Given the recent agreement reached by OPEC+, OPEC countries are now expected to decrease oil production by 2.7 million bpd in 2020 with Saudi Arabia to contribute a cut of around 500,000 bpd on average for the full year. This article assesses the outlook for OPEC, illustrated by three key drivers: oil production, breakeven prices and spending.
Figure 1 depicts crude oil and condensate production additions from 2015 to 2025 for the OPEC countries, some of which are combined into groups: Other Gulf excluding Saudi Arabia and Iran (UAE, Kuwait, Iraq), Other OPEC (Venezuela, Algeria, Angola, Congo, Gabon, Equatorial Guinea, Neutral Zone) and Libya and Nigeria. Total OPEC oil production is represented by the black line. OPEC oil additions led by the Gulf countries have been on an increasing trend until 2017, when the OPEC+ cut agreement was first initiated. As the original agreement has been rolled over and the cuts deepened last year, total yearly oil production reduction from OPEC accounted for nearly 1.7 million bpd, largely driven by Saudi Arabia, Iran and other OPEC countries that have been declining naturally. Thus, total OPEC oil production dropped to about 32 million bpd in 2019. In March 2020, Saudi Arabia was not able to prolong an agreement with Russia, which led to OPEC+ collapse, a price war where each country aimed to ramp-up production as high as possible and oil prices barely above $30 per barrel. However, the impact of Covid-19 on demand has been so disastrous that already in April 2020 OPEC+ has again agreed to cut production by a historical high of 10 million bpd over the next two months, later decreasing cuts to 8 million bpd for the remainder of 2020 and 6 million bpd from 2021 until April 2022. The largest chunk of cuts will come from Saudi Arabia. Total OPEC reduction is estimated to amount to over 2.7 million bpd in 2020, and total level is thus envisioned at 29.2 million bpd, gradually growing back to 34 million bpd by 2025.
Figure 2 depicts total recoverable resources for the top ten oil discoveries expected to reach FID in the next three years for the OPEC countries. Oil breakeven prices as of the sanctioning date are also shown on the chart. Most of the fields are later phases or redevelopments of existing projects. The expansion of the Zuluf field in Saudi Arabia is the largest project in the pipeline to be sanctioned in the next three years, holding an estimated 5.4 billion boe in recoverable resources. UAE dominates the list of largest oil projects with the second phase of the Upper Zakum expansion, the second phase of Sahil development, as well as long-term redevelopment plans (LTRP) of Lower Zakum and Umm Shaif fields. These four fields have an average breakeven price of $32 per bbl. Outside of the Gulf, the upcoming projects include the redevelopment of the Alakiri field in Nigeria and the third phase of Eni’s Nene Marine field in Congo. The Agogo field in Angola is expected to be sanctioned by the end of 2022 and holds estimated recoverable oil resources of 250 million barrels.
Figure 3 shows the capital expenditure on oil fields for the OPEC countries from 2010 to 2025. Following the oil price collapse and the period of the OPEC+ agreement, spending has declined to about $63 billion by 2019 from $100 billion in 2014. In 2020, total investments are expected to hover at about $51 billion, given the recent oil cut agreed by OPEC+. Total oil field expenditures are not estimated to start to grow again until 2022 and are not projected to hit 2014 levels again within the next five years. In the medium term, Saudi Arabia is expected to increase capital investments by 23% between 2022 and 2025, directed both to mature asset base and new discoveries. Among unsanctioned fields, expansions of Marjan, Berri and Zuluf fields will see the largest capital contribution in the years to come. Furthermore, Iraq is also among the countries that are leading in terms of the capital investment increase in the longer term. A large part of the growth comes from already producing fields, as well as currently unsanctioned projects.