Oil production from non-OPEC suppliers is expected to drop in 2016, after three years of positive growth, Saudi Arabia's Vice Minister of Petroleum and Mineral Resources Abdulaziz bin Salman al-Saud said Monday, adding that the rate of fall in output from those suppliers would accelerate after 2016.
"Beyond 2016, the fall in non-OPEC supply is likely to accelerate, as the cancellation and postponement of projects will start feeding into future supplies, and the impact of previous record investments on oil output starts to fade," Abdulaziz told the 6th Asian Ministerial Energy Roundtable in Doha.
Despite the global macroeconomic uncertainty, oil demand continues to grow at a robust pace and is set to increase by 1.5 million b/d in 2015, the strongest growth seen in the past few years, he said.
"This is in contrast to the early 1980s when global oil consumption fell between 1980 and 1984 by more than 2.3 million b/d," he said.
Explaining why the current oil market scenario was different from the one in the 1980s, Abdulaziz said in 1985, global oil consumption stood at just over 59 million b/d and the available spare capacity was at a historical level of over 10 million b/d, and a ratio of spare capacity to global oil demand was about 17%.
But in contrast, oil consumption in 2015 is estimated to reach 94 million b/d, while usable spare capacity, mainly held in Saudi Arabia, is estimated at 2 million b/d, meaning the ratio of spare capacity to oil consumption of about 2%.
"This is one of the few industries in the world that is operating at such a thin cushion," he added.
"The current low levels of spare capacity, together with the robust growth in demand, indicate that current market fundamentals are different from those of the early 1980s," he said, adding that both the industry and the supply chain remained highly vulnerable to sharp price movements.
MORE CAPEX CUTS
He said that around $200 billion of investments in energy had been cancelled this year, with energy companies planning to cut another 3% to 8% from their investments next year.
In output terms, nearly 5 million b/d of projects have already been either deferred or cancelled, Abdulaziz said, adding that the impact of those capex cuts could be long-lasting as it would be difficult to quickly reverse the trend.
"Previous cycles have shown that the impact of low oil prices is long lasting, and that the scars from a sustained period of low oil prices can't be easily erased," he said.
He, however, pointed out that Saudi Arabia remained committed to investing in the oil and gas sector, despite the drop in oil prices. he also said that Saudi Arabia would continue playing a proactive role in stabilizing oil markets by building close relationships and ongoing cooperation with both producers and consumers.
"For a major reserve holder, oil producer, and exporter such as Saudi Arabia, our focus has always been on the long-term trends shaping the oil market. Rather than being a commodity in decline, as some would like to portray, supply and demand patterns indicate that the long-term fundamentals of the oil complex remain robust," he added.
He said that Saudi Arabia had also taken steps to diversify its use of energy resources.
"These measures validate our belief in the strength of the long-term fundamentals of energy markets, and demonstrate the importance that Saudi Arabia attaches to maintaining its oil export capability and spare capacity," he added.
