On January 11, the Energy Information Administration (EIA) released its latest Short-Term Energy Outlook (STEO), which includes the first STEO forecast for 2012. EIA expects a continued tightening of world oil markets over the next two years. World oil consumption grows by an average of 1.5 million barrels per day (bbl/d) each year while the growth in supply from non-Organization of the Petroleum Exporting Countries (non-OPEC) countries averages less than 0.1 million bbl/d. Consequently, EIA expects the market will rely on both inventories and significant increases in production of crude oil and non-crude liquids by OPEC to meet world demand growth.

The total volume of non-OPEC oil production growth is one significant contributor to the uncertainty surrounding the outlook for oil prices as discussed in the STEO (see Energy Price Volatility and Forecast Uncertainty). This edition of This Week In Petroleum discusses the view of non-OPEC production underlying EIA’s latest STEO 2011 and 2012 projections.

Leading projected increases in non-OPEC oil production are China, Brazil, and Canada, each of which EIA expects to show average production growth of 120,000 to 150,000 bbl/d from 2010 to 2012. EIA also projects production increases averaging 50,000 to 80,000 bbl/d each year in Colombia, Vietnam, and Kazakhstan over the next two years. Ghana became a new non-OPEC oil producer with the startup of the Jubilee field in December 2010. Production from the Jubilee field is expected to reach maximum production of 120,000 bbl/d by 2012; additional developments are underway.

In contrast, EIA expects that Russia’s oil production will fall by about 40,000 bbl/d in 2011, and decline by an additional 230,000 bbl/d in 2012. While Russia has improved its infrastructure, which hampered oil sector development during the previous decade, the country’s tax structure continues to impede upstream investment. The Russian government has indicated that a new tax structure is forthcoming. Should the planned tax reforms be implemented before the end of the forecast period, EIA is likely to raise its forecast for Russian oil production.

Other non-OPEC liquid fuels production is also expected to decline. EIA forecasts the largest declines to occur in the North Sea with annual average production falling by 180,000 bbl/d in 2011 and by an additional 160,000 bbl/d in 2012, as the discovery and development of new reserves have not kept pace with the maturation and declining production from existing fields. The latest STEO also projects that Mexico’s production will fall by about 200,000 bbl/d in 2011 and then by 80,000 bbl/d in 2012.

U.S. crude oil production, which increased by 150,000 bbl/d in 2010 to 5.51 million bbl/d, declines by 20,000 bbl/d in 2011. The 2011 forecast includes production declines of 50,000 bbl/d in Alaska and 220,000 bbl/d in the Federal Gulf of Mexico (GOM), which are almost offset by a projected 250,000-bbl/d increase in lower-48 non-GOM production. EIA also expects that fuel ethanol production will increase by 50,000 bbl/d (6 percent) in 2011.

Source: U.S. Energy Information Administration