UK-based energy consultancy group Wood Mackenzie says the warning signs are everywhere – “the industry isn’t finding enough oil.” The analyst, in a new report, said Guyana is one of the very few locations in the world where giant oil discoveries were made during the downturn.
“Fact is, we need more Guyanas, a lot more, and we need them soon. Without them, the oil market is in danger of tightening in the not too distant future,” the consultancy group stated.
Dougie Thyne and Matt Deane, Wood Mack’s oil supply analysts have refreshed their forecasts for the sources of oil supply to meet global oil demand through to 2040. “The starting point is our database of projects onstream and under development, the group said, adding that it layer on risked assumptions for the following:
- Future reserves growth for conventional field and unconventional oil plays
- Production forecasts for pre-FID projects and pre-drill tight oil
- Volumes from other existing discoveries.
Wood Mack said high cost discoveries it deems sub-commercial have been excluded.
Invariably, the opportunity to develop known sources diminishes. A supply gap opens up in the mid-2020s, reaching 3 million b/d by 2030, 7 million b/d by 2035 and a formidable 12 million b/d by 2040. “Barring technology breakthrough beyond what we already assume, we’ll need new oil discoveries,” the consultancy group reiterated.
The problem is that the recent rate of commercial volumes found gives little confidence that there will be enough new discoveries to fill the gap.
The oil market could be running short of oil capacity by the late-2020s at the current, low discovery rate. “That’s worryingly near at hand given it takes the best part of 10 years for the average new discovery to build to peak production even with a marked improvement in project execution post-downturn. Even if new volumes discovered double, a gap opens up in the 2030s and climbs to 6 million b/d by 2040. This will have to be filled by presently sub-commercial discoveries with implications for price,” Wood Mack said.
The one bit of good news is that volumes discovered correlate with spend. Reserves per exploration well has held at a reassuringly consistent rate of 25 mn boe since 2014, around half liquids.
Big oil discoveries are more likely to be made in frontier areas. In addition to Guyana the most eagerly watched potential play opening wells will be in Suriname and the Brazilian Equatorial Margin. Others include Mexico; Senegal, Gambia, Namibia and South Africa; Australia (where Quadrant’s Dorado discovery is the biggest oil discovery this century); and Alaska. The Majors, a few internationalising NOCs and a handful of global E&Ps have built exposure in some of these frontier provinces.
More explorers need to get in on the action if the spectre of ‘peak supply’ is to be kept at bay, WoodMac warned.