World Drilling & Production – Geo-Political Risk to Hamper Market Stability
OPEC oil production fell by 420 kbbl/d from January to May 2018 as continued political disruption in Venezuela and decline in Angolan oilfields resulted in significant output losses. The result of this disruption led to months of uncertainty for global supply, and subsequently oil prices. This uncertainty has been exacerbated by the expected re-introduction of US sanctions on Iran from November 2018. In response, OPEC, at the June 2018 meeting, pledged to return to group-wide compliance of 100% by ramping up output in Saudi Arabia and several other member nations. As a result of OPEC’s production increase, Venezuelan, Angolan, and Iranian losses will be partially offset. However, OPEC’s 2018 production will still decline by 481 kbbl/d from 2017.
US drilling activity increased sharply in 1H 2018, leading to record oil production in June 2018. However, pipeline capacity bottlenecks in the Permian basin are expected to limit growth for the remainder of 2018 and 2019, causing operators to exploit other US basins.
2018-2019 Oil Production Change by Country (thousand barrels per day)
- Geopolitical issues have, and will, continue to destabilise the market, leading to significant supply shortages in Venezuela and Iran.
- Other OPEC nations will ramp up production in 2019 – Westwood expects notable additions of 434 kbbl/d, 462 kbbl/d, and 241 kbbl/d from Saudi Arabia, Iraq, and Kuwait, respectively.
- Through 1H 2018, US onshore liquids production exceeded projections. Growth is expected to continue in 2H 2018, but will be limited through to 2019 by Permian bottlenecks.
- US activity will account for 40% of global onshore development wells drilled over 2018-2024.
- Deepwater drilling activity will diversify, moving away from the ‘Golden Triangle’ as investment is focussed on Australia, East Africa, and the Mediterranean.
- Brazil will continue to dominate deepwater production, accounting for an average of 35% of the global deepwater production over the forecast.
- Gas will increase its role in global energy market, with gas-targeted drilling growth expected to push gas production to 79.5 mmboe/d by 2024.
The Q3 edition of Westwood’s ‘World Drilling & Production Market Forecast’ highlights the impact that geopolitical problems have had on global oil supply. Despite OPEC’s best efforts to stabilise oil prices, US sanctions and other political issues will see nearly 1 mmbbl/d of production losses across Venezuela, Iran, and others in both 2018 and 2019.
These losses, however, will be more than offset by significant growth in production elsewhere. Onshore activity in the US has increased markedly through the first half of 2018, with the majority of the expected 1.3 mmbbl/d 2018 liquids production additions having already been seen. However, bottlenecks in the Permian basin will result in a slowing of growth through the next 18 months. Several OPEC nations, including Iraq, Saudi Arabia, and Kuwait, will also see significant additions of nearly 2 mmbbl/d in 2019, following 905 kbbl/d in the second half of 2018. Additional non-OPEC production will push global liquids supply to 93.8 mmbbl/d in 2019; an increment of 2.3 mmbbl/d on 2018, largely from the US and Russia.
In the longer-term, further gains will come from new deepwater plays away from the traditional ‘Golden-Triangle’, such as ExxonMobil’s Stabroek block offshore Guyana. As a result, Westwood expects oil production to rally to 97.6 mmbbl/d in 2023.
Other key findings of the report include the increased role that gas will play in the global energy market. Gas-targeted drilling will grow significantly, causing global gas production to reach 79.5 mmboe/d in 2024, from just 72.1 mmboe/d in 2018. This is driven by shifts in operator focus and large recent gas discoveries being developed, with particularly strong growth forecast in Australia, East Africa, and the Mediterranean.
This report includes data and analysis for more than 70 of the most important energy producing countries, including detailed drilling and production data for each country covering the period 2008-2024.