Published on August 31st, 2016 | by James Ayre0
New Oil Discoveries At 70-Year Low, Large Supply Constraints As Soon As 2025
August 31st, 2016 by James Ayre
Discovery of new oil supplies was at a 70-year low in 2015 — with just 2.7 billion barrels of new supplies discovered during the year, the lowest such figure since all the way back in 1947 — according to figures released by the Edinburgh-based consulting firm Wood Mackenzie.
That 2.7 billion figure is only around a tenth of the annual average figure since 1960. While solid figures haven’t been released yet (the year isn’t finished), new discoveries in 2016 are expected to be even lower — as of the end of July, only around 736 million barrels of new conventional crude supplies had been discovered.
The discovery of new conventional reserves is “at rock bottom,”commented Nils-Henrik Bjurstroem, a senior project manager at the Oslo-based consultant firm Rystad Energy AS. “There will definitely be a strong impact on oil and gas supply, and especially oil.”
Bjurstroem continued, stating that the consequences of this lack of new discovery will be felt as soon as 2025 — with supply constraints and a large surge in prices being likely (or, more likely, unavoidable).
Roughly 20 times more oil is currently being used every year than is being “replaced” (through the discovery of new reserves). What does this mean? It means that the current market environment — mostly the result of all-out “production” in OPEC and Russia — is not going to be particularly long-lived. The overall long-term trend in oil reserve stocks and in availability has been clear for a great many decades now at this point, so that should be no surprise.
With the arrival of “true supply constraints” in the 2025–2030 time period, prices will surge once again, thereby further increasing the value and viability of “alternative” transportation modalities (electric vehicles, rail, ride-sharing services, etc). Increasing oil prices will have knock-on effects on the overall industry, though, and will drive the price of some commodities and products up, as transportation and shipping costs increase — leading to higher costs for some of these modalities as well.
It should be noted here that all oil is not created equal — hence the reason why even at the peak of the “shale revolution,” US oil imports were at all-time highs … as were exports. This is because the “oil” extracted through such means is not actually equivalent to the light sweet crude that there is so much demand for. The split (fuels, fertilizers, chemicals, plastics, etc.) that you get from refining the different resources is different, and hence has different value. There are also varying rates of demand for the different resources from different refineries. Keep that in mind when the liquids extracted by hydraulic fracturing are spoken of as being equivalent to the stuff coming out of the fields in Saudi Arabia.
Bloomberg provides more, revealing that “global spending on exploration, from seismic studies to actual drilling, has been cut to $40 billion this year from about $100 billion in 2014, said Andrew Latham, Wood Mackenzie’s vice president for global exploration. Moving ahead, spending is likely to remain at the same level through 2018, he said. Exploration is easier to scratch than development investments because of shorter supplier-contract commitments. This year, it will make up about 13% of the industry’s spending, down from as much as 18% historically, Latham said. The result is less drilling, even as the market downturn has driven down the cost of operations. There were 209 wells drilled through August this year, down from 680 in 2015 and 1,167 in 2014, according to Wood Mackenzie. That compares with an annual average of 1,500 in data going back to 1960.”
The head of exploration at the Norwegian oil giant Statoil, Tim Dodson, was recently quoted at the ONS Conference in Stavanger as saying that, going by current decline rates at existing fields, and investment levels, a “significant” supply gap could open up by 2040.
Also noteworthy is that Exxon Mobil Corporation revealed that it was, for the first time in 22 years, unable last year to fully replace its lost production capacity (from field decline), whether through discoveries or acquisitions.
There are certainly some big changes coming. And opportunities as well, for those well positioned.