A new report by Wood Mackenzie has predicted that the current glut in the global crude oil market could reverse within 20 years as exploration in the last four years has been disappointing and gas prone with the price downturn causing large reductions in exploration spend.
The report noted that healthy discoveries during the 2000s with longer lead times mean that there is a strong potential for medium term developments but added that the tough project economics have led to many being deferred.
According to the report’s these are also important for the longer term but unless exploration results improve continued supply growth will become unsustainable.
Wood Mac further predicted that there could be a 4.5 million barrel- per- day shortfall by 2035 if the recent downward trend in exploration results continues.
“A second year of low oil prices has put further pressure on the upstream sector and exploration budgets have been slashed. Before the oil price crash the volume of conventional liquids being discovered was on a downward trend and this, combined with lower exploration budgets, will have a significant impact on long term supply,” said the analysts’ group.
Lower oil prices means less capital is available for energy companies to invest in exploration and production activity and the report insisted that if that situation does not improve, the global oil market may face long-term shortages.
Director of Global Oil Supply Research at Wood Mackenzie, Mr. Patrick Gibson, was quoted as saying that “over 7,000 conventional fields have been discovered in the last 15 years and, although these developments will play a critical role in securing future oil supply in the medium term, modeling a continuation of poor exploration results shows that the market could see a 4.5 million barrel per day shortfall by 2035.”
“Existing discoveries do of course have a key role to play in future global oil supply, but unless exploration results start to improve significantly, continued supply growth will become unsustainable. We forecast that by 2030, production from fields discovered since 2000 will be in decline, and we could see a shortfall of 4.5 million b/d by 2035, if the current annual average (8 billion barrels) of discovered liquids continues. This is why the size and nature of the next tranche of discoveries is crucial for maintaining long term global oil supply growth,” Gibson added
A vice president of exploration research at Wood Mackenzie, Andrew Latham was also quoted as saying that exploration results had started declining even before oil prices started to collapse in 2015.
He reportedly argued that supply growth in the medium term will continue, meanwhile, as oil discoveries made last decade come into production.
“However, the shift in the industry’s focus towards exploring smaller near-field opportunities with lower cost bases and shorter lead times, now means that fewer large, high risk frontier finds are likely to be made in the near term,” he added.
Wood Mackenzie estimates that over 10 per of global liquids supply by 2035 will be sourced from conventional volumes that are yet to be discovered – Africa, Latin America and North America will account for around 60 per cent of those volumes.