The Inevitable Oil Supply Crunch
“The warning signs are there – the industry isn’t finding enough oil.”
That’s the start of a new report from Wood Mackenzie, which concludes that a supply gap could emerge in the mid-2020s as demand rises at a time when too few new sources of supply are coming online. By 2030, there could be a supply shortfall on the order of 3 million barrels per day (mb/d), WoodMac argues. By 2035, it balloons to 7 mb/d, and by 2040, it reaches 12 mb/d. “Barring technology breakthrough beyond what we already assume, we’ll need new oil discoveries,” the report says.
The seeds of the problem were sown during the oil market downturn that began in 2014. Global upstream exploration spending plunged from $60 billion in 2014 to just $25 billion in 2018, according to WoodMac. Unsurprisingly, that translated into a steep decline in new discoveries. In the early part of this decade, the oil industry was discovering around 8 billion barrels of oil annually. That figure has plunged by three quarters since 2014.
The precise figures vary, but Rystad Energy came a similar conclusion, noting that the total volume of new oil and gas reserves discovered plunged to a record low in 2017. “We haven’t seen anything like this since the 1940s,” Sonia Mladá Passos, Senior Analyst at Rystad Energy, said in a December 2017 statement. “The most worrisome is the fact that the reserve replacement ratio in the current year reached only 11% (for oil and gas combined) – compared to over 50% in 2012.”
This year, the industry has had a bit more success. Spending is on the rebound and new discoveries are on track to rise by about 30 percent, although that is heavily influenced by the developments in Guyana, where ExxonMobil and Hess Corp. have reported nearly a dozen discoveries, and hope to ramp up production to around 750,000 bpd by 2025.
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