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Supply Shortfall in Future Signaled by 70 Year Low Oil Discovery Rate

Supply Shortfall in Future Signaled by 70 Year Low Oil Discovery Rate
New fears about oil explorers and companies’ ability to meet future demand have spurned after exploration figures of the rate of discovery of new oil fields were out in the open.
The figures for 2015 show that in that year, the average oil discovery was the same as it had been in 1960. And analysts predict that in 2016, the rate of new oil field discovery would be lesser.
Drillers have cut their exploration budgets to the bone with oil prices down by more than half since the price collapse two years ago. And according to figures from Edinburgh-based consulting firm Wood Mackenzie Ltd., the result was that just 2.7 billion barrels of new supply was discovered in 2015, the smallest amount since 1947. This year, as of the end of last month, drillers found just 736 million barrels of conventional crude.

The global oil demand will grow from 94.8 million barrels a day this year to 105.3 million barrels in 2026, estimates the U.S. Energy Information Administration and this reduction in new oil exploration has become a concern for the industry. Prices locked in below $50 a barrel have undercut any substantial growth there while the U.S. shale boom could potentially make up the difference.
Nils-Henrik Bjurstroem, a senior project manager at Oslo-based consultants Rystad Energy AS says that new discoveries from conventional drilling, meanwhile, are “at rock bottom.”
“There will definitely be a strong impact on oil and gas supply, and especially oil,” Bjurstroem says.
Russia and OPEC, which have flooded the world with oil despite depressed prices as they defend market share, have buoyed global inventories by full-throttle output. Bjurstroem warned that years of under-investment will be felt as soon as 2025. He said that little more than one in 20 of the barrels consumed this year will be replaced by producers.
Andrew Latham, Wood Mackenzie’s vice president for global exploration said that this year, from about $100 billion in 2014, global spending on exploration, from seismic studies to actual drilling, has been cut to $40 billion. He said that spending is likely to remain at the same level through 2018 moving ahead.
Due to shorter supplier-contract commitments, exploration is easier to scratch than development investments. Latham sad that down from as much as 18 percent historically, this year it will make up about 13 percent of the industry’s spending.
And even as the market downturn has driven down the cost of operations, the result is less drilling. According to Wood Mackenzie, down from 680 in 2015 and 1,167 in 2014, there were 209 wells drilled through August this year.
Bjurstroem said that it will have a “significant potential to push oil prices up" ten years down the line, when the low exploration data being seen now begins to hinder production.
“Exploration activity is among the easiest things to regulate, to take up and down. It’s not necessarily the right way to think. We need to keep a long-term perspective and maintain exploration activity through downturns as well, and Statoil has," Statoil ASA Chief Executive Officer Eldar Saetre said Monday in an interview at the ONS Conference in Stavanger, Norway.

Christopher J. Mitchell

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