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Is Non-OPEC Oil Production Beginning A Serious Decline?

Is Non-OPEC Oil Production Beginning A Serious Decline?

The EIA’s Monthly Energy Review just came out. They have the U.S. production numbers through December along with World, OPEC C+C, Non-OPEC and selected Non-OPEC nations through October. All EIA data is in thousand barrels per day.

Notice: When I use the term “peaked” below, I am referring to the most recent peak, not the all-time peak and not necessarily the final peak.

United States C+C production peaked in April at 9,694,000 bpd and has dropped half a million barrels per day by December to 9,191,000 bpd.

Here is a 2 year chart of US production that gives an amplified look at what is happening. November and December production is now below November 2014 production.

Non-OPEC C+C peaked in December 2014 at 47,207,000 bpd and dropped 763,000 bpd to 46,444,000 bpd by October 2015. The above chart, I believe, clearly shows that Non-OPEC production is in a downward trend. There is little doubt that this trend will continue for the next year or so. The question is how far will it drop before an increase in prices brings back enough upstream investment to turn production back around? And how long will that take?

World C+C production peaked in July at 80,531,000 and by October had dropped 461,000 bpd to 80,070,000 bpd.

Related:Only Recession Can Prevent An Oil Price Spike

Russia peaked in January at 10,246,000 bpd and last October was down 106,000 bpd to 10,140,000 bpd. Russia appears to be on a plateau, likely before a slow decline that begins in 2016.

China peaked in June 2015 at 4,408,000 bpd and production in October stood at 4,259,000 bpd.

The United Kingdom has been on a plateau of about 800,000 bpd for about three and one half years but in October had production up to 912,000 bpd. Related: 60 Reasons Why Oil Investors Should Hang On

Norway, like the UK, managed to halt its decline about three and one half years ago and has been on a plateau of around 1,600,000 bpd since then. They had a gain of 104,000 bpd in October to 1,685,000 bpd.

Egypt is in steady decline. In October their C+C production stood at 509,000 bpd.

For Canada I am using the data from Canada’s National Energy Board. Their numbers are through December and were upgraded just a couple of days ago. The data below is in barrels per day.

Canadian production peaked in August 2015 but things have not gone so well since then. The decline in April, May and June is something that happens almost every year but the decline in September was an anomaly.

Canada, for the last four months, has declined in year over year production. And since they had record production in January, February and March, that trend will continue for at least for three more months. The data in the chart above is in thousand barrels per day. Related: Oil Crash Only The Tip Of The Iceberg

Ambrose Evans-Pritchard and Daniel Yergin come to some startling conclusions.

Wealthy predators eye US shale firms

The question is whether even U.S. shale can ever be big enough to compensate for coming shortage of oil as global investment collapses.

“There has been a US$1.8 trillion reduction in spending planned for 2015 to 2020 compared to what was expected in 2014,” said Yergin.

Yet oil demand is still growing briskly. The world economy will need seven million more barrels a day by 2020. Natural depletion on existing fields implies a loss of a further 13 million barrels a day by then.

Adding to the witches’ brew, global spare capacity is at wafer-thin levels – perhaps as low as 1.5 million barrels a day – as the Saudis, Russians and others produce at full tilt.

Yergin said those hoping for a quick rescue from OPEC were likely to be disappointed.

I am of the firm opinion that the vast majority of oil production prognosticators are under estimating the effect of natural depletion of existing fields. Even countries that are increasing production, or are on a production plateau, like Saudi Arabia, Iraq, the UAE, Iran, Russia and others, all have serious depletion problems. Failing to account for this decline when you make your prediction will likely cause a serious error.

Gail Tverberg’s blog, Our Finite World, published the following chart last week. But the chart was originally created in 2014 by Alliance Bernstein and may not reflect today’s cost as some costs have dropped in the last year. The term “breakeven cost” refers to the cost to produce a barrel of oil and has nothing to do with a country’s budget.

I do not understand why they thought US conventional was so expensive. However it is interesting to note that Canadian Oil Sands is the most expensive oil in the world.

Nevertheless there is reason to believe that this chart just has production costs way too high. Eyeballing the chart it looks like they have Nigerian cost per barrel at over $60. But this article has a different figure: Oil crash: Nigeria producing at $5 per barrel loss.

By Ron Patterson

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Leave a comment
  • James on January 31 2016 said:
    Go ahead OPEC...cut. US, Canadian and non-opec producers will fill any shortfall over night. OPEC is finished.
  • Seth on February 01 2016 said:
    James,

    Thanks for the thoughtful piece, but you need a little more love of shale. In 2012, oil ranged between the $80s and above $100. U.S. oil production increased very roughly 69% from 2012 to today, an amazing accomplishment. In 2014, prices crashed from nearly $110 to below $50. Amazingly, U.S. oil production increased very roughly about 20% from 2014 to today.

    In 2016, with the prices around $31 (less than a third of the peak), U.S. oil production has only dropped very roughly 5-6% Jan to Jan, an amazing accomplishment since OPEC (and some analysts) thought OPEC could crush shale. All that's happened is that OPEC exists in name only and partially thanks to shale, there is a permanent ceiling on oil prices, and new techniques and equipment are making shale extraction cheaper by the day.

    I'm enjoying OPEC's self-destruction.
  • Nolan on February 02 2016 said:
    You are off the mark Seth as you are factoring time when they had financing (still do) which throws your analysis askew. So naturally they pumped all they could in the times you cite, and have been doing that now. But once the banks stop financing these big projects, production will tighten and tighten....it's anyones guess how far and fast production falls, but it's a no brainer that it will...
  • Seth on February 02 2016 said:
    Nolan, thanks for your thoughtful reply and I'll respectfully disagree. Years ago, everyone laughed at shale (especially OPEC and peak oil) and every year there are predictions of shale's downfall (rig counts, financing issues) but every year shale is still producing prodigious quantities of oil.

    In my opinion, the big story is not a minor drop in production trailing 12 months, but the incredible resilience of shale even with oil dropping from nearly $110 down to the low $30s.

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