The growth of crude oil supply in 2020 and 2021, in terms of new projects coming online around the world, is slowing down, therefore the outlook for crude oil pricing is looking very bullish in the near term, says one investment bank.

“A key reason for that is the sharp slowdown in long-lead-time oil project startups,” said Raymond James analysts in a recent note.

In a new bottoms-up analysis, the firm compiled a list of 200 oil development projects that started up from 2015 through 2019, and compared those data to preproduction projects that, according to their operators, are expected to come online in 2020 and thereafter.

“The pace of project startups is slowing, and in fact slowing meaningfully. The dearth of new startups adds to our view that non-OPEC, ex-U.S. supply is likely to flatten out, or even decline, over the medium term. Combined with the productivity slowdown in U.S. shale, this points to the need for sustainably higher oil prices to stimulate drilling.”

Raymond James found that in 2020 and 2021, “much less” production will be starting up than in any of the past five years. “The amount of capacity that started up during 2015-2019 was 9.8 million barrels per day (MMbbl/d) or 2 MMbbl/year. By contrast, what is scheduled to start-up over the next two years combined is only 1.6 MMbbl/d.” 

Sanctioned Long-Lead-Time Oil Project Startups

The most significant project startups in recent years are offshore. These include the first phase of the Equinor-operated Johan Sverdrup project offshore Norway at 440,000 bbl/d—the world’s largest oilfield startup of the past decade. It began producing in October 2019, but it will ramp up to full supply this year.

Offshore Guyana, the Liza Phase 1 project, at 120,000 bbl/d, began producing in December 2019, led by an Exxon Mobil Corp. consortium that also includes Hess Corp. Next on tap, the larger Liza Phase 2 is scheduled to come online in 2022 at the rate of 220,000 bbl/d. “The consortium plans to develop at least five FPSOs, totaling 750,000 bbl/d, by the middle of this decade,” Raymond James said.

“Looking ahead to 2022, a pick-up is likely, but the 2020-2022 average still comes out to 1.1 MMbbl/d per year, just over half the level of 2015-2019. To be clear, this estimate of startups represents a best-case scenario, based on the assumption that all construction will move forward in line with operators’ plans.” 

The world's largest project startups over the next three years will be in Saudi Arabia and Kazakhstan. Saudi Aramco's Marjan expansion of 300,000 bbl/d is due to come online in 2022. In Kazakhstan, Chevron Corp.’s massive Tengiz Field will be expanded by 260,000 bbl/d, also in 2022. However, Raymond James pointed out that projects of such a large size usually end up facing delays.

For this reason, the firm did not project beyond 2022. Many large projects have been indicated but they have not reached final investment decision, it said.

Comments