Discoveries of new oil and gas reserves drop to 20-year low

Discoveries of new oil and gas reserves dropped to their lowest level in at least two decades last year, pointing to tighter world supplies as energy demand increases in the future.

Preliminary figures suggest the volume of oil and gas found last year, excluding shale and other reserves onshore in North America, was the lowest since at least 1995, according to previously unpublished data from IHS, the research company.

Depending on later revisions, 2014 may turn out to have been the worst year for finding oil and gas since 1952.

The slowdown in discoveries has been particularly pronounced for oil, suggesting that production from shales in the US and elsewhere, and from Opec, will play an increasingly important role in meeting growing global demand in the next decade.

New finds of oil and gas are likely to have been about 16bn barrels of oil equivalent in 2014, IHS estimates, making it the fourth consecutive year of falling volumes. That is the longest sustained decline since 1950.

Because new oilfields generally take many years to develop, recent discoveries make no immediate difference to the crude market, but give an indication of supply potential in the 2020s.

Peter Jackson of IHS said: “The number of discoveries and the size of the discoveries has been declining at quite an alarming rate . . . you look at supply in 2020-25, it might make the outlook more challenging.”

So far there has not been a single new “giant” field — one with reserves of more than 500m barrels of oil equivalent — reported to have been found last year, although subsequent revisions may change that.

The figures for declining discoveries are particularly striking because exploration activity in 2014 showed little impact from the sharp fall in oil prices in the second half of the year. The last time oil and gas discoveries were around 2014’s level was in the mid-1990s, when exploration activity was hit by a period of weak prices.

Last year, the number of exploration and appraisal wells drilled worldwide was only 1 per cent lower than in 2013. This year, exploration budgets are being cut back across the industry and the number of wells drilled is likely to fall further.

Depending on later revisions, 2014 may turn out to have been the worst year for finding oil and gas since 1952.

The slowdown in discoveries has been particularly pronounced for oil, suggesting that production from shales in the US and elsewhere, and from Opec, will play an increasingly important role in meeting growing global demand in the next decade.

New finds of oil and gas are likely to have been about 16bn barrels of oil equivalent in 2014, IHS estimates, making it the fourth consecutive year of falling volumes. That is the longest sustained decline since 1950.

Because new oilfields generally take many years to develop, recent discoveries make no immediate difference to the crude market, but give an indication of supply potential in the 2020s.

Peter Jackson of IHS said: “The number of discoveries and the size of the discoveries has been declining at quite an alarming rate . . . you look at supply in 2020-25, it might make the outlook more challenging.”

So far there has not been a single new “giant” field — one with reserves of more than 500m barrels of oil equivalent — reported to have been found last year, although subsequent revisions may change that.

The figures for declining discoveries are particularly striking because exploration activity in 2014 showed little impact from the sharp fall in oil prices in the second half of the year. The last time oil and gas discoveries were around 2014’s level was in the mid-1990s, when exploration activity was hit by a period of weak prices.

Last year, the number of exploration and appraisal wells drilled worldwide was only 1 per cent lower than in 2013. This year, exploration budgets are being cut back across the industry and the number of wells drilled is likely to fall further.

New discoveries are not the only sources of future oil supply. Companies can also add to their production potential with extensions of existing fields, and there are large known reserves — both “unconventional”, including shale in North America and heavy oil in Canada and Venezuela, and “conventional” in countries including Saudi Arabia, Iran, Iraq and the United Arab Emirates.

The weakness of new discoveries increases the need for production from those sources to rise if, as expected, global demand for oil continues to increase.

The shale boom has transformed the outlook for oil in the US, and played a critical role in creating the oversupply that led to the collapse in prices, but it is still relatively small on a global scale, Mr Jackson said, accounting for about 5 per cent of world oil production.

There are also very large shale oil reserves in countries including Russia, China, Argentina and Libya, but the industries there are still in their infancy.

Shale is also a relatively high cost source of oil compared with reserves in the Middle East, and requires higher crude prices to be commercially viable.

Mr Jackson said that with crude prices around their present levels, it would be “very difficult” to start up new shale production projects.