New non-OPEC oil project investment to hit all-time high this year

LONDON (ICIS)–Investment in new non-OPEC oil and gas projects is likely to hit an all-time high this year and increase in 2020, as firmer prices and swelling cashflow signal an end to restricted spending in the sector, cartel OPEC said on Tuesday.

Photo by Lm Otero/AP/REX/Shutterstock

Exploration and production (E&P) players project sanctioning is expected to hit a record $390bn in 2019 and rise to $468bn next year, following years of straitened capital expenditure (capex) allocations as oil companies sought to push down their per-barrel break-evens following the 2014 price crash.

Non-OPEC free cashflow reached a record high of $310bn last year, nearly doubling the level of 2017, on the back of lower oil prices and costs, and reduced investment levels, which is expected to help finance a huge uptick in project sanctioning in 2019-20, OPEC said.

Non-OPEC supply more than tripled year on year in 2018, with growth of 2.91m bbl/day driven by 2.26m bbl/day growth in the US during the year, buoyed by contributions from Canada, Russia and the UK.

US shale oil and gas exploration is likely to continue to drive non-OPEC investment and production increases, with a third of the projected 2019 sanctioning spend expected to be on tight oil E&P.

However, the logistical difficulty and expense of moving shale-derived oil and gas stocks from landlocked shale plays, and increasing investor scrutiny of wildcatter capex, is likely to slow non-OPEC supply growth this year, OPEC added.

US tight oil production is increasingly faced with costly logistical constraints in terms of out-take capacity from land-locked production sites. Such constraints have also impacted Canada’s oil production,” the cartel said in its monthly oil market report.

“Moreover, North American producers will continue facing pressure by shareholders demanding capital discipline and a return on their investments, and this could come at the expense of increased disposable capex,” it added.

OPEC is projecting that non-OPEC oil supply growth will dip slightly year on year in 2019, falling 33,000 bl/day to an average of 2.14m bbl/day, due in large part to below-forecast output in the UK, US and Brazil amid an economic slowdown during the first quarter of the year.

World oil demand is also expected to dip year on year in 2019, to around 1.21m bbl/day compared to 1.41m bbl/day in 2018.

Investor bullishness on oil futures continued in April, with hedge funds and other money managers upping their positions in the sector.

OPEC production was broadly steady month on month in April, according to secondary estimates, after a 522,000 bbl/day March fall driven by an acceleration in Venezuela’s economic decline following the imposition of US sanctions.

Prices have been volatile in recent weeks, spiking following news that the US did not intend to extend sanctions waivers allowing certain countries to continue purchasing Iranian crude, but tempered by fears that an intensifying US-China trade war will weaken demand.

However, pricing has fallen off since highs of nearly $75/bbl for Brent crude a couple of weeks ago. July futures pricing for the oil grade have fallen since to around $70/bbl amid trade war fears and unexpected drops in US demand.

Focus article by Tom Brown