New Oil Discoveries in Freefall, But It May Not Matter
It’s been more than half a century since the fossil-fuel industry located as little new oil as it did last year. Whether that matters depends on your view of future demand.
Driven by plummeting cash flow, “companies from BP to Royal Dutch Shell have cut budgets and staff as they focus on keeping existing fields going and maintaining shareholder payouts,” Bloomberg writes. The industry slashed exploration spending by 45% in 2015, it reports, adding just 12.1 billion barrels to reserves—the smallest amount since 1952.
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Whether the drop-off in additional reserves will have a long-term impact beyond the industry itself is another question.
For one thing, the addition of a resource asset to a company’s booked reserves is just one stage between the first suspicion that oil may lurk somewhere, and putting a well into production. Most companies have potential resources well identified that could be added to their reserves with further delineation and testing.
Nonetheless, “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,” Bloomberg explains.
But that may not matter. Citing Morgan Stanley and the International Energy Agency, Bloomberg notes that global climate targets are likely to subdue demand growth for oil to such an extent that existing reserves may be adequate for the next two decades, with only a “small” gap requiring “modest” additional exploration.
“Only if everything stays as it was in 2015 does ‘a meaningful gap between demand and production from known resources build up,’” Bloomberg notes, summarizing the bank’s forecast.