The International Energy Agency (IEA) said global oil and gas companies will need to sustain investment at about current levels to keep pace with demand, warning that production declines are accelerating across many fields.
In a new report, The Implications of Oil and Gas Field Decline Rates, the agency found that output from existing fields is falling faster than in previous decades, reflecting the industry’s increased reliance on shale and deepwater resources.
Global investment in upstream projects is projected to reach about $570 billion in 2025, a level that could support modest production growth. But the IEA noted that even a small pullback in spending could stall supply gains, while a contracting market would require less capital.
The IEA estimated that if capital spending were to stop altogether, annual supply losses would equal the combined production of Brazil and Norway, or about 5.5 million B/D. The agency said natural declines in 2010 would have translated into annual losses of about 3.9 million B/D of oil and 180 Bcm of gas.
The sharper drops seen today reflect greater reliance on US unconventional resources, a shift toward deepwater and natural gas liquids in the production mix, and a larger overall supply base, according to the IEA.
“Only a small portion of upstream oil and gas investment is used to meet increases in demand while nearly 90% of upstream investment annually is dedicated to offsetting losses of supply at existing fields,” IEA Executive Director Fatih Birol said in a statement. “Decline rates are the elephant in the room for any discussion of investment needs in oil and gas, and our new analysis shows that they have accelerated in recent years.”
Decline rates vary widely across field types and geographies. Onshore supergiant oil fields in the Middle East decline at less than 2% per year, while smaller offshore fields in Europe average more than 15% per year, according to the report. Tight oil and shale gas decline even faster. Without investment, output from US shale fields would drop by more than 35% over 1 year and a further 15% in the next year.
Even with continued investment in existing fields, the IEA estimates that maintaining today’s output through 2050 would require more than 45 million B/D of new oil and nearly 2,000 Bcm of new gas from conventional fields. The agency said this is the equivalent of adding the combined current production from the US, Russia, and Saudi Arabia.
The report also notes that it takes almost 20 years on average to progress from an exploration license to first production, with close to a decade required for discovery and another decade for appraisal, approvals, and construction.
The new IEA report includes analysis based on data from more than 15,000 oil and gas fields around the world and can be accessed here.