Oil Discoveries Have Shrunk to a Six-Decade Lowby
About 12.1 billion barrels of reserves were added last year
Exploration spending in 2015 was down 45% from 2 years earlier
Oil discoveries have fallen to a six-decade low as explorers cut billions of dollars of spending to ride out the biggest market slump in a generation.
About 12.1 billion barrels of oil reserves were found in 2015, marking a fifth consecutive year of decline and the smallest volume since 1952, Oslo-based industry consultant Rystad Energy said in an e-mailed note.
Oil exploration is typically the first casualty of a crude-price collapse. Companies from BP Plc to Royal Dutch Shell Plc have cut budgets and staff as they focus on keeping existing fields going and maintaining shareholder payouts. The lack of new discoveries could affect long-term supply as it takes five to 10 years to bring new finds to production, depending on location, prices and demand.
“Short term, there is no shortage of oil,” Martijn Rats, an analyst at Morgan Stanley in London, wrote in a May 20 report that estimated exploration spending at about $95 billion last year, down 45 percent from 2013. “Any impact of the recent poor exploration results will have to play out over the long term.”
The pace of oil discoveries will probably remain unchanged through to 2018, Rystad Energy said.
Still, global climate targets are likely to curb oil consumption, meaning that existing resources could be sufficient to meet demand for the next two decades, according to Morgan Stanley. Citing the International Energy Agency’s base-case scenario, the bank said the gap between demand and supply would remain “small” and “further exploration is required but only modestly so.”
Only if everything stays as it was in 2015 does “a meaningful gap between demand and production from known resources build up,” it said.
The price of Brent crude, the global benchmark, is less than half its level two years ago. Explorers are “laser-focused” on containing costs and extracting resources from previously discovered assets, where risks are lower and project cycle times are reduced, Leta Smith, a director at IHS Energy, said in a report on Monday.
“The bottom has completely fallen out for conventional exploration, and the result portends a supply gap in the future that is going to be challenging to overcome,” Smith said. “In the current cost-cutting environment, the outlook for 2016 discovery volumes is not likely to be better, either.”