Global oil supply shortfall of 4.5M b/d by 2035 if exploration results don’t improve

Wood Mackenzie estimates over 10% of global liquids supply by 2035 will be sourced from conventional volumes yet to be discovered

A new study by consultancy Wood Mackenzie warns the global oil market could face a supply shortfall of 4.5 million b/d by 2035 if exploration success doesn’t improve.

Wood Mackenzie says discoveries in recent years have been disappointing, with the volume of liquids discovered per annum more than halving over the period 2008 to 2015.

The price downturn has caused large reductions in exploration spend.

Wood Mackenzie expect the industry to invest around US$40 billion per year in exploration and appraisal over 2016 to 2018.

This is less than half its investment during 2012 to 2014 and it will not recover to normal levels until after 2020. Beyond 2016, any recovery in exploration investment depends on oil prices improving.

The switch towards exploring smaller near-field opportunities means that fewer large, high risk frontier finds are likely to be made over the near-term.

Healthy discoveries during the 2000s with longer lead times mean that there is a strong potential for medium term developments, but tough project economics have led to many being deferred.

The complexity of recently discovered fields has also contributed to longer lead times meaning that around 90 per cent of the liquids discovered since 2000 are yet to be developed.

These are also important for the longer term but unless exploration results improve continued supply growth will become unsustainable.

By 2030 production from fields discovered since 2000 will be in decline. Therefore, the size and nature of the next tranche of supply from exploration is crucial for maintaining long term global supply growth.

Modeling a continuation of poor exploration results shows that there could be  a 4.5 million b/d shortfall by 2035.

The increased focus on near-field exploration will likely exacerbate the shortfall in supply from conventional exploration in the long-term due to shorter lead times and smaller discovered volumes.

As the low oil price environment persists, the name of the game becomes increasingly about short-term survival for many, so 2035 seems like a long way off.

All but the very biggest companies are vulnerable, so until more stable economic conditions are available we’ll continue to see deferrals on exploration projects.