The worry is not that the world is running low on oil and gas. The worry is that only a small portion of it will ever be produced.
That’s the warning issued in a new reportby Wood Mackenzie which said almost two-thirds of the world’s untapped oil and gas “look doomed to remain undeveloped” due to some combination of high extraction costs and high emissions profiles.
The global energy consultancy found that just 28% of commercial undeveloped assets amounting to 49 billion BOE qualify as low-cost and low-emissions. This tandem constitutes what many call “advantaged barrels” and is, according to WoodMac, the new threshold for most upstream investment decisions.
WoodMac’s definition of “advantaged” applies to fields where breakeven costs are below $30/bbl (Brent crude pricing) and with an emissions intensity under 20 kg of CO2 per BOE.
But the big argument Wood Mac makes is that the number of advantaged barrels expected to be produced in the coming decades does not come anywhere close to where demand appears to be headed.
Potential implications include a smaller number of producers but also a diversification of energy products.
Under WoodMac’s base case outlook for the global energy transition, it sees oil demand slowly rising until the 2030s at which point it will begin to decline just as slowly to around 94 million B/D by 2050.
Meanwhile, WoodMac estimates that production from existing oil fields with no new investments would add up to around 10 million B/D. In the more likely case where existing assets see further investments along with undeveloped assets, the total supply is still only 40 million B/D.
“This demand forecast and investment horizon outlook present a huge call to action, requiring a very active national oil company (NOC) and international oil company (IOC) upstream industry over the next 3 decades,” said WoodMac.
Here are some more of WoodMac’s biggest takeaways.
Fight or Flight: US majors and most NOCs “seem to be in for the longer haul” while pressure is mounting for European majors and others to transition into low-carbon energy companies. “Security of supply may suffer” as a result of some producers exiting the business, but WoodMac notes those that are left will benefit from less competition for advantaged resources which could increase their attractiveness to future investors.
“Dirty” specialist companies that operate disadvantaged assets, those with assets that are either high-cost or high-emissions or both, may also emerge in order to balance global supply and demand.
Exploration capacity “has been permanently reduced” with upstream companies investing 70% less than they were a decade ago. Based on recent results and activity levels, WoodMac estimates the discovery of new advantaged barrels will amount to just 10–15 million BOE of additional supply by 2050. Consequently, the industry and the world will rely on some level of "disadvantaged" supply but the question is how much.
The “doomed” undeveloped fields include 66 billion BOE, or 38% of the total, which WoodMac considers low-emissions but high-cost and thus “unlikely to achieve advantage.” Another 24% of commercial discoveries hold 42 billion BOE but have “little realistic hope of development” because of both high cost and high emissions.
Electrification and methane abatement technologies may be a cost-effective difference maker for some low-cost but high-emission assets which WoodMac estimates hold 17 billion BOE, or 10% of the world’s commercial undeveloped reserves.
Tight oil will not be enough by itself to fill any significant supply gaps. Wood Mac argues while production is around 10 million B/D (and mostly from the US), it comes from a reserves base of just 150 billion bbl. This translates to just a 4-year supply of global oil demand.
Biofuel production could be key to filling supply-demand gaps in the future. WoodMac estimates that by 2050, upstream companies and others could yield as much as 20 million B/D of biofuel which burns with 80% less emissions than typical hydrocarbon fuels.
