In 2019, global liquids supply increased by only 0.3 million bpd, largely as a result of deeper cuts delivered by OPEC+ countries. 2020 is promising to be another year of substantial supply additions with about 2.4 million bpd expected, which nearly brings us back to 2018 supply dynamics. US shale and offshore fields in Brazil and Norway are particularly anticipated to contribute to the growth forecasted. Despite OPEC+ agreement to deepen the cuts, it might be challenging for the market to sustain oil prices at current levels. This article explains the key industry trends from last year, as well as highlights the expectations for 2020 through analysis of supply growth, exploration success and spending trends.
Figure 1 looks at historical and forecasted year-over-year global and non-OPEC liquids production increase. In 2019, global liquids volumes are estimated to have increased by 0.3 million bpd, which is a substantial decrease relative to 2.7 million bpd additions witnessed in 2018. Such decline, which has largely been essential for supply-demand balances, was made possible as a result of OPEC+ cuts that have been deeper than 1.2 million bpd agreed in December 2018. Also, a substantial part of cuts was related to involuntary declines from Iran and Venezuela, both exempt from the agreement. Furthermore, Saudi Arabia has cut more volumes than required. The country’s actual cuts have been close to 870,000 bpd, compared to the target of ~300,000 bpd implied by the original terms of the agreement in December 2018. In contrast, shale and tight oil production continued to grow and despite WTI oil prices hovering below $60 per barrel, the segment contributed over 2.1 million bpd of liquids additions in 2019. As a result, we clearly observe that non-OPEC production growth has been at about 2 million bpd, and if it wasn’t for OPEC+ engagement, we would have seen a considerably oversupplied market in 2019. In 2020 globally, Rystad Energy anticipates another year of significant production additions that are likely to average about 2.4 million bpd, close to the output growth we witnessed in 2018. Shale segment is estimated to continue to grow delivering over 1.9 million bpd to the market. Furthermore, nearly 1.3 million bpd is expected from offshore fields with Brazil and Norway leading in terms of new volumes. Lula, Buzios and Iara projects will drive liquids production in Brazil, while long awaited Johan Sverdrup will see over 350,000 bpd added to Norway’s output. In December 2019, OPEC+ has agreed to deepen the cuts by additional 500,000 bpd. In total, new production cut targets add up to 1.7 million bpd, up from 1.2 million bpd agreed for 2019. This, however, might not be enough to sustain oil prices at $60 per barrel level. In particular, if the 600,000 bpd IMO effect we predict doesn’t materialize this year, the market is likely to be significantly oversupplied calling for higher cuts to support current oil prices.
Figure 2 shows the global discovered conventional volumes by month from January 2013 until December 2019. Total volumes discovered in 2019 are estimated at 12.2 billion boe, representing a 22% increase over 2018. Year to date, February, May and October have been the strongest months in terms of added discoveries, notably dominated by gas fields. October 2019 was one of the most productive months of the year with 2.5 billion boe in discovered volumes. Mauritania saw the largest discovery in October with 1.3 billion boe (100% gas) found at the BP-operated Orca-1 in Block C8. The second largest discovery so far this year was made by Gazprom in May at the Dinkov field in the Kara Sea in Russia. Other notable discoveries this year include the Brulpadda field offshore South Africa and Glaucus offshore Cyprus, discovered in February 2019.
Figure 3 shows global E&P investments (capital and exploration expenditures) from 2012 to 2022 split by continent. Total investments have been growing steadily until 2014, reaching almost $900 billion. However, as a consequence of rapidly falling oil prices, upstream expenditures decreased by 25% in both 2015 and 2016. Investments began to recover in 2017, growing to $545 billion by 2018. In 2019, the spending is expected to have reached around $540 billion. We currently do not expect recovery in capital expenditures before 2022. This year, investments in North America are forecasted to decrease by around 2% relative to 2019 and stand at $191 billion, supported by spending in Gulf of Mexico. Shale sector, on the other hand, will see a reduction of 8% year-over-year. Africa, Russia and South America are expected to see growth or flat development in investments this year. Mozambique, Libya and Mauritania will drive African growth. In South America, Brazil’s Marlim and Mero projects will contribute to the increase in spending, while Arctic LNG 2 will play an important role in spending dynamics in Russia. From 2018-2022, Africa, Australia, South America and the Middle East are expected to see the largest compounded average growth in investments. Investments in the Middle East and Australia are expected to grow on the back of new LNG projects and the redevelopment of old oil fields.
In Rystad Energy’s current outlook, 2020 is expected to be another year of substantial liquids additions to be brought to the market. US shale and offshore segments will particularly drive this growth. Overall, the market is likely to see around 2.4 million bpd of liquids increase, accounting for the OPEC+ agreement to deepen the current cuts by additional 500,000 bpd. Therefore, this year we could again witness oversupplied market and weaker oil prices as a result. The consequence could especially be pronounced if IMO effect the industry hopes for does not materialize.