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Non-OPEC crude oil supply is set to surge in 2010 and 2011by 51.8 mn barrels per day and 52.3 mn barrels per day respectively and susbequently face consecutive decline from 2012, according to an analysis by Bank of America-Merrill Lynch (BofAML).

The optimism comes from expected production in news fields in Brazil, FSU, Norway, West Africa and Gulf of Mexico. If Iraq and Nigeria supplies increase as announced then crude oil would find it difficult to rise above $100 over the next decade, BofAML analysis said. Iraq plans to increase oil capacity from 2.5 mn b/d to 10-12 mn b/d over the next decade while Nigeria's 1.0 mn b/d is being under utilised due to conflicts which is expected to start production in the coming years.

The analysis of 2009 data shows that non-OPEC supply rose notably in November and December 2009. End 2009 volume swere 51 mn b/d, an increase of 1.2 mn over 2008 levels, BofAML analysis said. The 2009 spurt comes after years of continuous declines in output in Norway, Mexico and UK. Despite the impact of start-up delays, technological complications, project deferrals, there will be 2.2 mn b/d additional supply volumes coming online each year in 2010-11 period.By 2012, no more than 1.3 mn b/d will be added to capacity. Brazil, Russia, are major contributors to non-OPEC energy supply according to IEA.

In Brazil.pilot production from the first of offshore subsalt discoveries, the Tupi field will begin this year while output is expected to increase at some of the existing fields, several other fields are starting up over the next couple of years, BofAML analysis said.

Russia is another hub of oil supply growth, made more impressive given their already high levels of production. The IEA cites Russian oil production as the single largest contributor to their upward revision of 2009 volumes as projects ramped up faster and earlier than expected. Unlike Brazil, however, Russia's new projects are skewed to earlier years, suggesting faster decline in the later half of the decade. In fact, most of the additions to Russia's oil supply growth will come from the ramp-up of volumes from recently launched projects. Still, there are major concerns about the medium-term outlook for the Russian
energy sector given the high taxes.

The two countries that could provide for significant upside surprises to crude oil production in the medium term are Iraq and Nigeria. Although within OPEC, both countries have the potential to vastly expand production capacity. In the case of Nigeria, production capacity remains heavily under-utilised given the ongoing conflict in the Nigerian delta region. No doubt, with about 1 million b/d off-line in mid 2009, the upside potential to Nigerian liquids production, currently at 2.1 million b/d, is huge.

In the case of Iraq, production capacity currently stands at 2.5 million b/d, below the capacity before the 2003 invasion and sharply lower from record production capacity of 3 million b/d in the 1970s. The government currently has ambitious plans to raise oil production to 10-12 million b/d within the next decade. Under the current contractual agreements, international oil companies start getting paid once they increase production from the fields by 10%. Given the quality of the reservoirs, we believe that through improved reservoir management and international technology, such as deviated wells or new pumps, this 10% increase should be relatively easy to achieve within 12-18 months after the companies get into the fields.

OPEC Supply
While non-OPEC production was able to improve by the end of the year, OPEC supply was mired by drastic crude reductions aimed at stabilizing prices. For 2009, total OPEC supply declined 2.3 million b/d, a 6.4% decrease from 2008 levels, to end at 33.3 million b/d. Steadfast production cuts coupled with compliance that was once in the 80%-range brought OPEC-11 crude production down 2.6 million b/d to 26.2 million b/d in 2009, 9% lower than the previous year's level (Chart 20). Looking forward, however, as oil prices rebound and demand shows signs of improvement, BofAML believes OPEC capacity growth is poised to
recover in 2010 . Still, the supply increases as a bullish sign, as excess crude oil productive capacity will be just 8% of oil demand.

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