In 2018, non-OPEC oil supply experienced a robust growth of 2.91 mb/d, amounting to more than three times the increase seen in the previous year, and was led by the y-o-y gains of 2.26 mb/d in the US. In addition to the US, other non-OPEC countries, such as Canada, Russia and UK contributed to the gains. Indeed, the recovery in oil supply in 2017 and 2018, following the contraction in 2016, was driven by improving oil market conditions and rising oil prices, with NYMEX WTI increasing by around $14/b, or 27.5%, y-o-y, to average $64.90/b in 2018. Free cash flow (FCF) in non-OPEC reached to a record high of $310 bn in 2018, a jump by almost 100% y-o-y. There are several reasons to why free cash flows have improved from the low of $35 bn seen following the oil price collapse in 2015. Key among these reasons are the higher oil prices, lower cost levels and reduced investments. The non-OPEC’s FCF in 2019 is expected to decline 15%, before rising again by 23% to reach $324 bn in 2020.

As a result of the higher cash-flow, non-OPEC upstream sanctioning activity appears set to reach an all-time high this year, marking the start of a new cycle of investment (Graph 1). With the improvements in FCF, E&P companies currently have large projects in Non-OPEC countries that they plan to sanction over the next two years. It is anticipated that this year, around $26.5 bn will be spent on exploration in non-OPEC countries, $184 bn on brownfields and $180 bn on greenfields, totaling an estimated $390 bn. Next year, this figure is expected to rise to around $468 bn. The total capex for non-OPEC’s tight oil – which consists mainly of the US – will be around $124 bn in 2019. Despite having the lion’s share of total capex, this indicates a decline of $9 bn, or -7% y-o-y, down from the $133 bn level observed in 2018.

In addition to geopolitical developments, the performance of non-OPEC supply in 2019 will depend on a number of factors. Supply growth is likely to be slower than last year amid the expected weaker global economic growth at 3.2%. US tight oil production is increasingly faced with costly logistical constraints in terms of out-take capacity from land-locked production sites. Such constraints have also impacted Canada’s oil production. Moreover, North American producers will continue facing pressure by shareholders demanding capital discipline and a return on their investments, and this could come at the expense of increased disposable capex. On a country-basis, 86% of total non-OPEC supply growth in 2019 is expected to come from the US (1.85 mb/d), Brazil (0.30 mb/d), Russia (0.19 mb/d), Australia (0.06 mb/d), the UK (0.05 mb/d), and Ghana (0.04 mb/d), while supply declines will mainly be seen in Mexico, Kazakhstan, Norway, Indonesia, Canada and Vietnam (Graph 2). Despite pipeline constraints in the Permian Basin, US liquids production is estimated to increase by 1.85 mb/d in 2019, of which 91% is attributed to tight crude and unconventional NGLs.

This compares to a share of around 96% in 2018. In Canada, the slump in storage capacity, the wide differential between the price of WCS and WTI as well as pipeline capacity limitations prompted the Alberta government to mandate temporary production adjustments leading to a contraction in growth in 2019. In Brazil, following the new project production start-ups and ramp-ups at the recently installed FPSOs, oil supply is forecast to grow by 0.30 mb/d. A total of 252 oil & gas projects are anticipated to be approved in 2019 in non-OPEC countries, with 14 projects outside of tight oil currently in FID of which 54% will be onshore and 46% offshore, representing the same share as 2018, with Brazil showing the largest growth potential from new field start-ups.
Source: OPEC