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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing for news outlets such as iNVEZZ and…

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U.S. Shale Can’t Offset Record-Low Oil Discoveries

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The U.S. shale resurgence has been one of the main themes in oil markets this year, while OPEC’s production cut deal to deplete the oil overhang and boost oil prices has been the other key development in 2017.

U.S. shale production is expected to grow over the next few years as the companies that survived the worst of the downturn showed resilience in the face of the lower-for-longer oil prices. But three years of low oil prices also led to the global oil industry slashing investments in conventional oil exploration, and deferring or revisiting development plans.

This has led to the lowest ever volumes of oil discoveries in 2017, Rystad Energy said last week. While the low level of discoveries is not an immediate threat to global oil supply, it could become such ten years down the road, according to Rystad Energy.

In ten years’ time, U.S. shale production may have peaked, at least according to OPEC that sees shale peaking after 2025, although the cartel has conceded that U.S. tight oil has defied previous forecasts and has increased production more than initially expected and will continue to do so in the short term.

This year has seen less than 7 billion barrels of oil equivalent discovered globally, a volume as low as last seen in the 1940s, Rystad Energy has estimated. What worries analysts the most is the fact that this year the reserve replacement ratio—the amount of discovered resources relative to the amount of production—was a mere 11 percent, compared to 50 percent in 2012, Sonia Mladá Passos, Senior Analyst at Rystad Energy, said.

The Biggest Factors In Future Oil Production

Another point of concern is that the resources discovered per field also dropped, and this could affect the commercial viability of new discoveries.

“Under our current base case price scenario, we estimate that over 1 billion boe discovered during 2017 might never be developed”, Passos noted.

While everyone expects U.S. shale to continue to be a growth story over the next few years, questions arise as to how long and how much tight oil could offset the record lows in conventional discoveries.

In April this year, the executive director of the International Energy Agency (IAE), Fatih Birol, said, commenting on the previous record-low discoveries in 2016:
“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.”

According to Adam Waterous, CEO at Calgary-based Waterous Energy Fund, shale will not be able to fill in the supply gap. On the other hand, oil prices have to reach $80 a barrel and stay at that level for two years to give companies reasons to develop higher-breakeven deepwater projects offshore West Africa or Brazil, Waterous told Bloomberg.

Still, upstream companies are now in better shape to operate in the low oil prices, consultancy Wood Mackenzie said in its 2018 Upstream Outlook earlier this month.

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“We also expect to see signs that the investment cycle is starting to turn and the sector has reset itself to operate at lower commodity prices,”

Tom Ellacott, Senior Vice President, said.

According to Angus Rodger, Upstream Research Director:

“The downturn meant that close to US$1 trillion was taken out of company spending from 2015 to 2020. But we believe the big cuts are over. Wood Mackenzie expects global capital expenditure to grow slightly in 2018 to a total of US$400 billion.”

WoodMac expects 2018 to be a third consecutive year of increase in the number of project sanctions from the 2015 low. The consultancy forecasts the number of major project sanctions to increase from just over 20 this year to 25 in 2018, “as operators take advantage of what may represent their best chance to lock in rock-bottom costs.”

While U.S. shale may not be enough to meet global oil demand growth in the medium and long term, in the short term the pace of tight oil production growth will influence oil prices, which in turn will impact the conventional exploration budget decisions of global oil firms.

By Tsvetana Paraskova for Oilprice.com

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  • Frank on January 01 2018 said:
    Once again no mention of demand. OPEC has shale peaking at 2025, most rational minds have global demand peaking sometime between then and 2030.

    Do we honestly think these petrostates will do anything other than pump like mad once the end is a bit more clear?

    If this Saudi IPO fails or pivots in 2018 it could be game over and every gal for herself. More likely 2019/20.
  • Mamdouh G Salameh on January 02 2018 said:
    The record-low global oil discoveries are a function of two important facts: one is that 96% of the globe has already been explored for oil and the major discoveries have already been found; the other is the virtual collapse of global investments in oil exploration and development projects as a result of the steep decline of oil prices since 2014.

    The answer to the future of oil lies in technology. The global proven reserves stood at 1707 billion barrels (bb) at the end of 2016 according to the 2017 BP Statistical Review of World Energy. The global average oil recovery factor (R/F) is currently 35%-36%. Raising the R/F by only 1% adds 55 bb to reserve growth without even the discovery of new oilfields or drilling a single well. That is where technology can play a crucial role in reserve additions.

    Take the case of Iraq for instance. Iraq is reported to have 153 bb of proven oil reserves. But this figure is based on an R/F of 15%-20% according to data from the major oil companies operating currently in the country. Introducing enhanced oil recovery systems (EOR) could revise Iraq’s proven oil reserves upwards to between 268 bb and 357 bb thus adding 115 bb-242 bb or 7%-14% to global reserves.

    And while US shale oil production has enhanced global oil supplies significantly, the future of the global oil market lies not in US shale oil but in technology.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • david on January 02 2018 said:
    Great Article! Thank you for shedding light on exaggerated expectations of US Shale vs the drastic drop in oil and gas investing. The last paragraph is the exact picture of the oil industry as of today.
  • RK on January 02 2018 said:
    To second comment

    A good reading of this link would show those figures can't be right. The estimated remaining reserves of Iraq's 28 Giant Oil Fields was shown to be 41 BBOE in 2003
    www.searchanddiscovery.com/documents/gong03/
  • James Papsdorf on January 06 2018 said:
    A major expense for oil and natural gas drillers is paying to have waste waters discharged into underground sites such as abandoned salt mines. MGX Minerals out of Vancouver BC hasa proprietary nanoflotation/nanofiltration system which serially removes valuable minerals such as lithium, manganese and potassium in commercial condition and returns the wastewater fresh and clean into local streams and rivers. Consequently the drillers cost for wastewater removal is cut in half, making many marginal plays commercially acceptable. They are launching the Petrolithium Industry in Utah in the Pardox Basin region where whilst drilling for oil and natural gas, produced brine (waste water) containing high concentrations of lithium, manganese and potassium will be simultaneously acquired. Nothing like making money out of "wastewater " !!!

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