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Alex Kimani

Alex Kimani

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

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Can Non-OPEC Producers Jump Into The Supply Gap?

  • Only a handful of OPEC members have available spare production capacity.|
  • Many Non-OPEC producers are also large consumers of crude oil.
  • Of the Non-OPEC producers, only Brazil, the U.S., Norway, and Guyana are likely to increase production in 2022.

The oil price rally appears to be cooling off, with oil prices pulling back but still stuck at multi-year highs of $114.52 per barrel for Brent crude and $112.27 for WTI on Friday intraday trading. Recently, we reported that oil prices have been surging after international refiners adopted a self-imposed embargo, with many reluctant to buy Russian oil and banks refusing to finance shipments of Russian raw materials as per an Energy Intelligence report. Refiners and banks have presumably been unwilling to do business with Russia due to the risk of falling under complex restrictions in different jurisdictions, with the BBC reporting that almost 70% of Russian crude oil exports do not have a buyer. Market participants are growing increasingly concerned that measures directly targeting oil exports could soon arrive as fighting in Ukraine escalates. The situation has been getting desperate for the Russian oil sector, with oil exports falling sharply despite selling at massive discounts. According to Energy Intelligence, Russian oil export flows have fallen by at least one-third--or some 2.5 million barrels per day--despite a discount of $11 per barrel versus dated Brent being offered for distressed cargoes of Russian Urals.

“It’s going to make trading with Russia very complex. These sanctions against Russia will have an incredible effect on global trade and trade finance,” Sarah Hunt, a partner at law firm HFW who works with commodity traders, has told the Wall Street Journal. Russia normally exports 4.7 million b/d of crude and 2.8 million b/d of products, according to government data. But Energy Intelligence now estimates that ~1.5 million b/d of crude and 1 million b/d of refined products are not making it to the market.

However, the real picture is a little bit more nuanced, with the International Energy Agency now reporting that Russian oil and gas exports to Europe are, so far, largely unaffected.

According to the IEA, oil deliveries via pipeline to Europe, most of which are governed by term deals, have not yet been affected. However, there is evidence of disruption to waterborne spot markets with several crude oil buyers reportedly unable to secure credit lines because of concern over financial sanctions. Shipping and insurance considerations, as well as buyers’ reluctance to trade Russian barrels, are also affecting loadings, as are concerns about military actions affecting seaborne shipping.

Further, the IEA says that the Russian invasion of Ukraine has not yet had a notable disruption on natural gas supplies to Europe, with no clarity on what kind of impact sanctions will have on energy flows and how long any potential supply losses will last.

But make no mistake about it: there are simply no ready substitutes by OPEC or non-OPEC producers for Russian oil and gas flows that could ameliorate the energy crisis.


OPEC has lately come under pressure to ramp up production at  a faster clip from several quarters including the Biden administration so as to ease supply shortages and rein in spiraling oil prices. OPEC+ is scared of spoiling the oil price party by making any sudden or big moves with last year’s oil price collapse still fresh on its mind.

But maybe we have been overestimating how much power the cartel has to jack up production on the fly.

According to a recent report, at the moment, just a handful of OPEC members are capable of meeting higher production quotas compared to their current clips.

Amrita Sen of Energy Aspects has told Reuters that only Saudi Arabia, the United Arab Emirates, Kuwait, Iraq and Azerbaijan are in a position to boost their production to meet set OPEC quotas while the other eight members are likely to struggle due to sharp declines in production and years of underinvestment.

According to the report, Africa’s oil giants Nigeria and Angola are the hardest hit, with the pair having pumped an average of 276kbpd below their quotas for more than a year now.

The two nations have a combined OPEC quota of 2.83 million bpd according to Refinitiv data, but Nigeria has failed to meet its quota since July last year and Angola since September 2020.

In Nigeria, five onshore export terminals run by oil majors with an average production clip of 900,000 bpd handled 20% less oil in July than the same time last year despite relaxed quotas. The declines are due to lower production from all the onshore fields that feed the five terminals.

In fact, only French oil major TotalEnergies'(NYSE:TTE) new deep offshore oilfield and export terminal Egina has been able to quickly ramp up production. Turning the taps back on has been proving to be a bigger challenge than earlier thought due to a shortage of workers, huge maintenance backlogs and tight cash flows.

Indeed, it could take at least two quarters before most companies can work through their maintenance backlogs which covers everything from servicing wells to replacing valves, pumps and pipeline sections. Many companies have also fallen behind on plans to do supplementary drilling to keep production stable. 

Angola has not been faring any better.

In June, Angola's oil minister, Diamantino Azevedo, lowered its targeted oil output for 2021 to 1.19 million bpd, citing production declines at mature fields, drilling delays due to COVID-19 and "technical and financial challenges" in deepwater oil exploration. That’s nearly 11% below its 1.33 million bpd OPEC quota and  a far cry from its record peak above 1.8 million bpd in 2008.

The southern Africa nation has struggled for years as its oil fields steadily declined while exploration and drilling budgets failed to keep up. Angola's largest fields began production about two decades ago and many are now past their peaks. Two years ago, the country adopted a string of reforms aimed at boosting exploration, including allowing companies to produce from marginal fields adjacent to those they already operate. Unfortunately, the pandemic has stunted the impact of those reforms, and not a single drilling rig was operational in the country by May, the first time this has happened in 40 years.

But Non-OPEC producers are not much better off, either.

In a rare move of solidarity, last year, non-OPEC countries agreed to join the production-limiting deal. But they, too, are now struggling to ramp up production in an unusually tight market. Non-OPEC oil producers are crude oil-producing nations outside of the OPEC group including the United States of America, Canada, and China.

Unfortunately, most non-OPEC countries have high consumption levels and, thus, limited capacity to export. Indeed, many are net oil importers despite being high producers, which means they have minimal influence on oil prices. However, with the discovery of shale oil and shale gas, non-OPEC oil producers, particularly the United States, have enjoyed increased production and greater market share in recent times. While this has been a game-changer of sorts, shale oil technology requires substantial upfront investments, which acts as a deterrent to shale oil producers. 

So far, the jury is out as to whether non-OPEC producers can have a material impact on the price of crude oil. High production levels from non-OPEC members from 2002 to 2004 and again in 2010 failed to trigger price declines and instead brought higher oil prices, mainly because they lacked sufficient market share to affect the market price of oil. High production from 2014 to 2015, however, did cause prices to decline with pundits opining that the decline in prices was the result of an increase in supply from OPEC producers to counter the threat posed to their hegemony by non-OPEC producers. 

But the situation is different this time around, with OPEC lacking its usual bite.

One of the biggest NOPEC producers has not minced words about the situation. On Wednesday, Canada’s environment minister made it clear that Canada is not in a position to ramp up oil shipments quickly enough to bring down crude prices that have soared since Russia’s invasion of Ukraine.

“Let’s be reasonable, we can’t help Europe with oil. Our export capacity is pretty much maxed out. We’re building a pipeline. It’s just going in the wrong direction and the idea that we somehow could start to build a bunch of new infrastructure in Canada and it would magically happen -- either for gas or for oil -- is not very serious,” Steven Guilbeault has told Bloomberg News in an interview.

Canada is the leading crude exporter to the U.S., supplying over 60% of the country’s imports compared to under 2% supplied by Russia. The country is also the world’s sixth-largest natural gas producer, but doesn’t operate any liquefied natural gas export plants that would allow the country to ship the fuel to European customers. Currently, one LNG plant is being built on Canada’s Pacific Coast, but won’t be completed before the middle of the decade. 


The only bright spots right now are countries like Brazil and Norway as well as U.S. shale producers.

According to the EIA, Brazil was the only oil-producing country in South America to report an increase in crude oil and condensate production in 2020 compared with 2019, according to the Country Analysis Brief: Brazil. In 2020, Brazil produced an average of 2.94 million barrels per day (b/d) of crude oil and condensate, an increase of more than 150,000 b/d on average compared with 2019. Brazil's production is expected to continue to grow, contributing to global petroleum production growth according to our November Short-Term Energy Outlook. The Oil & Gas Journal estimates that as of January 2021, Brazil had 12.7 billion barrels of proved oil reserves, the second-largest oil reserves in South America after Venezuela.

Meanwhile, Norway expects its oil production to rise by 19% through to 2024 thanks in large part to the success of Johan Sverdrup. Norway's 2020 oil production clocked in at 2.0 million b/d, up 15% from 2019, and expects total liquids output to reach 2.38 million b/d in 2024, with crude output averaging 2.07 million b/d.

U.S. shale really is a mixed bag. In a break from recent history, there doesn't appear to be a strong supply response to rising prices and declining inventories. When Chevron (NYSE:CVX) reported Q4 results, the company guided the street to flat YoY production in 2022, with BP Inc. (NYSE:BP) and ConocoPhillips (NYSE:COP) following suit. Bakken producer Whiting (NYSE:WLL) announced they plan to increase capex 55% in 2022 and acquire assets to generate only ~3% production growth. Driller Nabors (NYSE:NBR) has also indicated they don't expect to add any rigs outside the U.S. in Q1.

Exxon Mobil (NASDAQ:XOM) said it started production at Guyana's phase 2 offshore oil development on the Stabroek Block, aimed at bringing total output capacity to more than 340K bbl/day in seven years since the country's first discovery.

Exxon expects production at its Liza Unity FPSO to reach its target of 220K bbl/day later this year, adding to the 120K bbl/day of capacity at the Liza Destiny FPSO, which began production in December 2019 and is now delivering at better than design capacity. Exxon anticipates four FPSOs with a capacity of more than 800K bbl/day will be in operation on the Stabroek Block by year-end 2025, up from a previous projection of 750K bbl/day from the block by 2026.

Exxon has estimated the Stabroek Block's recoverable resource base totals at least 10B boe.

Overall, NOPEC production increases are expected to be relatively small and gradual, and will probably be nowhere near enough to bridge the 1M+ b/d shortfall that could soon hit as the Ukraine crisis escalates.

By Alex Kimani for Oilprice.com

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