International Energy Agency: Significant Decrease in Global Oil Discoveries in 2016

According to statistics from the International Energy Agency in its latest report, new oil reserve exploration projects reached their lowest level in the past year, 2016. This report, published on Thursday, April 26, on the official website of this international organization, indicates that this decline is due to reduced investment by companies and a decrease in oil projects to the lowest level in over 70 years. The Agency warns that this trend will continue this year as well. In 2016, approximately 2.4 billion barrels of new oil reserves were discovered, which represents a significant decrease compared to the average of 9 billion barrels discovered over the past 15 years. Meanwhile, the volume of conventional resources planned for development last year decreased to 4.7 billion barrels, which is 30 percent less than the previous year. Additionally, the number of projects for which final investment decisions were made was the lowest since the 1940s. The sharp decline in activity in the conventional oil sector is attributed to reduced investment following the fall in oil prices. This raises additional concerns for global energy security at a time when geopolitical risks in some major producing countries, such as Venezuela, have escalated. The decrease in activities in the conventional oil sector occurs while the shale oil industry in the U.S. has strengthened. Investment in the shale industry has significantly increased, and production has risen by up to 50 percent since 2014 due to reduced costs. This growth in U.S. shale oil production has been a key factor in the decline of activity in the conventional oil sector. Production from conventional oil resources, at 69 million barrels per day, accounts for the largest share of the world's daily production of 85 million barrels. Additionally, 6.5 million barrels are produced from shale liquids in the U.S., with the remainder coming from other gas liquids and unconventional resources, including oil sands and heavy oil. Considering the forecast of an annual increase of 1.2 million barrels per day in global demand over the next five years, the International Energy Agency repeatedly warns that the continued trend of declining investment could lead to supply constraints. It is predicted that investment in exploration will fall for the third consecutive year in 2017 to less than half of the level achieved in 2014, which will in turn lead to a reduction in discoveries. According to Fatih Birol, the executive director of the Agency, evidence shows that the oil market is facing a historical decrease in activity in the conventional resources sector on one hand and a significant increase in shale oil production in the U.S. on the other. In this situation, the key question regarding the future of the oil market is how long the increase in shale oil supply can compensate for the slow growth in other oil sectors. Costs in the U.S. shale industry have fallen to the point where they are competitive with conventional oil projects in many cases. For example, the breakeven price in the Texas oil field is currently around $40-45 per barrel. It is expected that liquid production from U.S. shale will rise to 2.3 million barrels per day by 2022 based on current prices, and production will increase if prices rise further. The offshore sector, which accounts for about one-third of production and plays a vital role in the future of global supply, has been severely impacted by the reduction in activity. In 2016, only 31 percent of planned conventional resources were offshore, compared to an average of 40 percent between 2000 and 2015. For instance, in the North Sea, oil investment in 2016 fell to less than $25 billion, which is nearly half of the investment in 2014. This level of investment is close to that made in offshore wind projects in the North Sea, which have doubled during the same period to $20 billion.