2005 has turned out to be the most challenging year for non-OPEC oil supplies since the early 1990s. Extreme weather events, accidents, fires, technical problems, project delays, political interference, higher costs, shortages of drilling rigs, drill-pipes and skilled manpower, rising decline rates and the disappointing performance of some new fields, all conspired to eliminate any possibility of growth. Instead of expanding by around 1 mbpd — as most analysts expected this time a year ago — non-OPEC oil supplies are expected to shrink by nearly 100,000 bpd this year.
Next year promises to be much better for non-OPEC supplies. Most of the factors that undermined growth in 2005 were only temporary and should be reversed in 2006. At the same time, there are significant new projects — some of which are already on stream — that will help to boost capacity. Although delays and disruptions are inevitable, since new projects are often more complex and are increasingly located in more difficult physical and political environments, the restoration of lost output from 2005, coupled with new developments in 2006, should be sufficient to ensure growth of at least 1 mbpd next year. If there are no delays or disruptions, non-OPEC supplies could grow even faster as two years’ worth of developments are delivered in the space of twelve months.
In 2006, the CGES expects non-OPEC oil supplies to recover from this year’s disastrous performance, rising by nearly 1.4 mbpd. If there are as many problems as there were this year, then this number might be as low as 1 mbpd, but if everything were to go smoothly the figure could be much higher, possibly as much as 1.8 mbpd. Unless the hurricane season wreaks the same amount of damage as in 2005 — which is of course entirely possible, but cannot really be used as the basis of a balanced forecast — there should be a strong recovery in offshore production in the US Gulf of Mexico in 2006. At the same time, there are major projects in Angola, Azerbaijan, Brazil, Canada, Russia and Sudan that are either already on stream or due to start up imminently, which will significantly boost non-OPEC oil production capacity next year.
In addition, companies are planning to spend significantly more on the upstream next year as high oil prices have swelled profits. Although costs are also rising, record numbers of drilling rigs are in use, which should also help to raise output. Set against this is declining output at many mature fields — though companies seem to have had some success in slowing the decline over the past year, possibly as a result of higher oil prices — and the usual catalogue of other downside factors, namely bad weather, project delays, accidents, political interference, technical problems and geological uncertainty.