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# As Upstream Investments Plunge, Risk of a Market Swing Rises

## Potential for Market Balance Exists

Though the sharp drop in spending seen over the past 3 months has renewed concerns over the oil market’s ability to find balance, the IEA issued a few sources of optimism.

Stunned by the last downturn that began in late-2014, the world’s oil and gas companies collectively retreated to historically low levels of conventional exploration activity. Since then, the IEA has been calling attention to the lack of new investments in conventional fields which it holds as the key to maintaining a steady supply.

In the eyes of the agency, this left the global oil market overly reliant on the continuous growth of US tight oil to meet demand.

However, the IEA’s concerns were lifted slightly in 2019 as approvals for conventional projects were on the upswing thanks to onshore fields in the Middle East and deepwater fields offshore Brazil and Guyana. Natural gas investments followed a similar trajectory last year. The IEA cited liquified natural gas projects in Russia, Mozambique, and Saudi Arabia as the chief examples.

“This indicated a renewed degree of comfort within the industry for larger project sizes, albeit while retaining the emphasis on short times to market and for simplified and standardized project designs,” the report said.

The industry has taken other steps recently that might widen the potential for a balanced market over the next few years. The IEA found that while conventional producers pulled back on developing frontier assets, their focus on squeezing more out of their brownfields has appeared to pay off.

This analysis focused on non-OPEC assets that were already below 50% of their peak production. Within this subset of fields, the 5-year average decline rate dropped by 0.5% to 1% since 2015. “A small fall in decline rates may not seem very significant,” said the report. “However, around 50% of oil production today comes from post‑peak conventional crude oil fields.”

To illustrate further, the IEA said if a 0.5% reduction in decline rates were seen across these mature fields, then their collective output by 2025 would be 1.3 million B/D higher than current expectations. This would be good news for those looking for a market balance since it would reduce the burden on the industry to invest in new fields where costs are higher.

Because the full effects of the current price crash are not yet understood, the IEA said the ability of these fields to maintain their productivity improvements will “require careful monitoring.”