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As the world continues to burn energy like there is no tomorrow, global
oil and gas discoveries fell to another low in 2017. And to make
matters worse, world oil investment has dropped 45% from its peak in
2014. If the world oil industry doesn’t increase its capital
expenditures significantly, we are going to hit the Energy Cliff much sooner
than later.
According to Rystad Energy, total global conventional oil and gas
discoveries fell to a low of 6.7 billion barrels of oil
equivalent (Boe). To arrive at a Boe, Rystad Energy converts
natural gas to a barrel of oil equivalent. In 2012, the world
discovered 30 billion Boe of oil and gas versus the 6.7 billion Boe last
year:
In the article, All-time
low for discovered resources in 2017, Rystad reports, it
stated the following:
“We haven’t seen anything like this since the 1940s,” says Sonia Mladá
Passos, senior analyst at Rystad Energy. “The discovered volumes averaged at
~550 MMboe per month. The most worrisome is the fact that the reserve
replacement ratio in the current year reached only 11% (for oil and gas
combined) – compared to over 50% in 2012.” According to Rystad’s
analysis, 2006 was the last year when reserve replacement ratio reached 100%.
The critical information in the quote above is that the world only replaced
11% of its oil and gas consumption last year compared to 50% in 2012.
However, the article goes on to say that the last time global oil and gas
discoveries were 100% of consumption was back in 2006. So, even at high
$100+ oil prices in 2013 and 2014, oil and gas discoveries were only 25% of
global consumption.
As I mentioned at the beginning of the article, global oil capital
investment has fallen right at the very time we need it the most. In
the EIA International Energy Outlook 2017, world oil capital investment fell
45% to $316 billion in 2016 versus $578 billion in 2014:
In just ten years (2007-2016), the world oil industry spent $4.1 trillion
to maintain and grow production. However, as shown in the first chart,
global conventional oil and gas discoveries fell to a new low of 6.7 billion
Boe in 2017. So, even though more money is being spent, the world isn’t
finding much more new oil.
I believe we are going to start running into serious trouble, first in the
U.S. Shale Energy Industry, and then globally, within the next 1-3
years. The major global oil companies have been forced to cut capital
expenditures to remain profitable and to provide free cash flow.
Unfortunately, this will impact oil production in the coming years.
Thus, the world will be facing the Energy Cliff much sooner than later.
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