Four major oil- and energy- related reports emerged this week: the International Energy Agency’s (IEA) Oil Market Report (OMR); BP’s Statistical Review of World Energy 2007; the Short-term Energy Outlook (STEO) from the US Energy Information Administration (EIA); and the EIA’s 2007 Outlook for Hurricane Impacts on Gulf of Mexico Crude Oil & Natural Gas Production.
BP’s annual report is backward-looking; it provides data and analysis of the consumption and production of the prior year. In comments on this year’s Review, BP notes that:
The year 2006 was another year of high and volatile energy prices. But despite high prices, world energy consumption growth remained above average, continuing the trend of recent years. Energy use is also increasingly shifting away from OECD countries and becoming more carbon-intensive.
The reports from the IEA and the EIA are forward-looking, albeit with some historic adjustments (such as IEA’s raising of 2006 demand) as required.
|The EIA’s forecast for global demand. Click to enlarge. Source: EIA.|
Demand. In the current OMR, IEA raised its forecast for an increase in global oil consumption to 2% for 2007, to 86.1 million barrels per day (Mbpd). This compares to the 1.2% growth in demand in 2006.
The EIA sees 2007 demand of 85.9 Mbpd, with further growth in demand in 2008 of 1.6 Mbpd to 87.5 Mbpd. In the STEO, EIA reduced European consumption in the first quarter due to warmer weather, but has raised oil consumption growth in China based upon continued strong economic growth projections. The United States, China, and the Middle East are major contributors to the increase in oil consumption, accounting for more than 2/3 over this two-year period.
Supply. The IEA trimmed its forecast for supply down to 84.9 Mbpd for 2007. Seasonal OECD stoppages compounded weaker OPEC crude supply, notably in Nigeria, where outages are currently near 800 thousand barrels per day (kbpd). IEA trimmed non-OPEC 2007 output by 110 kbpd to 50.2 Mbpd, with growth of 0.9 Mbpd this year.
The violence-induced Nigerian outages cut total OPEC crude supply by 425 kbpd to 30.1 mbpd. Stronger demand raises 2007’s ‘call on OPEC crude and stock change’ by 0.5 Mbpd, with the seasonal rise in the call outstripping OPEC capacity additions by 4Q07.
The EIA forecasts global supply of 85.1 Mbpd in 2007 and 87.6 Mbpd in 2008. It expects non-OPEC production is projected to grow by about 600 kbpd in 2007 and by 900 kbpd in 2008&mash;roughly half the expected growth in consumption (International Oil Supply Charts).
The EIA lowered its 2007 projections from last month’s STEO for non-OPEC supply by 150 kbpd, reflecting expectations that some US Gulf of Mexico production will be affected by hurricanes, and lower-than-expected first quarter 2007 actual production data and continued project delays in Africa and Central and South America.
The EIA expects that rising oil demand over the next few months will outpace growth in non-OPEC supply, and is assuming that the OPEC 11 should increase production by more than 1 million bpd to maintain normal inventory levels. “If OPEC production does not increase more inventory levels decline, upward price pressures could result.”
BP noted in the Review that oil production outside OPEC rose by just under 300 kbpd in 2006—a stronger result than 2005, but less than half the 10-year average. OECD output fell by 430 kbpd, the fourth consecutive annual decline. Meanwhile, Russian production reached another post-Soviet peak,rising by 220 kbpd. Azerbaijan, Angola (which joined OPEC on 1 January 2007) and Canada each increased production by at least 100 kbpd.
The level of global reserves dropped by 0.1%—1 billion barrels—in 2006, according to BP’s figures, and the reserves-to-production ratio dropped slightly to 40.5 years, compared with 41 years in 1996 and 39.8 years in 1986.
Disruption. In addition to the potential for disruptive events such as the violence in Nigeria or terrorism in the Middle East, there is a likelihood, according to the EIA, that above-normal hurricane activity in the Atlantic is likely to correspond to increased impacts on offshore crude oil and natural gas producers in the Gulf of Mexico.
The National Oceanic and Atmospheric Administration (NOAA) predicts above-normal hurricane activity in its 22 May 2007 version of the Atlantic Hurricane Season Outlook. NOAA projects 13 to 17 named storms will form within the Atlantic Basin, including 7 to 10 hurricanes of which 3 to 5 will be intense.
|Cumulative probability distribution curve for shut-in production resulting from hurricanes in the 2007 season. Click to enlarge. Source: EIA.|
Based on a Monte Carlo hurricane outage simulation (which is conditional on how NOAA’s most recent predictions for the level of Atlantic basin hurricane activity compare to historical activity), EIA expects a total of about 13.2 million barrels of crude oil and 86.5 billion cubic feet (bcf) of natural gas to be shut in during the 2007 hurricane season.
The simulation results indicate a 1.3% probability of more than 100 million barrels of crude oil and/or 600 bcf of natural gas being shut-in during the 2007 hurricane season, similar to the cumulative impact of Hurricanes Katrina and Rita in 2005. Conversely, there is only a 2.2% chance that offshore Gulf of Mexico production will be unaffected this year as it was during last year’s hurricane season. During a season that experiences the average number of Gulf hurricanes, the probability of no shut-in production is approximately 8%.