The Oil Industry Needs Large New Discoveries, Very Soon
Market participants and analysts are all focused on the imminent oil supply gap that is opening with the U.S. sanctions on Iran just five weeks away.
But beyond the shortest term, a larger and more alarming gap in global oil supply is looming—experts forecast that unless large oil discoveries are made soon, the world could be short of oil as early as in the mid-2020s.
The latest such prediction comes from energy consultancy Wood Mackenzie, which sees a supply gap opening up in the middle of the next decade. At the current level of low oil discoveries and barring technology breakthrough beyond WoodMac’s assumptions, that supply gap could soar to 3 million bpd by 2030, to 7 million bpd by 2035, and to as much as 12 million bpd by 2040.
It’s not that discoveries aren’t being made, they just aren’t enough to offset the natural decline at mature fields while global oil demand is still expected to continue to rise.
The main reason for lower discoveries is that spending on exploration has drastically plunged since the 2014 oil price crash. The good news is, according to Wood Mackenzie, that the volume of new discoveries is correlated with spending on exploration. So if spend were to increase, the chance of more and major oil discoveries gets higher.
As early as the beginning of this year, WoodMac said that the share of exploration of upstream investment has slipped to below 10 percent since 2016 and is not about to recover. “This could be the new normal, with the days of one dollar in six or seven going to exploration forever in the past,” the consultancy said in its ‘5 Things to look for in 2018.’
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