By continuing to use this site, you agree to our use of cookies.


In Japan? You can go to Argus Japan


Analysis – Non-Opec output growth falters

24 Feb 2012, 6.50 pm GMT

Analysis – Non-Opec growth falters                     

London, 24 February (Argus) — Non-Opec production is faltering again despite strong growth in unconventional supplies from North America.

Hopes for a rapid rebound in non-Opec supply this year seem unlikely to be realised. Crude output is growing much faster than expected in North America, but worsening conflicts have disrupted production in South Sudan, Syria and Yemen, shutting in over 600,000 b/d compared with a year ago. If this lost output is not restored, non-Opec supply will rise by only 250,000 b/d in 2012, Argus expects.

Unexpected shortfalls in non-Opec supply leave the market almost entirely dependent on Opec to meet demand growth, adding to upward pressure on prices. Non-Opec oil liquids supply fell by 100,000 b/d last year instead of rising by 700,000 b/d as predicted by analysts. A similar story is already unfolding this year. The IEA's current prediction for non-Opec supply growth in 2012 is 930,000 b/d and Opec's is 670,000 b/d. But both forecasts are starting to look unrealistic. Non-Opec crude output was more than 500,000 b/d down on a year earlier in January. And the year-on-year deficit will be larger in February.

In theory, non-Opec production should be expanding not shrinking. Oil companies are spending record amounts upstream and new projects are adding to supply. Liquids output from shale formations in the US and Canada is surging as the industry redirects its efforts in pursuit of this new oil boom. After the 2010 Macondo oil spill, the majors want to do things differently. “What we need to do in our portfolio is not make it all deepwater, fast-declining projects where you get a fast payback, big return and declines,” BP chief executive Bob Dudley says. “We need, as a company, to have a portfolio that has more of the very long-life 20 and 30-year cash flow projects which unconventionals have.”

Rising supply of “unconventionals” — oil sands and shale oil — is supporting strong growth in North America. With Mexican production no longer falling, crude output in the region was up by just over 300,000 b/d last year and Argus expects it to grow by nearly 400,000 b/d in 2012. Crude and condensate production from the North Dakota Bakken and Texas Eagle Ford shales alone rose by 200,000 b/d last year and tight oil output from these and other shale formations in the US and Canada will rise rapidly as more and more wells are drilled by companies attracted by this new long-term cash flow.

But the success of North American shale oil and oil sands is changing the way the market operates. Output is expanding faster than the infrastructure to carry it, opening up wide logistical price differentials within the continent. US constraints on crude exports have partially decoupled domestic prices from the international market. WTI is trading nearly $20/bl under LLS on the US Gulf coast, and light sweet Bakken and Canadian Syncrude are at discounts of over $30/bl to LLS. Such distortions are likely to persist until new pipelines are built and export restrictions relaxed.

Non-Opec oil supply outside North America is falling short of expectations. The US is importing less crude and exporting more products. But crude production in the rest of the world fell by 500,000 b/d last year, leaving a widening gap for Opec to fill. And non-Opec output is further restricted this year by the complete shutdown of South Sudan's 310,000 b/d output because of a dispute with northern neighbour Sudan, sanctions and internal conflict in Syria, and political unrest in Yemen. Argus expects overall non-Opec supply to be 52.5mn b/d in 2012, nearly 1mn b/d lower than it was predicting only six months ago.

If you would like to see more high quality analytical commentary on key oil industry developments and pricing and trading behaviour, request a free trial of Argus Global Markets.

Send comments to
dl/jc 2.4

If you would like to review other content options, request more information about Argus' energy news, data and analysis services.

Copyright © 2012 Argus Media Ltd - - All rights reserved.

View more news articles

Share this page

Contact Us

Request a callback

I agree to the Argus privacy policy