Sverdrup to Lead North Sea Recovery

After falling for the second straight year to 2.6 million b/d in 2018, North Sea crude and condensate production will plateau in 2019 before rising sharply in 2020 as a result of the start-up of Equinor’s Johan Sverdrup mega-project. Led by Norway, North Sea output will continue to grow at an average annual rate of 70,000 b/d from 2020 to 2023, when it will reach 2.9 million b/d.

Europe’s IMO Vulnerable Refining Capacity

Europe has at least 1.2 million b/d of refining capacity that are at greater risk from new IMO specifications.  These refineries’ high yields of heavy fuel oil, smaller and less-efficient size, and lack of plans to invest in upgrading make them vulnerable to weaker demand for heavy fuel oil and widening spreads once IMO changes take effect. Other bigger refineries are investing to adapt to market changes and remain viable.

Exemptions and Waivers Likely to Shape Rift between US and Europe

Europe has signaled that the rift with the U.S. over Iran is significant even if both sides would like to see change in Iranian behavior. It is unclear how this rift will play out with regard to sanctions on European companies doing business with Iran, especially those buying oil. Both sides are likely to take stands on sanctions in principle, but then negotiate a series of individual time or condition-based exemptions or waivers. This may limit any reduction in European oil imports, even without a Saudi guarantee to make up a shortfall.

European Gasoline Exports Begin to Fall

In the first quarter of 2018, European net exports of finished gasoline and blending components averaged nearly 1.4 million b/d. As Europe’s exportable surplus shrinks, import requirements especially East of Suez narrow, and competition to place gasoline in the Atlantic Basin intensifies due to growing U.S. and Russian surpluses, European exports will fall by more than 100,000 b/d over the next year.