Throughout 2018, the oil and gas market has continued to evolve, with a series of unforeseen events driving prices higher and leading those able to produce more to do just that. This was highlighted in June, when OPEC made a concerted effort to try and increase production to their originally agreed quotas, and was further highlighted in September, when the resurgence in US oil production saw it surpass that of Russia and Saudi Arabia. Out to 2024, Westwood's latest World Drilling and Production Market Forecast paints a mixed picture for the future of the upstream O&G industry.
Key Conclusions Include:
- Overall liquids production will experience strong growth, 5.2 mmbbl/d higher in 2024 than 2018.
- US activity will account for 41% of global onshore development wells drilled over 2018-2024.
- US onshore liquids production exceeded early projections, with an average 1.3 mmbbl/d of additional production for 2018 expected, with and an additional 0.8 mmbbl/d likely in 2019.
- Production in >500m of water accounted for 18% of total offshore production in 2018, growing to 23% in 2024.
- Deepwater drilling will continue to diversity, with non- ‘Golden Triangle' wells drilled increasing from 20% in 2018 to 35% by 2024.
- Brazil will continue to dominate deepwater production, accounting for an average of 41% of the global deepwater oil production over the forecast.
- Onshore drilling activity remains strong in many regions, with over 366,000 onshore development wells to be drilled globally over the forecast period.
With the end of the OPEC production quota seemingly in sight, several Middle Eastern producers, including Saudi Arabia, are expected to produce at record levels going forward. Combined with continued output increases in the US, as well as a range of additions from long-in-gestation deepwater projects, Westwood expects to see liquids production increase 1.8 mmbbl/d in 2019 (the same as 2018) to a global total of 93.3 mmbbl/d. Beyond this, production will continue to increase, albeit at much slower rates, reaching a peak of 96.8 mmbbl/d in 2023 before falling marginally to 96.6 mmbbl/d, based on currently visible projects and reserves.
These additions for 2018-2019 are significantly lower than Westwood has forecasted in previous Q4 reports, which have often predicted a sharp return to chronic oversupply and a deterioration in macro fundamentals. Instead, political and economic issues have resulted in a vast downgrade in production outlooks for several producers throughout the course of 2018. In Venezuela, production fell to 1.2 mmbbl/d in September – 0.8 mmbbl/d lower than January 2017. The economic issues which have blighted the Latin American producer are not expected to be alleviated any time soon, with Westwood now expecting output to decline to 0.6 mmbbl/d by 2024.
Similarly, Iran's production has plummeted by 0.3 mmbbl/d in two months and a further fall is expected following the full imposition of US sanctions in November this year, which will severely restrict the country's export market. Meanwhile, Nigeria has seen several major deepwater projects continually pushed back due to political and budgetary concerns. The Nigerian Petroleum Industry Bill is still well off being put into law, with FIDs unlikely to be taken until the long-discussed legislative framework is agreed. Other countries, including Angola and Mexico, have also seen output decline far beyond expectations in 2018, with little signs of improvement over the forecast.
Based on a consensus of strong demand growth over the forecast, production growth beyond the near-term looks set to be insufficient to meet demand, leading to undersupply for the remainder of the forecast. However, this outlook is assuming that the outages and economic/political issues remain in place for the countries discussed prior. With a new Mexican president promising to restore Pemex to its former glory, a 2019 election in Nigeria and uncertainty over how long the Iranian sanctions will last, the potential for large increases in production to fill the global shortfalls remains very real – particularly further into the 2020s.
Other key findings of the report include the continued growth of natural gas production. A slew of new LNG projects, including LNG Canada and the North Field Expansion progressed towards sanctioning in the last three months, boosting outlooks in Canada and Qatar respectively. Over the forecast period, gas targeted drilling will grow significantly, causing global gas production to reach almost 80 mmboe/d in 2024, from just over 71 mmboe/d in 2018. This is driven by shifts in operator and government focus, as well as recent gas discoveries, with particularly strong growth expected in Australia, East Africa and the Mediterranean.
This report, includes data and analysis for more than 70 of the most important energy producing countries, including detailed drilling and production data for each country covering the period 2008-2024.
Source: Westwood Energy