Non-OPEC oil supply rose by 1.4 mbpd in 2002 according to CGES estimates – the highest rate of growth for nearly 20 years. While some oil companies are finding it difficult to meet ambitious output growth targets, OPEC’s success in defending its $22-28/bbl price band means that non-OPEC producers have every incentive to explore for and develop relatively high-cost oil reserves wherever they can find them. As a result, non-OPEC supply has recovered strongly from the slump caused by much lower oil prices in 1998 and 1999, growing by an average of 1 mbpd over the period from 2000 to 2002. And this strong rate of growth seems set to continue into 2003 unless oil prices fall sharply.
Although half of this year’s big increase came from the former Soviet Union (FSU) – where output is rising rapidly as companies apply new technology to old fields – much of the rest came from the developing world,where key offshore basins are at an earlier stage of exploitation. As a result, the pattern of upstream investment is moving away from mature provinces such as the United States and the North Sea to less developed areas such as West Africa, Brazil, China’s Bohai Bay and those parts of the Middle East and North Africa that are open to foreign investment – where international oil companies are often under-represented.At the same time,unconventional oil is starting to play a significant role in the growth of non-OPEC supply. Production of bitumen, extra-heavy and synthetic crudes is rising in Canada and Venezuela.And higher demand for natural gas is boosting the supply of natural gas liquids (NGLs) and condensates.
In 2003, the CGES expects non-OPEC oil supply to increase by at least another 1 mbpd, supported by continued strong growth in the FSU and rising output of unconventional crudes. Although the fundamental challenge remains the same for the upstream oil industry with many of the major non-OPEC producing fields in decline, OPEC’s current price target provides a strong incentive to invest heavily in the upstream,despite the problem of diminishing returns from exploration and rising finding and development costs. Recent surveys indicate that company upstream spending is set to rise next year with the balance moving away from the US to more prospective projects in the rest of the world. But diminishing returns from both geology and technology mean that non-OPEC output growth remains vulnerable to lower oil prices and could suffer a setback if prices were to fall sharply.