Is Non-OPEC Beginning A Serious Decline?

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Includes: BNO, DBO, DNO, DTO, DWTI, OIL, OLEM, OLO, SCO, SZO, UCO, USL, USO, UWTI
by: Ron Patterson

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.

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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.

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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.

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Non-OPEC C+C peaked in December at 47,207,000 bpd and dropped 763,000 bpd to 46,444,000 bpd by October. 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?

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

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Russia peaked in January at 10,246,000 bpd and in 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.

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

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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.

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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.

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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.

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Canadian production peaked in August 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.

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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 three more months. The data in the chart above is in thousand barrels per day.

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

Wealthy predators eye US shale firms

The question is whether even US 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 underestimating 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 "break-even cost" refers to the cost to produce a barrel of oil and has nothing to do with a country's budget.

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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.

LAGOS - As oil prices continue on the downward slide, Nigerian oil firms may be producing at up to $5/barrel loss, as average production costs for independent and marginal field producers is between $30 and $35/barrel.