Brazil, Norway, Canada, and Guyana: A Flood of Oil

Like the shale boom, the coming supply surge is a sudden change in dynamics. Guyana currently produces no oil at all. Norwegian and Brazilian production has long been in decline. And in Canada, concerns about climate change, resistance to new pipelines and high production costs have curtailed investments in oil-sands fields for five consecutive years. __ A Flood of Oil is Coming

The energy writers at Al Fin have been predicting a coming oil glut since 2006. At that time, peak oil hysteria was at its height — where it would remain for eight more years.

Since 2014 the US shale oil & gas production boom has contributed to several years of relatively low oil prices — but new oil discoveries in several countries will be forcing even more oil onto world markets in the coming years. Are OPEC countries and Russia ready for the next level of oil glut?

Together, the four countries [Brazil, Norway, Canada, and Guyana] stand to add nearly a million barrels a day to the market in 2020 and nearly a million more in 2021, on top of the current world crude output of 80 million barrels a day. That boost in production, along with global efforts to lower emissions, will almost certainly push oil prices down.

… Canada, Norway, Brazil and Guyana are all relatively stable at a time of turbulence for traditional producers like Venezuela and Libya and tensions between Saudi Arabia and Iran. Their oil riches should undercut efforts by the Organization of the Petroleum Exporting Countries and Russia to support prices with cuts in production and give American and other Western policymakers an added cushion in case there are renewed attacks on oil tankers or processing facilities in the Persian Gulf.

… The oil-supply outlook is a sharp departure from the early 2000s, when prices soared as producers strained to keep up with ballooning demand in China and some analysts warned that the world was running out of oil.

Then came the rise of hydraulic fracturing and drilling through tight shale fields, which converted the United States from a needy importer into a powerful exporter. The increase in American production, along with a choppy global economy, shaved oil prices from well over $100 a barrel before the 2007-9 recession to about $56 on Friday for the American benchmark crude. __

An increase in oil production from several nations — not just Canada, Brazil, Guyana, and Norway — will likely hit hard at the economies of Russia, Iran, Venezuela, and the oil kingdoms of the Persian Gulf. These nations depend upon oil to finance their national budgets, and will have to tighten their belts even tighter than they have done recently since the US shale boom. Iran may even start a “tanker war” in an attempt to drive up prices.

New tools of oil discovery, oil production, and enhanced oil recovery from old wells, are combining to create a backlog of production possibilities that are too numerous to exploit at this time. There are not enough oil rigs in the world — both onshore and offshore — to bring all the likely new fields into production. And even if it could be done, global oil prices are just too low to support such new production. With millions of new barrels per day of production on the way, all of that new oil is just going to have to wait for better circumstances.

And OPEC and Russia will have to keep tightening their belts.

This entry was posted in Oil Prices and tagged . Bookmark the permalink.

2 Responses to Brazil, Norway, Canada, and Guyana: A Flood of Oil

  1. bob sykes says:

    The Russian oil company Rosneft may be about to buy a share (or all) of Venezuela’s national oil company. That would bring Venezuelan oil production back online. Russia would market and transport the oil to evade American sanctions. Although Venezuelan oil requires special processing, it would add to world supply.

    Rosneft may also build a refinery in Venezuela.

  2. Gavin Longmuir says:

    “… add nearly a million barrels a day to the market in 2020 and nearly a million more in 2021, on top of the current world crude output of 80 million barrels a day.

    Stop and think about that expression “on top of the current world crude output”. The implicit assumption is that the world has 80 Million barrels a day production from current fields, and that output is going to continue. Is that a good assumption?

    Every oil well declines — a consequence of the laws of physics. Sometimes fast, sometimes slow — a typical global average is about 5% per year. So 80 Million barrels a day this year from existing wells becomes 76 Million barrels a day in 2020, and 72 Million barrels a day in 2021. Just to keep the current 80 Million barrels a day by 2021, the world needs to add about 8 Million barrels a day from new wells. The author of that article is getting excited because the identified projects will add 2 Million barrels a day by 2021 — only another 6 Million barrels a day to find!

    Best guess is that the global oil industry will be able to maintain and modestly increase the current 80 Million barrels a day. But the new fields mentioned in the article will be only a small part of the story — and are unlikely to lead to massive over-supply and a catastrophic drop in oil price.

Comments are closed.