The Future of Non-OPEC Nations in the Global Oil Sector

The Future of Non-OPEC Nations in the Global Oil Sector

  • Major oil and gas companies in non-OPEC nations are reducing their investments in new drilling operations
  • Oil production by non-OPEC nations is expected to fall short of global demand
  • The scenario of lower production from non-OPEC nations is expected to increase the dominance of OPEC and Russia
July 19, 2021 | Oil and Gas

The COVID-19 pandemic has caused extreme market volatility in the oil and gas industry. An unexpectedly sharp decline in demand followed by the oversupply of crude oil caused jitters throughout the industry last year.

The oil and gas industry has historically been dominated by the Organization of the Petroleum Exporting Countries (OPEC), but OPEC’s dominance has recently been challenged by other major producers — most notably the U.S., the U.K. and France. The U.S. shale revolution and production from the North Sea have highlighted that shift.

The pandemic has caused the power to shift again. Non-OPEC nations are decreasing their investments in oil due to continual market volatility and mounting regulatory pressures to minimize carbon emissions.

Changing Dynamics in North America and Europe

For the first time in decades the biggest non-OPEC player, the United States, is showing reluctance to invest in the oil market. In the Permian Basin in the southwestern United States, drillers wary of the current market are resisting their traditional boom-and-bust cycle of spending.

This trend is reflected in Europe, which constitutes a major share of non-OPEC producers. The oil market in Europe is undergoing a massive change caused by the aggressive march toward renewables. This industry shift is largely driven by legislative pushes from European governments that have launched “green stimulus” plans in response to climate change.

As a result, American and European companies are no longer rushing to increase their production even though Brent crude oil prices have become competitive again.

The change is creating pathways for the oil giants of OPEC and Russia, together known as OPEC+, to increase their share of the competitive market.

Non-OPEC: Dealing With Investments and Investors

Major oil companies in North America and Europe are also dealing with Wall Street investors who demand reduced spending on drilling and more money returned to shareholders. Organizations including ExxonMobil and Chevron are shifting their focus away from investing in oil and are paying back shareholders while investing in renewables.

The shift is amplified by climate change activists who are pushing against the adoption of fossil fuels. Thus, lower oil production and reduced investment in drilling newer wells make the future of non-OEPC majors uncertain.

Declining Non-OPEC Production Levels

Non-OPEC+ oil production growth has been flat or declining across regions amid the pandemic, financial and regulatory pressures, and the push toward renewables. For instance, the U.S. drilling count is recovering slower now than it did after the last oil price crash in 2008-2009, and shale companies, too, are focusing on returning money to shareholders via dividends. These companies — which used to invest 70%-90% of their cash flows into drilling pre-pandemic — have lowered that investment to nearly 50%.

Also, OPEC+ countries, led by Saudi Arabia and Russia, announced that they would increase their production by about 450,000 barrels a day. This follows their previous decisions to increase production by more than two million barrels a day by the end of this month.

Outlook for This Year and Beyond

In the wake of many disruptive events, the gradual shift to renewables and the reluctance of North American and European companies to further invest in the oil industry, the future of the non-OPEC bloc is expected to remain uncertain — especially when  OPEC+ is making a push to dominate the sector.

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