The Organization of Petroleum Exporting Countries (OPEC) are playing a crucial role in balancing markets, and that role is unlikely to change in the near future despite the entry of new competition.
Member states Venezuela and Saudi Arabia together account for a third of the organisation’s proven crude oil reserves and at least five other countries – Iraq, Iran, UAE, Kuwait and Libya – make it into the list of states with the 10 largest reserves in the world.
Given their bountiful reserves, OPEC countries will continue to be major providers of crude oil worldwide over time, with the International Energy Agency (IEA) predicting the call on OPEC to increase output to 35.8 million barrels per day (bpd) by 2022 from 32.2 million bpd in 2016.
Saudi Arabia will lead the way, with state-owned Saudi Aramco pressing ahead with upstream investments by taking advantage of cost reductions offered by service companies and suppliers. To that end, capacity is expected to be sustained at around 12.4 million bpd by 2019 to the end of the IEA five-year forecast.
“Saudi Arabia is the only producer in the world to hold substantial spare capacity: average output of 10.4 million bpd in 2016 allowed for a capacity cushion of some 1.8 million bpd,” the IEA said.
Iraq will easily retain OPEC’s number two spot at least through to 2022. Since its oil development effort resumed in 2010, the country’s oil output has doubled to reach nearly 4.7 million bpd.
Iran is another sleeping giant that could accelerate its production levels if it can secure investment from major oil companies.
“Following years of chronic under-investment, Iran hopes to attract the foreign cash and technology that is vital to raise output,” the IEA said. “Development of the vast reservoirs of South Azadegan, North Azadegan and Yadavaran, which straddle the border with Iraq, is a top priority. Their development, along with the rehabilitation of older fields, is vital to maintaining output at the 4 million bpd level.”
Kuwait and UAE are also stable crude oil exporters that will steadily raise their output levels over the next five years, even as they look to diversify their respective economies further.
However, other OPEC countries may not be able to maintain their production over time. Venezuela, Nigeria and Angola will likely see a slight drop in production as they are challenged by domestic issues and financial constraints.
Indeed, some countries outside of the Middle East fare less well, with declines in capacity of between 20,000 bpd to 110,000 bpd, IEA data shows.
Venezuela is set to post the biggest loss due to chronic under-investment and its wider economic crisis, according to IEA estimates. Algerian capacity will also slide, but an efficiency drive within the oil and gas sector has helped to stem the decline. Capacity is also expected to shrink in Nigeria and Angola, where several capital-intensive deep water projects are unlikely to start up before the early 2020s.
OPEC believes the world will require another 16.4 million bpd of crude oil by 2040 to meet soaring demand. However, investment has been waning due to a decline in oil prices over the past two years.
The oil trade bloc expects upstream investment requirements during the period 2016–2040 to reach USD 7.4 trillion.
On an annual basis, the upstream investment requirement is estimated at almost USD 300 billion with non-OPEC producers accounting for more than three quarters of the figure, OPEC said in its latest annual outlook.
“While OPEC average annual investment requirements total USD 65 billion, in non-OPEC countries, it adds up to around USD 230 billion. Within the non-OPEC countries, the bulk of the investment needs are anticipated in the OECD, with an average annual requirement of more than USD 160 billion, as a result of higher exploration costs and steeper decline rates,” OPEC noted.
OPEC members are also increasingly marketing their products to Asia where future demand lies. By 2040, developing economies will account for just over 60% of all demand, from around 45% currently, underscoring changing oil trade flows especially towards Asia.
OPEC countries have already been ahead of the curve and are actively targeting Asian markets. Asia Pacific already accounts for 61% of all oil exports from OPEC countries, with Europe making up 18% and North America 12%. European demand is plateauing due to a mixture of economic stagnation, energy efficiencies and an aggressive switch to alternative energies. North America, particularly the US, is increasingly becoming self-sufficient, thanks to a surge in its own domestic crude oil and natural gas production.
OPEC members believe they are ready to meet Asia’s rising crude oil needs, but there are still concerns over market sustainability and a lack of an environment conducive to investment.
“If the right signals are not forthcoming, there is the possibility that innovation will dry up, that technological breakthroughs will not materialise, and that not enough new capacity and infrastructure will be in place in time to meet future demand levels,” OPEC warned.
OPEC at forefront of oil market stabilisation