|SAs we look at the short term, we see strong
demand growth with non-OPEC supply falling well short of meeting world needs.
|–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 (0.9 MMB/D of the
1.3 MMB/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, Canada, Mexico, 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 MMB/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 also
increase significantly, and as I will soon show, there is little surplus
capacity ready to meet this demand.
|SThis picture hints at part of the reason for
the large price increase this year, but we need to turn to the balance
between supply and demand to see if
that offers any further insights.