Non-OPEC oil output growth slows to a trickle

LONDON (Reuters) - Oil production from countries outside OPEC is stagnating despite a more than sixfold rise in oil prices since 2002, driven partly by the failure of non-OPEC producers to deliver a lot more oil.

A Reuters survey of 12 analysts put the consensus forecast for non-OPEC oil supply in 2008 at 49.56 million barrels per day (bpd), down from 50.36 million bpd estimated in the previous

poll in March.

The poll points to supply growth from producers outside the Organization of the Petroleum Exporting Countries of 0.67 percent in 2008 versus 2007, which compares with growth of about 1.4 percent estimated in the previous poll.

Annual non-OPEC supply growth in 2008 is averaging 680,000 bpd, according to the International Energy Agency's latest Oil Market Report.

But biofuels contributed 425,000 bpd of this total, making non-OPEC oil growth just 255,000 bpd.

"Non-OPEC production will continue to struggle to grow in the next few years, and the growth in non-conventional fuels, which account for almost 90 percent of our estimated non-OPEC supply this year, is not going to help," said Giovanni Serio, energy analyst at Goldman Sachs.

Poor non-OPEC growth has played a part in driving oil to record peaks above $130 a barrel.

More oil is needed to satisfy fast-growing demand from emerging markets such as the Middle East, China and India.

With the exceptions of Saudi Arabia, the United Arab Emirates and Kuwait, OPEC is pumping almost as much as it can.

Outside the producer group, Russia, the world's second biggest exporter, has failed to deliver expected output growth and supply from other producers outside OPEC such as Mexico have proved disappointing.

New projects will eventually come on stream, such as in Brazil and the Caspian, but these will take time, analysts say.

SOARING COSTS

The cost of exploration and development of new oil projects has soared and other obstacles such as tax and politics, as well as lack of investment by big international oil companies have contributed to non-OPEC's sluggish performance.

Mature production areas such as the North Sea are seeing more rapid declines.

"On the one hand you have low production figures from a variety of established producers," said Costanza Jacazio, analyst at Barclays Capital.

"On top of that we have very low figures from Russia for the year so far. We are forecasting a contraction of 30,000 bpd in Russia for 2008."

Credit Suisse analysts see non-OPEC supply as flat or negative through 2012 or longer.

"Non-OPEC has not been refilling the production hopper with new projects at a fast enough rate, and we are now likely to see a 2010-2015 'doughnut hole' emerge in non-OPEC production," they said in a research note.

Russian production fell to 9.28 million bpd in year-to-date 2008 from 9.37 million bpd in the same period last year, according to JP Morgan estimates.

Societe Generale estimated that Russian production was down 100,000 bpd year-on-year in the first quarter 2008.

"Top executives from Russian oil companies have warned that Russian output may be peaking or hitting a plateau already, with no more gains expected," the French bank said. "Massive investments are need to stave off further declines."

Russian Prime Minister Vladimir Putin has pledged tax breaks to new oil provinces to help revive output growth.

"The risks to non-OPEC production are substantial," said Julian Lee, economist at the Centre for Global Energy Studies. "Should Russia's oil output continue to decline, it means that rising production in Kazakhstan and Azerbaijan would act only to offset Russian production losses, leaving overall FSU unchanged.

On the demand side of the equation, high oil prices are starting to have an impact, but not quickly enough.

"While demand estimates are still falling back, they have in no way outpaced the rate of decline in non-OPEC supply forecasts," Citi group said in a research note.

"In the absence of supply growth, demand shrinkage is perhaps the only answer."

The following table is a list of non-OPEC and Former Soviet Union (FSU) oil production forecasts in millions of barrels per day.

Non-OPEC supply FSU supply

2008 vs 2007 2008 vs 2007 Barclays Capital 49.3 49.3 12.78 12.57

CGES 49.5 49.6 12.92 12.70 Credit Suisse 50.0 49.5 -------------- Deutsche Bank 50.43 49.77 13.08 12.75

EIA 49.74 49.17 12.85 12.61 Goldman Sachs 50.2 49.7 13.1 12.8

IEA 50.36 50.15 13.07 12.77 JP Morgan 47.7 47.8 --------------- Lehman Bros 50.1 49.6 13.3 12.8

OPEC 50.18 49.43 12.89 12.52 Societe Generale 50.1 49.7 --------------

UBS 47.1 47.0 12.9 12.7 AVERAGE

49.56 49.23 12.98 12.69

- The estimates represent the recently published forecasts.

- Estimates from JP Morgan and UBS do not include processing gains.

- NOTE: Differences and totals may show a small variation due to rounding.

(Reporting by Jane Merriman; editing by James Jukwey)