World's biggest oil producer warns of shortage if exploration doesn't resume and talks of lost decade: 'This will have an impact'
The head of oil company Saudi Aramco has warned that a global oil shortage is looming after a decade in which the energy industry has turned its back on the search for new crude deposits, the Financial Times reports.
Amin Nasser, CEO of the world's largest oil producer, has called for a return to investment in exploration and production as global oil demand continues to rise. He stated that the current level of investment is “extremely low”.
“We've had a decade where people haven't explored. That's going to have an impact,” Nasser told the Financial Times. “If the situation does not change, we will have a supply crisis,” he stressed.
Nasser also warned that the US shale oil “boom”, which flooded the world with oil for a decade and a half, was unlikely to be repeated.
“80 to 90 percent of the growth has come from shale oil,” he said. “If we look at the next 15 years, shale production will most likely plateau and start to decline. Where are you going to get the extra barrels from to meet the demand?” he asked rhetorically.
Oil companies cut back on investment after a 2014 crash
The Financial Times notes that major oil companies have cut spending on exploration and production after the price crash of 2014. They were also influenced by predictions of a rapid transition to clean energy, as well as pressure from investors to return more money through dividends and share buybacks.
According to the International Energy Agency, investment in oil and gas exploration and production is on track to fall 6% this year to $420 billion – the first annual decline since the decline caused by the coronavirus pandemic in 2020.
Instead of spending large sums on complex and difficult projects, the industry has focused on exploiting lower-cost deposits in an attempt to meet demand.
However, many analysts now believe that oil consumption will be more robust than previously anticipated due to a slower transition to clean energy. Consulting firm Rystad estimates that a global shortage of nearly 10 million barrels per day could occur as a result by 2040.
Nasser, who has led Aramco for nearly a decade, said that because it normally takes 5 to 7 years to bring a new project into production, the world's future supply depends on the decisions companies make now.
“We are monitoring the final investment decisions and there is a significant drop in projects entering the market,” Nasser said, adding that Aramco spends between $1 billion and $2 billion annually on exploration.
“For us, it's a strategic matter. We're exploring and adding significant amounts of reserves.”
Oil producers are currently bracing for lower prices
For now, however, the market is facing the opposite problem. Oil prices are expected to fall below $60 a barrel next year, with analysts anticipating a supply glut as OPEC+ countries raise output in a battle for market share.
The industry has cut investment in anticipation of a prolonged downturn, which could amplify the concerns expressed by Nasser.
However, his comments reflect growing industry anxiety over long-term reserves and supply, with BP, Chevron, ExxonMobil and TotalEnergies recently saying they plan to ramp up exploration and production.
Malaysia's state oil company Petronas chief executive Tengku Muhammad Taufik told the Energy Intelligence forum this week that “more exploration” was needed, stressing that there was “a void that needs to be filled”.
Vicki Hollub, chief executive of Occidental Petroleum, told the London conference that only a quarter of the world's annual oil consumption is being replaced by new discoveries.
“The problem is not only the lack of investment, but also the difficulty of finding large deposits,” she said, adding that ExxonMobil's huge discovery in Guyana will only cover a small part of global oil demand.
“When the most important breakthrough in decades only produces enough to cover a third of global demand in a single year, we have a major problem,” Hollub said.
