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In terms of oil supply, there is no doubt that the current global oil market is mostly moved by OPEC and U.S. shale production. The fighting for market share between the two has thrown the market off balance and triggered the collapse of oil prices and industry downturn that started in 2014.
The downturn has shelved billions of dollars of new development projects in the rest of the world as oil companies cut spending to overcome the low oil prices. Even as the rest of the world produces about half of the 82 million barrels per day (MMbbl/d) of global total crude oil and field condensate production, the market has not paid that as much attention as it has OPEC and U.S. shale. How much does the rest of the world’s production matter to the current market and the future? This analysis will give a breakdown on this part of the world oil supply.
Unlike U.S. shale, which has less than a year development cycle from drilling to production, field developments in the rest of the world have a much longer investment cycle. Projects such as offshore deepwater or Canadian oil sands developments normally take three to five years from sanction to first production. An extended development cycle means that production will have a longer impact on the market, rather than a shorter one.
The Rest of World’s Oil Production Outlook
Based on Stratas Advisors’ Global Upstream Project Analytics service, new-source projects (unfinished or yet to reach a peak) in the rest of the world will reach 8.7 MMbbl/d in 2022, when sanctioned projects are counted (Figure 1). Oil production in the rest of world will basically remain flat at 41 MMbbl/d and reach its peak at 2019 with 41.5 MMbbl/d (Figure 2). Afterward, production will start declining as additional new-source production will not be sufficient to cover the base decline. By 2022, when sanctioned new-source projects reach a peak, the rest of world’s production will drop 1.8 MMbbl/d to 39.3 MMbbl/d.
For identified unsanctioned projects, Stratas Advisors has three scenarios to gauge the future supply outlook based on break-even prices.
In the low-case scenario, in which the oil price (WTI) is at $35/bbl, additional new sources would add an additional 1.4 MMbbl/d at its peak at 2024. The rest of world’s production would still peak in 2019 with 41.5 MMbbl/d. By 2022 it would come down to 40.2 MMbbl/d, or a 1.05 MMbbl/d decline from the peak.
In the middle-case scenario, in which the oil price (WTI) is at $50/bbl—close to the current WTI level—additional new sources would add 4.4 MMbbl/d at its peak at 2028. The rest of the world would still peak in 2019 with 41.5 MMbbl/d. By 2022 it would come down to 41 MMbbl/d, or a 0.33 MMbbl/d decline from the peak.
Finally, in the high-case scenario, in which the oil price is at $75/bbl (WTI), additional new sources would add an additional 7.7 MMbbl/d at its peak in 2031. The rest of world’s production would be pushed off to 2023 with 41.8 MMbbl/d.
The three scenarios illustrate the low price elasticity of the rest of the world production’s in the short term. In all three cases, roughly the same volume—half of the global production—will be supplied until the end of the decade. It implies that a short-term supply squeeze, or oversupply, is not likely to happen from the rest of the world’s perspective.
The market has a legitimate reason to pay attention to OPEC and U.S. shale production in the short term and the dynamics of the two sides will mostly move the market in the next couple of years.
However, in the longer term, by early next decade, the bigger uncertainty from the rest of the world will put more weight on the global oil-supply demand equilibrium. The gap between the worst and the best scenario would reach 1.5 MMbbl/d by 2022 and 4.5 MMbbl/d by 2025, potentially to create a supply squeeze if a low oil price persists until the end of the decade.
Sanctioned New-Source Projects by Region
Regionally, as Figure 3 and Figure 4 show, Latin America has most of the sanctioned new-source projects in the rest of the world driven by Brazil pre-salt developments. At its peak of 2022, it will produce 3.4 MMbbl/d, roughly 38% of the rest of world’s global total. North America—driven by the U.S., Gulf of Mexico and Canadian oil sands projects—is next behind with production of 2.2 MMbbl/d by 2022. The Russia & CIS region, along with Europe, will produce a little more than one MMbbl/d each by 2022.
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