While everyone is talking about how surging U.S. crude oil production will offset a large part of the ongoing OPEC/non-OPEC production cuts, there are other oil producers not taking part in the OPEC+ deal and poised to see their output jump this year.
Record-breaking U.S. oil production will lead the non-OPEC supply growth this year, all analysts and estimates concur. Second in terms of production growth among non-OPEC nations outside the deal will be Brazil, where several new start-ups and production ramp-ups are set to deliver the country’s highest annual oil output growth in at least two decades.
The most recent estimates by the International Energy Agency (IEA) and OPEC show that Brazil’s production growth this year will be around 360,000 bpd from 2018, and Brazil will see the second-highest supply growth, second only to the United States.
Rising output in Brazil will add more crude oil supply globally—on top of the U.S. production growth—at a time when OPEC and its Russia-led non-OPEC partners are withholding 1.2 million bpd output, hoping to rebalance the market and drive oil prices up.
Record-high U.S. production and forecasts for continued growth through 2019 and 2020 have been capping oil prices in recent months. The EIA estimates in its latest Short-Term Energy Outlook (STEO) that U.S. crude oil production averaged 12.0 million bpd in January 2019, up by 90,000 bpd from December 2018, and sees U.S. output averaging 12.4 million bpd in 2019 and 13.2 million bpd in 2020, with most of the growth coming from the Permian. Related: Kicking Mexico’s Addiction To U.S. Natural Gas
Add to this the expectations that Brazil’s production is set to rise by 360,000 bpd this year, and OPEC and allies may find themselves considering extending the cuts beyond their current expiry date of June 2019. OPEC+ is set to revisit the agreement in April.
Although any decision will depend not only on production growth outside the deal, but also on supply declines from Iran and Venezuela due to the U.S. sanctions and on projections for global demand growth, Brazil will likely contribute to more supply on the oil market in two months’ time, potentially further complicating OPEC and its allies’ supply-picture estimates.
Brazil has failed to deliver the expected high production growth in recent years due to various project delays, but this year both the IEA and OPEC see the Latin American producer boosting oil supply.
The IEA expects Brazilian oil production to expand by 365,000 bpd on average in 2019, as a number of new production units are on track to start up or ramp up. Last year, Brazil’s oil output dropped by 40,000 bpd to 2.7 million bpd. This year, production is set to hit 3.06 million bpd on average, the IEA estimated in its Oil Market Report in January.
According to Bloomberg estimates based on IEA figures, Brazilian oil production growth this year would be the highest in at least 20 years.
OPEC, for its part, said in its February Monthly Oil Market Report that is sees Brazil adding 360,000 bpd to its 2019 oil production. Heavy maintenance last summer and sharp decline rates at mature fields in the Campos Basin, coupled with delayed start-up of several pre-salt projects in the Santos Basin, weighed on Brazilian production in 2018, which OPEC, like the IEA, also expects to have contracted by 40,000 bpd. Related: Permian Production To Break 4 Million Bpd In March
But this month alone, Brazil’s state oil firm Petrobras announced the start of production from two projects in the pre-salt Santos basin via floating production and storage offloading (FPSO) vessels. One is the P-67 platform with capacity to process up to 150,000 bpd in the Lula Norte area in the Lula field, which is currently the largest production area in Brazil and is expected to reach the 1-million-bpd mark this year. The other is the P-76 platform, the third platform to enter production in the Búzios field in the Santos basin, also designed with capacity to process 150,000 bpd. This was the second platform to start up in 2019 out of a total of four planned for this year, Petrobras said on Wednesday.
“Oil production could rise substantially in 2019 if the delayed FPSO vessels and other scheduled facilities come on line in time during the year,” OPEC said about Brazil in its MOMR last week.
The cartel also noted that “Brazil has never exported as much crude oil as in 2018.” Brazilian crude exports averaged 1.12 million bpd last year, up by 13.3 percent from 2017, and accounting for around 40 percent of total production.
Energy Research Company (EPE) linked to the Ministry of Mines and Energy, estimates that oil production in the pre-salt regions will double over the next eight years and that the country will become one of the five largest exporters in the world,” OPEC said.
Brazil’s prolific pre-salt basin would be a boon to the country’s oil, but it could be the bane of OPEC’s efforts to rebalance the market.
By Tsvetana Paraskova for Oilprice.com
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