SLIDE SEEN FOR NON-OPEC OIL PRODUCTION

Throughout the coming decade, oil flow outside the Organization of Petroleum Exporting Countries will continue the decline it began in the late 1980s, while worldwide demand will increase modestly.

But productive capacity among OPEC members will be more than adequate to offset non-OPEC declines, and oil prices will not change significantly--on average--from today's levels.

That was the consensus of a number of analysts at the Society of Petroleum Engineers' hydrocarbon economics and evaluation symposium held this month in Dallas.

The increase in non-OPEC oil production in 1970-88 was mainly the result of a few major provinces going on stream rather than a response to price jumps, says R. Nehring, NRG Associates, Colorado Springs, Colo.

He told the symposium non-OPEC production, including that from less developed countries (LDCs), members of the Organisation for Economic Cooperation and Development, and the former Communist bloc group, will decline an average 1-2% during the 1990s, mainly because no large, new provinces are ready to begin producing in the short term. Even if discoveries were made soon, they would not bolster supply before the end of the 1990s, Nehring said.

He said OECD production will fall 1.5%/year during the next 5 years, in part because the North Slope and North Sea are past their capacity peak.

Decline in the group including eastern Europe, U.S.S.R., and China will be even faster--an estimated 3.5%/year, Nehring said. Increases in the past 20 years were mainly a result of production growth in western Siberia, but primary production there has passed its peak, and new fields are smaller.

Chinese production is likely to remain stable, but costs will increase.

Production gains in the LDCs are a success story of the last two decades. LDC production will continue to increase during the 1990s at an estimated 1-2.5%/year.

PLENTIFUL SUPPLY

As non-OPEC supply dwindles, world demand for oil will increase an average 1%/year, said W.H. Dorsett, Chevron Corp., San Francisco. Dorsett told the SPE meeting total world energy demand outside centrally planned economies will grow 2%/year until 2000. Demand for gas, coal, and hydroelectric power will grow 3%/year.

Energy demand growth in the U.S. likely will be less than 1%/year, and western Europe growth will be about 0.5%/year, Dorsett said. Growth in the rest of the Eastern Hemisphere will be 2.5-3%.

Dorsett's outline of Chevron's long range oil price model shows adequate oil supply for the long term. Chevron's estimate of the world's total resource base--proved and undiscovered reserves of conventional oil, heavy oil, and shale oil--totals 9 trillion bbl.

In addition to the 648 billion bbl of crude produced to date and the 1 trillion bbl of proved reserves, Dorsett includes in this estimate:

Undiscovered conventional oil reserves of 392 billion bbl, including 300 billion bbl in non-OPEC countries. Only about one fourth of currently proved reserves are in non-OPEC countries. * About 1.6 trillion bbl of conventional oil recoverable by enhanced recovery methods. Two thirds of that volume will require a recovery rate of 50%. That will have to be boosted to 60% to recover the rest.
Extra heavy oil totaling 3 trillion bbl that could be recovered above a cost of $40/bbl.
About 2.5 trillion bbl of shale oil that could be recovered at a cost of $60/bbl.

All costs are in 1990 U.S. dollars.

At a marginal cost of $25/bbl for West Texas intermediate, conventional oil will be the dominant resource past 2000. Oil from enhanced recovery could become the main source of supply during the early part of the next century. Beyond that, $60/bbl could make shale oil a leading energy source until the late part of the century, when alternate fuels begin to assume a major role.

PRICE OUTLOOK

Many analysts at the symposium agreed that although prices will fluctuate, the average price of crude is likely to increase only modestly during the next 10 years.

Cyrus H. Tahmassebi, Ashland Oil Inc., Ashland, Ky., told the conference the average annual price of the OPEC basket of crudes will be $15-20/bbl in 1990 dollars for the next 15-20 years.

He said the long term effect of the recent Middle East war will be a lower oil price.

Tahmassebi cited these key trends as the basis for his price outlook:

Slower economic growth. In the U.S., the recession may end late in the second quarter or early in the third quarter, but recovery will be modest. After 1991, the U.S. economy won't be as strong for all of the 1990s as it was in the 1980s.
New fiscal measures in consuming countries to lower oil use and new tax incentives to switch away from oil will hold down demand.
New environmental measures also will rein demand.
Stepped up expansion of productive capacity in Saudi Arabia and other countries will mean continued excess capacity.

In the U.S., there will be more rationalization of refining capacity because not all refiners will have the capital to invest to meet Clean Air Act amendment requirements, Tahmassebi said. But he expects U.S. product demand to be virtually flat, leaving operating rates little changed.

Partly responsible for dampening product demand will be at least a 15 cents/gal increase in gasoline price to comply with new environmental rules.

And in the longer term, excess refining capacity outside the U.S. will mean an increase in product imports into the U.S.