Global oil discoveries fell to record lows in 2016 – IEA

Global oil discoveries and the number of conventional oil projects sanctioned both hit historic lows in 2016, according to the International Energy Agency (IEA).

The amount of new oil discoveries fell to 2.4bn barrels last year, the lowest level recorded – a result of upstream oil and gas companies cutting spending due to the low oil price. The figure compares to an average of 9bn barrels per year discovered over the last 15 years. 

The amount of new oil projects sanctioned for development in 2016 also dropped by 30% on 2015 to 4.7bn barrels – the lowest level in 70 years for projects receiving a final investment decision. 

The trend is particularly evident in the offshore oil and gas industry, which traditionally accounts for around a third of global crude oil production. In 2016, 13% of conventional projects sanctioned were offshore, compared to 40% on average between 2000 and 2015.

The IEA said that this slump, illustrated in Figure 1, could continue into 2017 depending on what happens to the price of oil. Spending on exploration is expected to fall again, and the level of sanctioned projects this year remains depressed, says the IEA.

 However, the opposite is happening in the US shale industry, where investment increased in 2016 and output rose due to production costs that have fallen 50% since 2014. The IEA says that US shale production is now a ‘fundamental factor’ in balancing the low activity in the conventional oil industry.

Still, conventional oil production of 69mn barrels per day (b/d) represents the largest share of total global oil output – 85mn b/d. Around 6.5mn b/d come from liquids production from US shale plays. The IEA says that in the face of demand that is set to grow by 1.2mn b/d a year over the next five years, this lower conventional oil investment could lead to a supply tightening.

‘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,’ said Dr Fatih Birol, the IEA’s Executive Director.

The US shale industry has lowered its costs to such an extent that in many cases it is now more competitive than conventional projects, says the IEA. 

Global oil discoveries and the number of