Global oil discoveries fell to a record low in 2016, highlighted the International Energy Agency (IEA) as companies continued to cut spending, and conventional oil projects sanctioned were at the lowest level in more than 70 years.
The IEA warned that both trends could continue this year, which could lead to a tightening in supplies in the years ahead.
Oil discoveries declined to 2.4 bn barrels in 2016, compared with an average of 9 bn barrels per year over the past 15 years. The volume of conventional resources sanctioned for development in 2016 fell to 4.7 bn barrels – 30 percent lower than in 2015 – as the number of projects that received a final investment decision dropped to the lowest level since the 1940s.
The slowdown in conventional exploration activities is the result of low oil prices. The IEA says an additional cause of concern for global energy security is heightened geopolitical risks in some major producer countries, such as Venezuela.
The slump in the conventional oil sector contrasts with the resilience of the US shale industry. There, investment rebounded sharply and output rose, on the back of production costs being reduced by 50 percent since 2014.
With global demand expected to grow by 1.2 mn bpd per year in the next five years, the IEA has warned that an extended period of sharply lower oil investment could lead to a tightening in supplies. Exploration spending is expected to fall again in 2017 for the third year in a row to less than half 2014 levels, resulting in another year of low discoveries. The level of new sanctioned projects so far in 2017 remains depressed.
“Every new piece of evidence points to a two-speed oil market, with new activity at a historic low on the conventional side contrasted by remarkable growth in US shale production,” said Dr Fatih Birol, the IEA’s executive director. “The key question for the future of the oil market is for how long can a surge in US shale supplies make up for the slow pace of growth elsewhere in the oil sector.”
The US shale industry has lowered its costs to such an extent that in many cases it is now more competitive than conventional projects. The average break-even price in the Permian Basin in Texas, for example, is now at USD40-45 per barrel. Liquids production from US shale plays is expected to expand by 2.3 mn bpd by 2022 at current prices, and expand even more if prices rise further.
The offshore sector, which accounts for almost a third of crude oil production and is a crucial component of future global supplies, has been particularly hard hit by the industry’s slowdown. In 2016, only 13 percent of all conventional resources sanctioned were offshore, compared with more than 40 percent on average between 2000 and 2015.
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