Oil and gas discoveries are at their lowest since 1946 – Quartz

Oil and gas companies are having their worst year for new fossil fuel discoveries in decades and reserves are dwindling. The oil and gas industry is on track to discover just 4.7 billion barrels of oil equivalent (boe) by the end of 2021, its worst performance in 75 years, according to research firm Rystad Energy.

Historically, great discoveries have accounted for most of the world’s new reserves. Globally, 40% of all oil ever discovered has been found in 900 oil and gas fields. But the industry has made few such discoveries this year. The proven reserves-to-production ratio, a measure of how much extractable oil remains in the ground relative to annual production, is now at its lowest level since 2011.

Production from existing wells naturally decreases each year, so the industry must constantly open up new fields to keep pace with demand. The International Energy Agency estimates that global oil production is declining by around 7% per year without investment in existing fields.

However, cash to reinvest in a new offering is scarce. Since the mid-2010s, US oil and gas companies have cut capital spending as their stock prices plummet. During the pandemic, companies further cut exploration budgets to reduce debt, pay dividends and stem huge losses from a non-profit fracking boom in the United States. “The industry was in survival mode throughout 2020, cutting back on capital spending to match low cash flow during the 2020 Covid-19 recession,” according to the American Petroleum Institute (API).

In 2020, industry investment fell by $ 145 billion, leaving it at about half of the level it was in 2014. It remained at a similar level in 2021. The OPEC + bloc of oil-producing countries was also unusually disciplined in reducing production.

This falling supply is colliding with growing demand, pushing up prices. The next two years could require almost all of the world’s reserve oil production capacity as demand exceeds pre-pandemic levels, according to API.

Most of the potential dollars for exploration and carbon-free energy technologies go to shareholders. Oil and gas companies pay roughly three times the average dividend for companies in the S&P 500. “Companies are managed to generate free cash rather than growth,” says Peter McNally of financial research firm Third Bridge.

It is not clear that new oil and gas exploration will produce the typical returns given the global push to stem climate change by decarbonizing the economy. The International Energy Agency told governments last May that all investment in new oil and gas fields must stop in 2021 if the world is serious about reaching net zero emissions by 2050.

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