The Energy Industry’s Production Challenge: 100 Million Barrels Per Day
In last week’s note: 2013 Crude Oil Outlook: Supply & Demand, we looked at the more immediate trend in global supply and demand. But this week, I want to examine the long-term oil production challenge facing the industry.
Current global oil consumption is running just under 90 MM b/d, with wellhead production at about a little over 85 Mm b/d, or a deficit or about 4.7 Mm b/d. As we pointed out last week, overall global oil consumption since 2000 to 2012 has been running at a per annum rate of 1.2%; should global consumption continue to grow at this rate, we will hit roughly 100 MM b/d by 2022, or in ten years. If global oil consumption should slow to a per annum rate of 1.0%, we will hit 100 MM b/d only two years later by 2024.
Many people within the industry community believe that oil consumption at 100 MM b/d will occur and within roughly the 2022 to 2024 time frame, however, what many of the same observers note is that global oil production will be severely challenged to meet that level of consumption.
Reinforcing this view, is the reality that global oil production since 2000 has only grown at a 1.0% per annum rate, and is not believed capable of exceeding that level going forward. Indeed, should global oil production at the wellhead continue to grow at 1.0% per year, we would not hit 100 MM b/d of production until roughly 2029-2030, and sustaining that level will be the real challenge for the industry.
One can look at detailed oil production by country to arrive at this conclusion, or one can look at the Eight International Majors’ (ExxonMobil, Chevron, ConocoPhillips, BP, Royal Dutch/Shell, Total, ENI and Statoil) global oil production profile. What is unique about their combined production profile is that nearly each one of the Majors operates in roughly all of the major oil and gas basins around the world.
(Related: How Much Oil Does the World Produce?)
From 2004 to 2012 the Eight Majors have struggled to replace oil production on a proven reserve basis; over this time period, on average, for every 100 barrels of oil production they have replaced only 78 barrels with proven reserves.
The inability of the Majors to replenish production is not for want of effort. Indeed, each year they have increased capital spending to boost production.
With major oil basins around the world, like Alaska, North Sea, Mexico, Venezuela, and China, suffering a global decline rate on average of roughly 4%, the industry will be challenged to replace existing production and grow to meet future consumption levels heading toward 100 MM barrels per day.