World's Energy

11 June 2008 - Upstream OnLine - Two of the world's most closely watched energy forecasters have slashed predictions for output from oilfields outside Opec in 2008 - more bad news for a global economy struggling with record high oil prices and tight supply. The dimming outlook for world production will keep the market on edge even as high prices hit consumers and cut into the pace of global demand growth. The International Energy Agency, adviser to 27 industrial economies, cut its expectations for supply growth from countries outside Opec to 460,000 barrels per day above 2007 levels, down from 680,000 bpd a month ago. The US Energy Information Administration, the statistical arm of the Energy Department, cut its forecast for non-OPEC output growth nearly in half to 310,000 bpd from 600,000 bpd. Both groups have consistently over-shot on non-Opec supply growth in recent years, as soaring field costs and geopolitical constraints have wreaked havoc on official timelines. Partly due to the dearth of supplies outside the Opec countries, the EIA raised its projections for 2008 oil prices by nearly 12%. Benchmark West Texas Intermediate oil prices will average $122.15 a barrel, up from its previous forecast of $109.53 a barrel, the EIA predicted. Oil prices hit a record near $140 a barrel last week, a seven-fold increase since 2002 that has been driven by surging demand from China and other developing countries. The EIA said it was still accounting for a planned non-Opec supply increase of 820,000 bpd later this year as big fields in Brazil and Azerbaijan come online. But, given recent delays, the EIA hedged its bets on the probability of such supplies materialising as planned. "Given recent history, EIA believes that the pace and timing of non-Opec supply growth will continue to be subject to possible delays in key projects and accelerating production declines in some older fields," the agency said. The EIA has sifted through new data that paints a less rosy picture for supplies from three key producers: Russia, Mexico and Brazil, said Matt Cline, an economist at the agency. In Russia, the world's second biggest exporter behind Saudi Arabia, a venture between Lukoil and US supermajor ConocoPhillips to produce 160,000 bpd in Russia's north has been repeatedly delayed. In Mexico, production from the huge Cantarell offshore field plummeted by more than 30% in the first four months of 2008, versus a year ago, Cline said. "Like everyone else, we had been expecting Cantarell to decline this year," Cline said. "But no one had been expecting it to decline by that much." In Brazil, the EIA has dramatically increased its baseline for decline rates in some larger, more mature fields, especially in its offshore areas. EIA head Guy Caruso said the downward revisions would put more pressure on Opec suppliers like Saudi Arabia to fill the gap, and will lead to tighter global spare capacity. "Tight spare capacity means upward pressure on oil prices," Caruso told Reuters. The slower growth in supply from non-Opec countries will keep supplies tight, despite weakening growth in demand, as high prices hit consumers, the EIA said. And analysts must balance predictions for supply decreases with similar predictions for falling oil demand, both in the US and globally. "It's a tricky situation, because supply is falling as fast as demand is," said Francisco Blanch of Merrill Lynch. The IEA said global oil demand will rise by 800,000 bpd this year, 230,000 bpd less than its previous forecast, in part because developing Asian economies are moving to roll back fuel subsidies that sheltered consumers. The EIA, meanwhile, cut its forecasts for US demand by 100,000 bpd and global oil demand by 210,000 bpd in 2008.