Outside OPEC, oil discoveries are not keeping pace with production and the average size of new fields is falling. This will pose a difficult challenge to non-OPEC producers over the next few years. Although non-OPEC output of crude and NGLs has risen for nine out of the last ten years, this will become increasingly hard to sustain as the traditional producing areas reach their peak and go into decline.
New exploration and production technology has allowed companies to identify and extract more of the oil in place in fields already under development, but the number of new discoveries is falling. Estimates show that 75% of the additions to reported oil and gas reserves in the last decade have been due to upward revisions to existing fields, whereas new discoveries accounted for just 25% of the total. The industry is thus extracting more oil from its traditional areas — with recovery rates now as high as 70% in some fields — but at the same time it is running out of areas in which to explore.
This year Russia provided almost 90% of the 930,000-bpd increase in non-OPEC supplies, outperforming analysts’ expectations. Suggestions that growth would be constrained by export capacity proved unfounded, as Russian companies found a variety of alternative routes to move their oil to market. Output from new oil-producing provinces in the Gulf of Mexico, West Africa, Brazil and the Caspian region added around 500,000 bpd to supplies, but this was partly offset by steep declines in North Sea fields, whose underlying annual rate of depletion is now 12%.
Even so, non-OPEC production could still rise steeply over the next few years as a series of new oilfields come on stream. Next year, the CGES expects non-OPEC supplies to grow by 1.5 mbpd, as long as Russian companies continue to invest heavily in new upstream technology and are not discouraged by the recent dispute with the government over Yukos. With a string of big new oilfield developments in Africa, Brazil and the deepwater Gulf of Mexico that are set to boost output strongly and rising production of syncrude and heavy crude in Canada, the additions to oil supply will more than offset the underlying decline in the mature fields.
However, the extent of future non-OPEC growth is still dependent on the price of oil. The industry, after all, needs to sustain large upstream investment in order to keep raising recovery rates in existing fields. Yet, despite lower finding and production costs, output from new discoveries remains highly price-sensitive. OPEC could still slow the rise in non-OPEC supplies by setting a lower price target range.