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Lack of investments to cause oil supply deficit

Oil&Gas Materials 4 May 2020 22:10 (UTC +04:00)
Lack of investments to cause oil supply deficit

BAKU, Azerbaijan, May 4

By Leman Zeynalova - Trend:

The lack of activity and investments currently planned by cost-conscious E&P firms, combined with an inevitable rebound in global oil demand, is set to cause a supply deficit of around 5 million barrels per day (bpd) in 2025, Trend reports citing Rystad Energy.

“In our base case scenario, global demand for liquids in 2025 will reach around 105 million bpd,” reads the report.

Before the Covid-19 pandemic, Rystad Energy expected supply to slightly exceed demand. However, due to the steep curtailment of investments and activity that the current crisis has brought this year, Rystad Energy now estimates that the downcycle in the upstream industry will remove about 6 million bpd from production forecasts for 2025.

To fill this gap, Rystad Energy believes that some of the core OPEC countries, like Saudi Arabia, Iraq and UAE, will be able to ramp up production. In total these countries might fill 3 million to 4 million bpd of this gap.

The remaining shortfall will most likely be filled with volumes from US tight oil, according to the report.

“To achieve this, prices may move above our current base case, which currently stands at an average price of $68 per barrel in 2025.”

The company said the current low oil price has tightened the medium-term supply and demand balance considerably.

“Despite high growth in tight oil, oil production outside the OPEC Middle East countries is expected to stay flat over the next five years. As demand is expected to recover, the core OPEC counties will need to increase their supply significantly or the market will face even higher prices than our base-case forecast,” says Rystad Energy Head of Upstream Research Espen Erlingsen.

Rystad Energy believes that global E&P activity is poised to fall dramatically this year as upstream companies try to cope with the challenging market conditions, resulting in conventional project sanctioning activity falling to a 40-year low and tight oil investments dropping by almost 50 percent this year.

“The impact of the lower activity levels varies depending on the supply segment.
For tight oil (including NGL) the impact on production is rather immediate, and we have reduced our 2020 forecast by close to 1.9 million bpd. The dramatic reduction in new tight oil wells will also have a long-term impact, as fewer wells will be available for production. For 2025 our total tight oil production forecast is revised to 18 million bpd, or 2.7 million bpd lower than our pre-crisis estimate.”

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