Conventional oil discoveries plummet
Consumers have benefited from low oil prices over the past three years, but analysts warned this week that the global oil supply surplus could soon become a shortage.
Oil prices have strengthened over the past few months as the Organization of Petroleum Exporting Countries and Russia have agreed to extend their production cuts through 2018. The price hit a three-year high earlier this week when a pipeline explosion in Lybia knocked another 900,000 barrels per day offline at least temporarily.
But analysts at Norway-based Rystad Energy this week warned that there could be longer-term consequences of the recent industry downturn.
Global energy companies have spent the past few years focused on cutting costs and living within cash flow, providing little time for conventional oil exploration. As a result, global discoveries dipped to an at-least 70-year low of 7 billion barrels of oil equivalent.
“We haven’t seen anything like this since the 1940s,” Sonia Mlada Passos, senior analyst at Rystad Energy, said in a statement. The discoveries were down from 30 billion equivalent barrels in 2012 and at least 15 billion barrels in 2013, 2014 and 2015.
Reserve replacement ratio
Even more disturbing was the reserve replacement ratio, which compares the amount of new oil discovered with the total amount of oil consumed in a year. The ratio dipped to 11 percent this year, down from more than 50 percent in 2012.
The fields that were discovered were less prolific than fields discovered in previous years, the report stated. An average offshore discovery in 2017 held about 100 million equivalent barrels, down from about 150 million equivalent barrels in 2012.
“Low resources per discovered field can influence its commerciality,” Passos said. “Under our current base case price scenario, we estimated that over 1 billion BOE (barrels of oil equivalent) discovered during 2017 might never be developed.”
The report includes only conventional resources and does not count the shale and tight oil plays booming across Oklahoma, Texas and other parts of the United States. Oklahoma producers likely would benefit at least initially from declining global reserves, but too much of a drop — especially as global demand continues to grow — could lead to price spikes.
New large, conventional plays typically are offshore or are in places that are more difficult or expensive to reach. The projects generally require years of preparation and effort before the oil flows to market.
“While there have been some notable successes this year, we have to face the fact that the low discovered volumes on global level represent a serious threat to the supply levels some 10 years down the road,” Passos said. “Global exploration expenditures have decreased year-overyear for three consecutive years now, falling by over 60 percent from 2014 to 2017. We need to see a turnaround in this trend if a significant supply deficit is to be avoided in the future.”