There’s no shortage of crude in the world today. Just the opposite, in fact—a surfeit of oil precipitated the price collapse that saw the value of a barrel of crude quarter in just two short years before rebounding to where it is today, less than half the price it was three years ago. Surging U.S. production, driven by the shale revolution, has created a glut that even now oil producers both inside and out of OPEC are working to reduce.
An oversupply can be a good problem to have, especially if you’re not the producer, but for the oil industry, low prices can create some medium-term headaches. In their attempts to adapt to the new market reality, oil companies around the world have had to cut their capital expenditure budgets to try and stay in the black. That’s meant a lot less cash has been spent on the exploration of new projects, and that could prove costly when the current generation of oil operations mature without new fields to transition to. The IEA reports:
Oil discoveries declined to 2.4 billion barrels in 2016, compared with an average of 9 billion barrels per year over the past 15 years. Meanwhile, the volume of conventional resources sanctioned for development last year fell to 4.7 billion barrels, 30% lower than the previous year as the number of projects that received a final investment decision dropped to the lowest level since the 1940s.
The one outlier at the moment is U.S. shale, which has been ramping up output in recent months as producers find new ways to stay in the black even at $50 crude. Here in the states, companies are still spending on exploration and being rewarded for it, in large part because the scale of these so-called “unconventional” projects is much smaller than more conventional fields, which makes the up-front capital costs easier to bear for these companies in today’s bearish market. “The key question for the future of the oil market,” said IEA executive director Fatih Birol, “is for how long can a surge in US shale supplies make up for the slow pace of growth elsewhere in the oil sector.”
And it’s not all doom and gloom outside of American shale. France’s Total announced this week that it approved its first new project since the oil price collapse, a shale gas project in Argentina’s resource-rich Vaca Muerta formation.
However much greens wish we could move to a post-oil world, the global economy remains heavily reliant on crude to function. Supplies ebb and flow, but the significant surge in production today is inevitably going to lead to the pendulum swinging back the other way some years down the road. When that happens, we’ll need new projects to come online to help meet global demand. U.S. shale can’t do it alone.