Low Oil Prices Will Lead To Shortages — In 2035

OMG guys we’re running out of oil! In 2035. That’s right, if oil companies don’t get their act together and start exploring for more crude, the world might not have enough oil to meet demand. Twenty years from now.

It seems almost comical to consider given today’s glut of the stuff. But the analysts at Wood Mackenzie warn in a study out today that with companies having slashed their exploration budgets by more than half to $40 billion, they may run the risk of not finding enough new oil supplies.

By 2035, they figure, the shortfall could be 4.5 million barrels per day. That might not sound like a lot compared with global oil consumption of 95 million bpd, or 35 billion barrels per year. But commodities, of course, are priced off the marginal unit of supply.

Wood Mackenzie lays out the data behind its concerns. From 2008 to 2011 the industry discovered 19 billion new barrels a year. That fell to 8 billion a year in 2012-2014 and to just 2.9 billion barrels in 2015. This year exploration budgets have been cut even deeper.

“Existing discoveries do of course have a key role to play in future global oil supply, but unless exploration results start to improve significantly, continued supply growth will become unsustainable,” wrote Patrick Gibson, director of oil supply research for WoodMac. “This is why the size and nature of the next tranche of discoveries is crucial for maintaining long term global oil supply growth.

For oil companies struggling to stay solvent at $44 per barrel, the spectre of shortages two decades out may be cold comfort, but WoodMac’s conclusions do serve to reinforce the notion that current low oil prices won’t last long — only higher prices can incentivize a return to exploration.

But how long is not too long? The Energy Aspects consultancy, in a report this week, notes that global oil supplies are rapidly coming down, with March production about 1 million bpd less than a year ago. They figure that global demand could surpass supply as early as the third quarter of this year. That certainly doesn’t mean shortages are around the corner, but market dynamics are changing. Says Energy Aspects: “These are early days, and the massive overhang of crude oil inventories worldwide will limit the upside for crude prices for some time, but as supply crumbles in so many parts of the globe, the swing to a deficit market, and crude oil producers regaining pricing power, is inescapable.”

Forbes