LONDON • The tussle for supremacy between OPEC and US shale drillers is killing off older oil fields at the fastest pace in almost a quarter century. That could hurt the industry once the current glut has faded.
The three-year price slump triggered by the battle for market share choked off funds for ageing deposits elsewhere, accelerating their decline. Output at older fields from China to North America — making up a third of world supply — fell 5.7% last year, the most since 1992, according to Rystad Energy AS. It’ll drop about 6% in 2017 if oil stays at current prices, the consultant said.
Oil fell from above US$100 (RM429.68) a barrel in 2014 to as low as US$26 in 2016 as OPEC opened the taps in an effort to stem the surge in shale production. That set off the worst industry downturn in a generation, forcing cost-cutting companies to focus on higher-margin assets at the expense of older, costlier fields.
While OPEC changed course last year and curbed output to boost prices, shale was the main beneficiary and resurgent US output has kept crude below US$50.
“A lot of the focus is on OPEC and shale and not on the decline at these mature fields, where supply is struggling,” said Espen Erlingsen, a partner at Oslo-based Rystad. “We’re starting to see the long-term impact of lower oil prices.”
Though new projects mean total global production continues to rise, the slide at ageing fields may give OPEC a helping hand by reducing surplus supply today, according to Erlingsen. The danger for major oil companies — many of which are gathering in Istanbul this week for the World Petroleum Congress — is that the decline may be difficult to reverse, increasing the risk of future supply shortfalls as spending cuts take their toll for years to come.
“About US$1 trillion in investments has been lost in the current downturn,” Saudi Aramco CEO Amin Nasser said yesterday at the congress. “Conservative estimates suggest we need about 20 million additional barrels a day over the next five years.”
About a third of global output comes from mature conventional fields — about 30 million barrels a day, or around three times Saudi Arabia’s supply — according to Erlingsen. Their fast-declining supply “is making OPEC’s life a little easier”, he said.
Central to the trend is China,where ageing fields provide about half the total production, Rystad said. Volumes from those deposits sank 9.5% last year, three times the rate of 2015. Even in the US, where shale has risen to prominence, about a third of output comes from fields that began pumping last century. Their supply fell 8.3% in 2016 and 11% in 2015 compared to an average 4.1% in the previous five years, Rystad data show.
Decline rates are picking up because of “lower activity in the mature assets, especially in China”, Erlingsen said. “This shows that the low oil prices are having an impact on production from mature fields, and that we see the non-OPEC, non-shale supply coming down.”
One region bucking this trend is the UK North Sea. The area has been producing for decades, yet new fields are coming on stream as a result of investments made before the 2014 downturn. BP plc started its Quad 204 project in May and EnQuest plc’s Kraken development began output last month.
Still, the bulk of mature regions outside OPEC are on the wane. Consultant Wood Mackenzie Ltd estimates decline rates at older fields at about 5% in 2015 and 2016, compared to “just below” 4% from 2012 to 2014.
A decline this year at the pace predicted by Rystad would remove about 1.8 million barrels a day from the market. That’s the same volume as the voluntary cut agreed to by OPEC and its allies last year.
In the longer term, the implications for global supply give cause for concern. International Energy Agency ED Fatih Birol has said lower spending on new production will probably result in a shortfall in the next few years.
For the time being, enough new projects are keeping oil flowing, said Patrick Gibson, research director for global oil supply at Wood Mackenzie. “The key question is how long it will take for the lack of investments to have a greater impact on global oil supply.” — Bloomberg