regional growth is driven by a modest increase in Brazil.
Elsewhere, OECD Europe is expected to show a modest increase of 0.1 mb/d to 5.6 mb/d driven by the unwinding of production shut-ins in Norway, and the start of the Buzzard field in the UK; a normal maintenance schedule is assumed. OECD Asia in expected to increase 0.1 mb/d to 0.7 mb/d; the forecast now reflects the return of some of the production that was lost in the Carnavon basin due to cyclone activity in Australia. Oil supply in Other Asia and the Middle East is expected to remain broadly flat at 2.8 mb/d and 1.8 mb/d, respectively. China’ oil production is forecast to increase to 3.8 mb/d or around 60,000 b/d versus 2006.
The forecast for 2007 has been subject to a number of revisions including the addition of new biodiesel production statistics to the baseline of several OECD European countries, changes to project schedules in the USA, Brazil, Angola, and Azerbaijan among others, and the impact of historical revisions to the data of several countries and estimates for 2006. On a quarterly basis, total non-OPEC supply has been revised up in the 1Q07 by 94,000 b/d, down 67,000 b/d in the third and up 96,000 b/d in the fourth.
The inclusion of biodiesel statistics increases the baseline for OECD Europe next year by around 90,000 b/d but the impact on overall growth is negligible. In the USA, the growth forecast for 2007 has been revised up by 40,000 b/d to 7.68 mb/d. The old assumption that the Prudhoe Bay will return quickly from 1Q07 onwards is no longer valid as the field is already on-stream. This month’s report assumes that the 50,000 b/d that remain shut in the greater Prudhoe Bay area will gradually return next year. Also the Thunder Horse field which back in July 2006 was expected to start at the end of 2006 and then was last month moved to 2Q2007, has now been pushed back to end 2008 possibly early 2009, according to some reports. Last month’s 2007 US forecast only included around 80,000 b/d from this field on average, as it was always the case that it would take more than one year to reach fully capacity. The Atlantis field is still expected to start in 2Q07 and no changes have been made to the ramp up period. Finally yet importantly, the large upward revision to total US oil supply in 4Q06 has increased the baseline for next year.
The outlook for Brazil has been revised down by 29,000 b/d to 2.34 mb/d. The new expected start for the P 54 (180,000 b/d) is 4Q07 versus a previous assumption of early second part of 2007. The forecast also assumes a slightly lower ramp up in the remaining fields including Golfinho Module 2, Espadarte Module II and Roncador P 52, but potential delays into 2008 should not be ruled out. Angola’s oil supply outlook has been revised down by 30,000 b/d to 1.73 mb/d. The Kizomba Phase I module is now expected to start in 1Q08 instead of 4Q07. The contribution of the Marimba tie back as also slipped from end 2006 to end 2007, and this has had a negative impact on the growth forecast. Other countries that have seen their outlook revised include Canada, Mexico, Norway, Australia, Vietnam, Chad, Egypt, Gabon, Kazakhstan, Azerbaijan, and China. In most cases, the revisions are in the range of 10,000 b/d.
OPEC natural gas liquids and non-conventional oils
In 2006, OPEC NGLs and non-conventional oils are expected to average 4.3 mb/d, representing an increase of 0.2 mb/d over the previous year. All of the growth is coming from NGLs. In 2007, the expected growth for OPEC NGLs remains unchanged at 0.2 mb/d, but following a recent announcement by the Venezuelan Ministry of Petroleum that Orimulsion will no longer be produced from 1 January 2007, the monthly report will exclude Orimulsion (~100,000 b/d) from the non conventional memo item from 2007 onwards. What is left in this item is the volume associated with Saudi Arabia’s MTBE production.
OPEC crude oil production
Total crude oil production averaged 29.7 mb/d in September, representing a drop of 0.1 mb/d from last month, according to secondary sources. Iraq’s oil production was 2.1 mb/d.
FSU net exports
In 2006, FSU net oil exports are expected to average 8.3 mb/d, an increase of 0.6 mb/d over the previous year, slightly higher than previously estimated. September crude exports reached 6 mb/d, unchanged from the previous month (revised data). Including products, total net oil exports were 8 mb/d in the month. Looking at October, it is likely that total oil exports via rail will fall slightly whilst loading from the Black Sea and Baltic Sea will increase substantially. Increasing export tariffs and lower oil prices are not a good incentive for high cost exports, but demand weakness may be a reason for several producers increasing exports regardless. Next year, total FSU net oil exports are expected to rise to 8.8 mb/d or 0.5 mb/d versus 2006 driven by new sources of crude from the Caspian and Russian product exports.