Offshore mega-projects in Brazil and Norway are expected to boom in the lead-up to 2025.
The latest outlook from Wood Mackenzie suggests the two Atlantic basin countries will add approximately 3.8 million barrels per day thanks to new crude supply in the region.
Pre-salt crude projects in Brazil are expected to make up 3.2 million barrels per day, accounting for 78 per cent of all Brazillian production by 2025.
However, Brazillian domestic refining capability will only be able to process 2.5 million barrels per day due to the cancellation and delay of refinery expansion plans by Petrobras.
Without further domestic refinery expansion , this means Brazil will need export markets with demand for 1.8 million barrels per day.
The pre-salt crude will be relatively heavy and sweet, which must be considered in terms of Europe’s limited capacity for processing heavy crudes.
Wood Mackenzie research director for EMEARC refining and oil products Gordon McManus said Asian markets were under-served by heavy crude, giving expectations their demand would rise.
"As a result, we believe over 1 million barrels per day of pre-salt crude will flow to Asia by 2025,” McManus said.
US Gulf Coast pre-salt crudes will have to compete with US crudes and imports from Canada, Mexico, Venezuela, Middle-East and Africa.
Brazilian pre-salt crudes will look to Europe for processing as North American crude fills US refineries, but this will lead to competition with the Johan Sverdrup field in Norway, one of the largest discoveries on the Norwegian Shelf which will dominate North Sea production after 2020.
With the Johan Sverdrup field expected to reach peak production in 2024, heavy crude supply in Europe will reach one million barrels, outstripping demand which will be only 600,000 barrels.
With Norwegian crude remaining more attractive due to lower shipping costs, the balance of competition will reply on pricing, and the suitability of Eurpoean refineries to the new crude.
Wood Mackenzie analyst Gail Anderson said the Brazilian and Norwegian crudes would likely trade at a 3-4 per cent discount to Brent.
“Medium and heavy crude discounts to Brent are likely to widen when this heavier supply peaks – benefitting complex refiners,” she said.
“In turn, this would make the Atlantic basin less attractive to Urals and medium Middle Eastern grades which could be diverted east."