The oil and gas industry has had a rough few years. A glut of crude shook prices from their $110 per barrel perch back in June of 2014, and send the Brent crude benchmark—the closest approximation we have for a “global” oil price—tumbling down below $30 per barrel before slowly creeping back towards the $50-55 range, where it resides today. Now, as the FT reports, a sharp downturn in new oil and gas discoveries is compounding those price difficulties:
There were only 174 oil and gas discoveries worldwide last year, compared with an average of 400-500 a year up until 2013, according to IHS Markit, the research group…The typical time from discovery to production is five to seven years, so a shortfall in oil and gas discoveries now implies tighter supplies in the next decade. […]
Discoveries hit a six-decade low in 2015, and then dropped again last year to about 8.2bn barrels equivalent of oil and gas.
Of course, the bearish crude market and this recent decline in discoveries are related. All of the big oil majors cut their exploration budgets to help cope with falling prices over the past 30 months. It’s no surprise, then, that we’re seeing those same companies fail to find as many new projects as they have in the past.
There’s another aspect to this story, though, and it has to do with the kind of new oil and gas production coming out of the United States. The FT has more:
The slowdown in exploration success shows that the world is likely to become increasingly reliant on “unconventional” resources such as US shale oil and gas to meet demand for energy in future decades…A shale well onshore can cost $4m-$10m and be brought into production in weeks, as opposed to five or more years for deepwater discoveries. Bob Fryklund of IHS Markit said: “We’re solving the problem through tight rocks.”
American shale producers are helping to offset this slowdown in discoveries of big, new conventional fields, and in so doing they’re not just helping support U.S. energy security, they’re also helping underwriting the future security of supply of the global market.
But if you’re still convinced that “peak oil” is somehow at our doorstep (once again…), consider this: a Norwegian company just discovered a new oil field that could contain as many as 700 million barrels of oil equivalent. This major find occurred up in the Norwegian Arctic, and it’s a reminder that Earth’s northern pole is turning into a major new frontier for oil and gas developers. The U.S. Geological Survey estimates that the Arctic contains 15 percent of the world’s undiscovered oil, and nearly a third of its undiscovered natural gas. Perhaps more oil and gas majors ought to be looking north for these new fields, then.