The oil industry’s huge problem: – Falling alarmingly fast

World demand for oil and gas is growing, but “Big Oil” is struggling.

At the same time as the world builds renewable energy at an insane pace, the oil industry is struggling hard to find new, commercial oil.

An overview from Rystad Energy shows that “Big Oil” – the world’s largest listed oil and gas companies – is unable to replace oil that is recovered and sold with new discoveries and new oil.

“Big Oil” consists of ExxonMobil, BP, Shell, Chevron, Total and Eni.

Last year alone, 15 percent of Big Oil’s proven oil reserves were not replaced, and the remaining reserves may disappear within 15 years. This happens if the oil companies are not ready to make large commercial discoveries quickly enough, according to the Rystad report.

The development is taking place at the same time as the exploration budgets of the Big Oil companies are declining sharply – together with the success rate in the search for new discoveries.

World demand for oil and gas fell sharply during the corona pandemic, however International Energy Agency (IEA) expects demand to return to 2019 levels in 2023. After that, oil demand will grow for at least a few more years, according to IEA.

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Investments in renewables can suffer

The decline in proven reserves is becoming a serious problem for companies’ revenue streams – and possibly also for the development of new renewable energy: If Big Oil fails to maintain stable oil and gas production in the years to come, the financing of the companies’ renewable projects are failing, Rystad Energy believes.

– Big Oil’s ability to generate revenue also in the future will depend on how large volumes of oil and gas the companies have available for sale. If the proven reserves are not high enough to maintain current production, the companies will struggle to finance expensive restructuring projects, which will make their renewable energy plans slower, says analyst Parul Chopra in Rystad Energy.

The oil giants’ proven oil reserves were 13 billion barrels of oil equivalents lower in 2020 than the year before, and the companies made huge write-downs.

Admittedly, the profits have come back to Big Oil after a nightmarish 2020, but this year’s exploration campaigns have not started particularly well: In the first quarter of this year, the companies found volumes equivalent to 1.2 billion barrels of oil equivalents – the lowest level in seven years.

“The proven oil and gas reserves of the group of large companies called Big Oil are falling alarmingly fast, as the volumes produced are not replaced by new discoveries,” writes Rystad.

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Oil production is falling in Norway as well

Also in Norway, oil production from the shelf is expected to fall. Oil production in Norway has more than halved since the peak year of 2000, and in 2019 was at its lowest level since 1988.

In recent years, there has been intense development activity on the shelf, which means that oil production will increase in the next few years. The giant field Johan Sverdrup in the North Sea and Johan Castberg in the Barents Sea can take much of the credit for that. The activity on the Norwegian continental shelf depends a lot on new large discoveries, whether the discoveries are decided to be developed and when these will eventually come into production.

“With today’s resource estimates, it is expected that oil and gas production will gradually decrease in scope and importance after the middle of this decade,” the government writes in the Perspective Report, which was presented earlier this year.

Norwegian Petroleum Directorate estimates that about half of all oil and gas on the Norwegian shelf has been sold and delivered. Again, volumes equivalent to 19 times what is to be produced from the giant Johan Sverdrup field in the North Sea remain – or around eight billion standard cubic meters of oil equivalents.

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