Edinburgh-based global energy experts Wood Mackenzie have warned in a new report that there could be a 4.5 million barrels per day shortfall in oil supply by 2035 if the recent downward trend in exploration results continues.
“Modelling a continuation of poor exploration results shows that there could be a 4.5 million b/d shortfall by 2035,” wrote the Wood Mackenzie experts.
“The increased focus on near-field exploration will likely exacerbate the shortfall in supply from conventional exploration in the long-term due to shorter lead times and smaller discovered volumes.
“As the low oil price environment persists, the name of the game becomes increasingly about short-term survival for many, so 2035 seems like a long way off.
“All but the very biggest companies are vulnerable, so until more stable economic conditions are available we’ll continue to see deferrals on exploration projects.”
WoodMac said exploration over the last four years had been disappointing and “gas prone.”
It said that since the 2014 oil price crash, there had been a sharp fall in wildcat drilling as companies focus expenditure on projects with more immediate returns and wait for prices to recover.
“For as long as prices are low, the landscape for exploration will be radically changed,” said WoodMac.
The consultancy firm said it had conducted a comprehensive study of the impact of exploration on global oil supply by mining its database and analysing all conventional fields discovered since 2000.
It said more than 7,000 conventional fields had been discovered over this period and would be a critical element of future oil supply.
“Liquids discovered annually fell from 19 billion barrels between 2008 and 2011 to 8 billion barrels between 2012 and 2015,” said WoodMac.
“Only 2.9 billion barrels of liquids were discovered last year as the low oil price took its toll on exploration budgets and success with the drill-bit was elusive.”
It said the oil price downturn had caused large reductions in exploration spend.
“We expect the industry to invest around $40 billion per year in exploration and appraisal over 2016 to 2018. This is less than half its investment during 2012 to 2014 and it will not recover to normal levels until after 2020.”
WoodMac warned: “Beyond 2016, any recovery in exploration investment depends on oil prices improving.”
The consultants said the switch towards exploring smaller near-field opportunities means that fewer large, high risk frontier finds are likely to be made over the near-term.
“Healthy discoveries during the 2000s with longer lead times mean that there is a strong potential for medium term developments, but tough project economics have led to many being deferred.
“The complexity of recently discovered fields has also contributed to longer lead times meaning that around 90% of the liquids discovered since 2000 are yet to be developed.
“These are also important for the longer term but unless exploration results improve continued supply growth will become unsustainable.
“By 2030 production from fields discovered since 2000 will be in decline.
“Therefore, the size and nature of the next tranche of supply from exploration is crucial for maintaining long term global supply growth.”