Consultancy Sees OPEC as Key Oil Supplier Through 2040

The global natural resources consultancy Wood Mackenzie sees OPEC maintaining its role as a key oil supplier through 2040, although output from non- OPEC producers will help ensure adequate supply in the years to 2030. In its Macro Oils Long-Term Outlook H1 2018 report, Wood Mackenzie says it expects the U.S. Lower 48 to enjoy continued growth through the medium term, with its crude and condensate production reaching a plateau of more than 11 MMbbld in the mid to late-2020s. Once the U.S. plateaus, total non-OPEC liquids production will lose its growth momentum and begin to decline post-2030.

With demand continuing to grow through to its peak in the mid-2030s, the industry must find increasingly expensive oil to offset declines from a maturing asset base, the consultancy asserts. To balance the market in the long term, there is increasing reliance on OPEC continuing to exploit its available reserves. And as reliance on OPEC ramps up, so does the importance of geopolitical risk as a key determinant for both supply and price.

“As non-OPEC production growth slows and the importance of OPEC’s output increases from 2023, OPEC’s role in managing prices becomes more focused on ensuring upstream investment keeps up with replacing lost barrels from on-stream declines, and the growth in oil demand over the next decade or so,” observes Wood Mackenzie.

At the same time, the consultancy points out that growth in U.S. Lower 48 crude oil production has been relentless. Activity surged in the last 18 months, supported by rising crude oil prices and a continuation in intensity and pace of well completions. Strong rig additions through early 2018 have translated into supply gains: annual average Lower 48 growth this year is forecast at 1.3 MMbbld. Overall, the Lower 48 will add 4.2 MMbbld of crude oil and condensate to global supply by 2025.

“While the pace of growth eases over the next five years, onshore Lower 48 crude oil production remains the key driver of global oil supply growth into the middle of the next decade,” the report says. “Crude oil and lease condensate production grows from about 7 MMbbld in 2017 to 11 MMbbld in 2024, reaching a peak of 11.7 MMbbld in the early 2030s.” U.S. oil supply is dominated by the Permian Basin throughout the forecast period. Total conventional and unconventional production from the basin reaches 6.3 MMbbld, or 56%, of total Lower 48 crude in 2035.

Global upstream investment plummeted by about 50% in the wake of the oil price collapse. The expectation was that this would have a material impact on supply to 2020. However, non-OPEC supply has proven itself to be remarkably resilient. Wood Mackenzie expects it to remain resilient, but flat to 2030 outside the U.S.

(SOURCE: The Weekly Propane Newsletter, July 30, 2018)