Another Source of non-OPEC oil output growth disappears

As I’ve said many times, the crucial role Russia played since the late 1990s as the main growth driver for non-OPEC oil production will be sorely missed. But the US Energy Information Agency (EIA) forecast three countries would step up in 2009 to reverse the 2008 fall in production: the US, Brazil, and Azerbaijan. Now one of these countries says their 2009 output will be flat.

Azerbaijan has tripled its production over the last three years to produce ~900,000 barrels of oil per day. Many analysts expected their production would increase another 15% to above 1 million barrels per day (Mbd) this year. But a report came out today that the country now forecasts flat production. It is unclear how much of the change is the lower oil price making new projects unprofitable (the market) and how much is governmental policy. I mention that because Azerbaijan offered to lower their production in cooperation with OPEC back in December if prices continued to slide.

But whether the production stagnation is due to the market or the government doesn’t really matter to the global oil market. All that matters is that there will be less oil than anticipated. And for non-OPEC aggregate production, a stagnant Azerbaijan probably means a stagnant non-OPEC. The EIA predicted growth of .15 Mbd in 2009, about the amount Azerbaijan is shaving off their forecast. So, if this report is correct, the burden of offsetting production declines in Mexico, the UK, Norway and elsewhere is squarely on the shoulders of the US and Brazil.

Huffington Post