Energy Industry Trends Review

Oil supply
Key trend—Global oil supply continues to
look strong, with total oil production for
October 2011 running at around 89 million
b/d. There was some recovery in the non-
OPEC output and also a continued strong
supply outlook for the Americas. OPEC
supply rose by 95,000 b/d to 30 million b/d
in October, with higher output from Libya,
Saudi Arabia and Angola, partially offset
by lower output from other members. The
“call on OPEC crude and stock change” for
2011 is largely unchanged at 30.5 million
b/d, while higher non-OPEC supply is
expected to average around 30.4 million
b/d in 2012. Effective OPEC spare capacity
is estimated at 3.31 million b/d and OPEC
has its next ministerial meeting in Vienna in
December, during which it is likely to keep
its production level unchanged. 20
Non-OPEC oil supply is estimated to have
fallen by 300,000 b/d to 52.6 million b/d
in September 2011, largely due to weather
and maintenance related shut-ins in North
America, maintenance in the North Sea,
unplanned outages in the Middle East and
outages and maintenance in Latin America.
Continued mature field decline, slower than
expected ramp-up of new production and
unplanned outages have caused a reduction
in the expectations for non-OPEC growth
for the fourth quarter of 2011. Growth for
the next quarter is expected to come from
Latin America and Russia, but will be offset
by declines in non-OPEC Asia such as Malaysia,
China and Indonesia. This same trend
in 2012 is expected to lead to an overall
reduction in non-OPEC supply growth for
the coming year by 180,000 b/d to around
900,000 b/d. 21
This quarter, US oil production fell by
57,000 b/d to an estimated 8 million b/d
in August as production declined in the
Gulf of Mexico and in the Lower 48 states,
with US production expected to decline in
coming months. News is more positive in
the Gulf of Mexico, where a hurricane-free
season allowed for the continuation of the
post-Macondo recovery in production, with
the pace of new well completion accelerating.
The number of drilling permits issued to
firms hoping to drill on their existing leases
rose to 13 in October—nearly three times
6
the average seen so far this year—and is
now approaching historical levels of 15 to
20 permits per month. Analysts continue to
focus on the considerable potential of the
US tight and shale oil plays, which have the
potential to produce more than 1.4 million
b/d by 2020—reducing US imports. 22
OPEC’s output is still running around
300,000 b/d below pre-Libyan crisis levels
of 30.5 million b/d from January 2011, and
was producing just over 30 million b/d in
October 2011. Libya’s return to the global
market looks set to rebalance production
flows for several OPEC member countries
that stepped in to fill the gap caused by
most of Libya’s 1.6 million b/d production
capacity being shut in. Libyan production is
now expected to return to production levels
of around 600,000 b/d by the end of 2011.
Saudi Arabia has cut back its production
by an estimated 200,000 b/d to 9.6 million
b/d in September. Saudi Arabia also recently
announced that it is unlikely now to implement
plans to raise its oil output capacity
to 15 million b/d, arguing that increased
production and expansion projects elsewhere,
such as in Iraq and Brazil, should
be adequate to meet global demand. Iraqi
output in September reached its highest
level in almost 10 years of 2.74 million
b/d. However, production fell in October,
following attacks on pipelines in the
south of the country. Production of around
650,000 b/d at the southern part of the
Rumaila oilfield was initially shut following
two bomb attacks (total production
from the BP-China National Petroleum
Corp. [CNPC] joint venture developing the
Rumaila field had been running at around
1.24 million b/d prior to this). 23
Observation
Libya’s return to the global market has contributed
to a potentially more stable global
supply outlook. Increasing supplies from
Libya along with the rebound from unprecedented
levels of unscheduled outages and
maintenance, as well as growing production
in Latin America, the Caspian, Russia, Australia
and the United States should support
supply growth in 2012.
The picture starts to look less positive if
a significant decline in demand occurs,
leaving the market looking oversupplied
and putting downward pressure on the oil
price, although the increasing growth in US
oil supply is likely to boost that economy as
imports there continue to fall.
There continue to be concerns on the supply
side that security issues are continuing
to affect oil production operations, notably
in Iraq and Nigeria, but also potentially
elsewhere in the Middle East and Africa
as geopolitical unrest continues. In Iraq,
the BP/CNPC consortium has been experiencing
some production delays due to
security issues, and there has also been a
flare up of continuing troubles in Nigeria.
Oil production in Nigeria fell in September
to 2.18 million b/d, following a series of
pipeline outages on the Bonny and Forcados
network due to sabotage and oil theft.
In October, Shell declared force majeure on
its Forcados exports for October, November
and December 2011 following the production
shutdown due to sabotage on the
Forcados pipeline. 24
This quarter, oilfield services company
Schlumberger has been talking about the
potential impact of security issues on
operations, notably in Libya and Iraq. Many
companies operating in these countries
are trying to manage security issues so
that they do not lead to project delays and
impact significantly on operating costs.
Schlumberger has stated that it would need
to deploy about 100 security personnel in
Libya to resume activities there this year,
and was still employing around 400 security
personnel in Iraq. 25
Other potential complications on the supply
side include challenges in Iraq over relations
with Kurdistan. More than a halfdozen
projects are due to come onstream in
Iraq up to 2013, which could add more than
6 million b/d to Iraq’s production (which
when added to current production, could
put Iraq producing around 9 million b/d). 26
However, not only are security challenges
still an issue in the country, but now there
are increasing concerns that oil companies
that signed contracts with Iraq for fields in
the center and south of the country might