Non-OPEC oil supply increased by 750,000 bpd in 2001 according to CGES estimates. In 2002, the CGES expects to see a similar rate of growth, although the outcome will depend on the prevailing level of oil prices. Even though companies test their new upstream investments against a mid-cycle price of $15/bbl for Brent crude, there are already signs that some production is being lost now that Brent prices have fallen to around $18/bbl. Rig activity is falling and some Canadian heavy crude production has been shut in. Upstream spending surveys also report a growing sensitivity of companies to oil prices, with many respondents indicating that they would cut investment if oil prices dropped below their average budget price assumption of $21/bbl for WTI.
Maintaining the current rate of growth of non-OPEC production is becoming increasingly difficult – and costly – for the oil industry, requiring continuous investment. Most of the big oilfields in countries outside OPEC have already been discovered and exploited, forcing the industry to find many more small oilfields to replace its declining output. In the North Sea, for example, the number of producing oilfields has more than doubled since 1994, but the average output per field has nearly halved. Most of the larger oilfields are now over 90% depleted and the average size of new fields commissioned in 2001 was just over 40,000 bpd, down from 55,000 bpd two years ago.
Oil production in the OECD countries is particularly vulnerable to decline since most of the producing provinces are either past, or close to, their peak; indeed, OECD output fell again in 2001 after recovering strongly in 2000. The biggest gains this year have come from the former Soviet Union, Russian production alone rising by 530,000 bpd. After years of neglect, Russian oil producers are now re-investing in the upstream – using new technology to extract more from old fields. In many ways, the current gains in Russia are similar to those achieved in the North Sea and the United States in the 1990s, when 3D seismic analysis, horizontal and multi-lateral drilling, fracturing and other stimulating technology, and reservoir optimisation first started to have an impact.
OPEC’s policy of output restraint favours the development of non-OPEC oil – despite the fact that the OPEC countries hold 86% of the world’s known reserves of conventional oil, almost all of which can be produced at prices below $10/bbl. By preventing the companies from exploiting the very large oilfields of the Middle East, OPEC has succeeded in keeping oil prices well above the cost of oilfield development in the area. Unfortunately for OPEC, this policy has also stimulated investment in more expensive non-OPEC oil reserves. Nearly 60% of the oil produced in the world to date comes from countries outside OPEC. This bias is likely to continue as long as OPEC is determined to set a price level that allows oil companies to find and develop reserves of conventional and unconventional oil in the non-OPEC areas.