By - Jim Vess

OPEC unplanned outages at their highest in almost four years

Energize Weekly, July 24, 2019

Organization of the Petroleum Exporting Countries (OPEC) unplanned crude oil production outages hit a four-year high in the first half of 2019, according to the federal Energy Information Administration (EIA).

The outages averaged 2.5 million barrels a day for the six-month period, the highest level since 2015.

Unplanned outages included sanctions, armed conflicts, political disputes, labor actions, natural disasters and unplanned maintenance.

In June, Iran alone accounted for more than 60 percent of all OPEC unplanned outages – equal to 1.7 million barrels a day, according to the EIA.

In the fourth quarter of 2015, before the nuclear accord with Iran, EIA estimated 800,000 barrels a day of Iranian production was being disrupted.

In May 2018, the U.S. withdrew from the agreement and imposed sanctions against Iran in November 2018. For the first quarter of 2019, the first quarter with sanctions in place, Iran’s unplanned outages average 1.2 million barrels a day.

Disruptions in the Partitioned Neutral Zone (PNZ) between Kuwait and Saudi Arabia also contributed the outages. Production in the PNZ was stopped in 2014 because of a political dispute between the two countries. EIA splits the zone’s estimated 500,000 barrels a day of production capacity between the two countries.

The agency categorizes production declines as coming from unplanned outages, permanent losses of production capacity and voluntary production cutbacks.

“Unplanned outages can be short-lived or last for a number of years, but as long as the production capacity is not lost, EIA tracks these disruptions as outages rather than lost capacity,” the agency said.

Lost capacity includes the natural declines in oil reserves and irreparable damage to production that will not likely to be reversed in a year. “This lost capacity cannot contribute to global supply without significant investment and lead time,” EIA said.

Voluntary declines include agreements such as the current one by OPEC and several other producers, such as Russia, to cap output.

The EIA analysis aims to assess the spare oil production capacity in the global system available to meet increased demand. The agency defines spare capacity, applying only to OPEC members following OPEC production agreements, as production that could economically be brought online within 30 days and operated for at least 90 days.

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