Non-OPEC Oil Output Not Expected to Grow in 2008

By Reuters | 19 Jun 2008 | 10:18 AM ET

Oil supply from countries outside OPEC, source of three in every five barrels, is stalling this year and may even decline, keeping the heat under record-high oil prices.

The International Energy Agency and the U.S. government have cut forecasts for supply growth in 2008, in part due to delays at new fields and declining output at existing ones.

"There is a risk of zero non-OPEC growth," said Mike Wittner, oil analyst at Societe Generale, who forecasts non-OPEC supply will expand by 400,000 barrels per day (bpd) this year. "As far as our forecast is concerned, there is definitely downside to our numbers."

Struggling supply outside OPEC has helped fuel the surge in oil prices to a record near $140 a barrel, adding a strain to the world economy. It also increases reliance on OPEC oil exporters to meet rising demand.

Signs that oil supply is faltering in parts of the world are leading to growing interest in peak oil, the view that production is nearing a high point and will then fall.

Influential forecasters such as the IEA, adviser to 27 industrialised countries, have been lowering forecasts for supply from non-OPEC countries, but still predict an expansion.

Output from non-OPEC will grow by 460,000 bpd in 2008 from 2007, the IEA said in a monthly report on June 10, down from growth of 680,000 bpd previously forecast.

Others say even that may prove optimistic.

Analysts at investment bank Barclays Capital expect non-OPEC supply to decline by 40,000 bpd this year, while Credit Suisse sees non-OPEC supply as flat or negative through 2012 or longer.

Another bank, Citigroup, said on June 9 that non-OPEC supply was at risk of posting no growth this year.

Delays, Decline

There are several reasons why supply from non-OPEC has fallen short of forecasts in recent years.

Delays at new fields, faster-than-expected declines at existing ones and unforeseen events such as hurricanes in the U.S. Gulf of Mexico have meant production came in lower than first thought.

Oilfields in places such as the North Sea and Mexico are seeing declines while output in Russia, the world's second-largest exporter and the engine of growth outside OPEC in recent years, has faltered.

Russian oil supply in May averaged 9.95 million bpd, the fifth straight month of decline from a year ago, according to the IEA. It expects Russian supply to be largely flat in 2008 at 10.1 million bpd.

Barclays questions if the IEA's prediction of a surge in non-OPEC supply in the last few months of 2008 will materialise, saying that the IEA's figures show a second-quarter drop of 500,000 bpd year-on-year.

"We believe that the IEA is significantly overstating the short-term ability of non-OPEC supply to bounce back and moderate the current situation," the bank said.

Some in the industry are more pessimistic about supply. Billionaire oil investor T. Boone Pickens said on Tuesday that he believed world crude production has topped out at 85 million bpd.

Peak oil has its detractors, such as BP Chief Executive Tony Hayward.The Organization of the Petroleum Exporting Countries is still expected by the IEA and others to expand its supply capacity this year.

Others avoid the term but still see non-OPEC output levelling off.

"The rate of year-on-year decline in Russia and Mexico has been surprising and it doesn't show any sign of letting up," Wittner said. "Non-OPEC output is certainly hitting a plateau."

Copyright 2008 Reuters.