Global conventional oil discoveries drop to record low in 2016

Global conventional oil discoveries fell to a record low in 2016 as companies continued to cut spending. Also, the number of conventional resources sanctioned for development last year reached their lowest level in more than 70 years, the International Energy Agency, IEA said. It warned that both trends could continue this year.

According to the IEA, conventional oil discoveries declined to 2.4 billion barrels, bbl, in 2016 from an average of 9.0bbl/year over the past 15 years. Meanwhile, the volume of conventional resources sanctioned for development last year dropped to 4.7bbl, 30 percent lower than the previous year, as the number of projects that received a final investment decision dropped to the lowest level since the 1940s. “This sharp slowdown in activity in the conventional oil sector was the result of reduced investment spending driven by low oil prices. It brings an additional cause of concern for global energy security at a time of heightened geopolitical risks in some major producer countries, such as Venezuela,” IEA said. In sharp contrast to the slump seen in conventional drilling, the United States shale industry is said to be surging. US shale investment rebounded sharply and output rose on the back of production costs being reduced by 50 percent since 2014. “This growth in US shale production has become a fundamental factor in balancing low activity in the conventional oil industry,” IEA said. Conventional oil production of 69 million barrels per day, mb/d represents by far the largest share of global oil output of 85 mb/d. In addition, 6.5 million b/d come from liquids production from the US shale plays, and the rest is made up of other natural gas liquids and unconventional oil sources such as oil sands and heavy oil. With global demand expected to rise by 1.2 million b/d/year over the next 5 years, IEA has repeatedly warned that an extended period of sharply lower oil investment could lead to a tightening in supplies. The report also stated that exploration spending is expected to fall again this year for the third year in a row to less than half levels seen in 2014, resulting in another year of a low number of discoveries. The level of new sanctioned projects so far in 2017 remains depressed. “Every new piece of evidence points to a two-speed oil market, with new activity at a historic low on the conventional side contrasted by remarkable growth in US shale production,” said IEA Executive Director Fatih Birol. “The key question for the future of the oil market is for how long can a surge in US shale supplies make up for the slow pace of growth elsewhere in the oil sector.” The IEA further explained that the US shale industry has lowered its costs to such an extent that in many cases it is now more competitive than conventional projects.