Comments: The Toll on Future Supply
- John Donnelly (JPT Editor)
- Document ID
- Society of Petroleum Engineers
- Journal of Petroleum Technology
- Publication Date
- June 2016
- Document Type
- Journal Paper
- 12 - 12
- 2016. Society of Petroleum Engineers
- 1 in the last 30 days
- 36 since 2007
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Low oil prices have taken a huge toll on exploration and production (E&P) activity, and the decline could lead to production shortfalls in the future.
Discoveries of new reserves have now fallen to their lowest level in 60 years as projects are canceled or pushed back due to low prices and company budget and staff cuts. Operators discovered 2.8 billion bbl of crude oil and liquids last year, the lowest volume since 1954, according to a new report by consultancy IHS. Most of the reserves were found in deep water, which take years to bring on to production.
Two other recent reports were much-discussed during last month’s Offshore Technology Conference in Houston. Global deepwater spending continues to fall because of the oil price crash, with the Americas and Africa the only bright spots, according to a new study by Douglas-Westwood. A year ago, the consultancy saw 210 potential projects for installation in the next 5 years but now expects only 118 projects to be installed during 2016–2020.
E&P capital spending will be led by investments in the Americas and Africa, which combined will account for 87% of expenditures. The development of east Africa’s gas basins and several US Gulf of Mexico plays will keep those centers as deepwater hubs. The Gulf of Mexico projects include Shell’s Appomattox field, its largest floating platform offshore US; Anadarko’s subsea tiebacks at three fields; Chevron’s Jack/St. Malo floating production system; and BP’s Mad Dog phase 2 development.
Wood Mackenzie is warning that the steep drop in production could lead to critical shortfalls in the future. It expects the industry to spend USD 40 billion/yr on exploration and appraisal from 2016 to 2018, less than half of what was spent during 2012–2014, and that number could be lower depending on what oil prices do. The consultancy sees a shift to smaller, near-field operations in the immediate future, with the industry eschewing high-dollar complex projects that potentially bring more lucrative output. Even many medium-term discoveries made before the price downfall are being delayed because of company budget cuts. Those factors contribute to its prediction that continued poor exploration results could lead to a 4.5-million-B/D shortfall in the industry meeting demand by 2035, although a lot of variables could change in 19 years.
Consultancies are not the only ones worried about coming supply shortfalls. Schlumberger Chief Executive Officer Paal Kibsgaard, speaking to investors about the company’s first quarter earnings, said E&P investment likely will not meet future global energy demand unless something changes. “I think we will need significant increases in E&P investment,” he was quoted as saying. “If you look at new investments that are relatively short cycle, there are two sources of that. It is going to be the conventional land international and it is going to be the unconventional land in North America. …So I think the sources of additional production for 2017 are limited to these items. Beyond that, I think we need a widespread, significant increase in E&P investments to get supply back to where it can meet growing demand.” JPT
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