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Deloitte studies oil supply growth for 2015-16
In 2014, new non-OPEC large-field projects collectively brought on 2.3 million b/d in new supply. These efforts spanned diverse geographies and production methods, ranging from Brazil’s offshore projects in the Roncador, Parque, Iracema, and Sapinhoa fields to Mars B in the Gulf of Mexico, and to Russian and Canadian oil sands projects.
Notably, these 2014 supply additions excluded the numerous US shale oil fields being developed. OPEC also contributed to the expanding large-field supply picture, adding another 1.4 million b/d of new oil production capacity in 2014, Deloitte said.
Researchers forecast that large-field projects to bring on a total 1.835 million b/d in new supply this year already are well under way and are unlikely to be halted, even in the current low-price environment.
Taking this momentum into account, the analysis for 2016 forecast large-field production additions of 2.676-3.434 million b/d from non-OPEC producers and 759,000 b/d from OPEC members.
For the past 2 years, US tight-oil production
has grown at a rate of about 1 million b/d/year. This growth is expected
to continue in 2015, but at a slower rate.
As a result, production growth is expected to continue in the short term despite low prices, albeit more slowly than in previous years. While there is no consensus on the extent to which growth will slow, many analysts expect declines of 300,000-500,000 b/d off the 2014 pace.
Peter Robertson, Deloitte LLP independent senior adviser for oil and gas and a former vice-chairman of Chevron Corp., told reporters during a Feb. 4 Deloitte briefing that it’s important to note the world experiences a 4-5% production loss per year just from normal depletion.
“So the added production has to equal this amount if we are to stay even with no additional growth,” Robertson said. “I think we’ve seen the bottom” of low oil prices. “We could revisit that but I think the question is not how low but rather how long.”
Based on current data, Deloitte researchers suggest oil demand could rise faster than supplies starting in 2016.
“Low prices over the next few years will likely inhibit investment in new projects—especially those in the early stages of discussion or in the engineering and design phases. It should also bolster demand, due to price elasticity, much faster than otherwise would be the case,” Deloitte said in its MarketPoint analysis.
The Deloitte MarketPoint price forecast is only
one possibility among a multitude of potential outcomes, researchers
noted, saying changes in the oil demand response and the trajectory of
tight oil production growth would greatly change the outcome.
Forces that could potentially make upside price scenarios more likely “include any number of black swan events affecting supply or the perception of supply scarcity,” Deloitte said. “However, since oil markets are highly cyclical, they tend to overshoot or undershoot most long-term outlooks.”
John England, Deloitte LLP vice-chairman and leader of Deloitte’s oil and gas practice, said the current price environment has, or soon will, curb many development plans.
Consequently when oil prices stabilize, the tight oil producers also will be the ones able to most quickly increase production again, he said.
Rick Carr, Deloitte LLP principal and leader of Deloitte’s oil and gas operations, said crude oil futures prices on the New York Mercantile Exchange are not going to rebound to very high prices, such as $100/bbl, anytime soon.
Producers will be working to reduce costs and
to change their cost structure, he said.
For instance, independents that may have been
willing to pay higher costs for unconventional drilling and completion
activities in the past are no longer going to be willing to do that but
instead will be asking service companies to help cut costs, he said.
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