|SThe first major factor tightening 2004
world supply/demand balances was demand growth, which grew much more than
anticipated by most analysts. China
was probably the biggest surprise, as it grew by 1 million barrels per day
from 2003, compared to 0.4 million barrels per day between 2002 and 2003. China and the US combined, account for
almost 60% of the increase in demand in 2004.
|SOn the supply side, growth in non-OPEC
supply fell well short of meeting world needs in 2004, and is expected to
continue to fall short for the next several years.
|–The largest source of non-OPEC production
increase is expected to come from the FSU, which is expected to contribute
more than 50% of the non-OPEC increase in supply in 2005 (0.5 million bbl/d
of the 0.9 million bbl/d increase).
This is one of the reasons the market reacted to strongly this past
year as Yukos’ financial problems threatened FSU export volumes.
|–Africa, Brazil and Ecuador are other major
non-OPEC areas where production
increases are expected.
|–However there are no large new areas on the
horizon that would add 1 to 2 million bbl/d of supply as the North Sea or the
Alaskan North slope did in the 1970’s and 1980’s.
|STo meet demand, OPEC production must
increase significantly, and as I will soon show, the surplus capacity ready
to meet this demand shrank considerably in 2004, and for the next 2 years,
EIA sees the world balance remaining relatively tight.