Oil exploration costs rocket as risks rise

LONDON (Reuters) – Finding oil and gas to replace the world’s fast dwindling reserves is increasingly risky as rigs probe areas once seen as too difficult or too dangerous, and costs are rocketing, which could imperil future supply.

The cost of discovering each new barrel of oil and gas has risen three-fold over the last decade as technology has pushed the frontiers of exploration into ever more remote areas.

As old fields run dry, oil companies are drilling wells in some of the most inhospitable regions, where political, physical, geological, geographical, technical and contractual risks are high, and they have had remarkable success.

Despite escalating challenges, the annual rate of discovery of new fields has remained remarkably constant at 15-20 billion barrels, more than enough to compensate for the loss of existing reserves that are declining at between 5 and 15 percent a year.

But the cost of this success is staggering, and unless consumers pay more for oil in future, some analysts think we could face an energy supply crunch within a few years.

“The age of cheap oil has gone and it is not going to come back,” said Paul Stevens, senior research fellow at the Royal Institute of International Affairs at Chatham House in London.

Reuters