OPEC seen to raise production

The Organisation of Petroleum Exporting Countries (OPEC) is expected to increase oil production by 1.0 mln barrels per day (mb/d) in the fourth quarter in a bid to retrieve market share from rival producers, BP Plc said.

"OPEC will have to add 1.0 mb/d in the fourth quarter of this year and add some additional production next year," BP energy analysis division head Michael Smith said during a presentation of BP's annual energy statistical review.

OPEC last month agreed to maintain current production limits until the end of September, but said it may increase production in the fourth quarter.

BP expects OPEC's production to continue growing by 1.0 mb/d until 2005. Growing demand for oil in line with an expected upturn in the global economy will make it increasingly difficult for OPEC to enforce discipline among member countries, Smith said.

OPEC members may be unwilling to comply with output restrictions amid concerns over market share, as non-OPEC members such as Russia and Norway -- the world's second and third biggest exporters -- are returning to full capacity.

They were among five non-OPEC nations who had previously supported OPEC's production limits.

The market had been predicting since the 1970s that non-OPEC production would eventually fall, but Smith said the wider geological spread of producers shows that this has not been the case.

"Certainly we see five years of growing production from non-OPEC (producers)," Smith told industry leaders at the BP presentation.

As an example of the emergence of non-OPEC producers, Equatorial Guinea, which five years ago "was producing virtually nothing", is expected to produce 350,000-400,000 bpd within the next three years, Smith said.

While the advent of greater supply diversity threatens OPEC's share of the 76 mb/d global market, it gives importers more choice as to where they buy their oil. This partially offsets the risk of growing import dependence for economies such as the US and Indonesia.

"There is no reason to be complacent but there is no reason to panic either in the case of supply disruptions," Smith said.

Nevertheless, many countries are now talking about creating a strategic stockpile of oil to be used in an emergency situation such as a physical disruption to the supply route.

Malaysia is the latest country to float the possibility, calling on Indonesia to join a regional stockpile to counter the threat of pirates in the Malacca Straits, as both countries become more reliant on oil imports to meet domestic demand.

According to BP data, there were five countries whose oil production fell by at least 100,000 barrels per day over the previous five years: Saudi Arabia, Indonesia, Egypt, the US and UK.

As OPEC's biggest producer, Saudi Arabia's falls are due solely to the cartel's production limits. The falls experienced by the other four producers are geology-related in that they are mature oil areas and there are few big new oil wells being discovered to replace production, BP said.(*)