Mexico’s production of 2.2 million b/d in 2017 is 20% down on 2014 (and 13% lower than we forecast back then). China’s production, at 3.8 million b/d, is 8% down and 6% below what we’d forecast. Africa as a region has not fared well, production in 2017 10% below forecasts.
Some producers though have adapted remarkably well to lower prices.
Russia is the poster child. Production will reach an all-time high of 11.7 million b/d in 2017, up 0.6 million b/d on 2014 in spite of faithful support of OPEC cuts. The new peak has been achieved by intensified drilling on brownfield projects, and the weak ruble boosting margins.
Canada, too, has done well, producing 0.4 million b/d more than expected. Currency has been a factor, but so too has the emergence of Duvernay liquids, with breakevens competitive with US tight oil plays as well as better uptime from oil sands projects. The North Sea has also surprised – the UK leading the way with aggressive cost-cutting helping to lift production.
The net effect of these downs and ups is that non-OPEC production outside the US has held up well. But can it last?
We think so. Our latest forecasts suggest that production from this group of countries will be pretty stable at over 40 million b/d well into next decade, initially supported by modest decline rates and later by some new development projects.
But impressive as flat growth is in the circumstances, it’s still 2–3 million b/d lower than we’d forecast in 2014. Many higher-cost projects have fallen by the wayside, resulting in big downgrades to longer-dated forecasts, with Brazil, Kazakhstan and Africa suffering the most.
Growth in oil demand will have to be met from elsewhere.
Our Macro Oils team’s latest supply/demand balance suggests the US and OPEC will do battle for contestable demand that will climb to over 5 million b/d by 2024. We reckon US tight oil captures the lion’s share – as much as 90% – as production doubles from 4.9 million b/d in 2017 to 9.6 million b/d by 2024. OPEC’s increased share could be limited to less than 1 million b/d.