Future World Economic Growth In Big Trouble As Oil Discoveries Fall To Historic Lows

Future global economic growth is in serious trouble as oil discoveries fell to historic lows last year.  The International Energy Agency (IEA) reported that the sharp downturn in capital spending by the conventional oil sector was due to extremely low oil prices.

As the oil price fell to $30 in 2016, oil companies cut their exploration and capital expenditures by 25-40%.  For example, ExxonMobil, the largest oil company in the United States, cut their capital expenditures by 26% in 2016, from $26 billion in 2015 to $16 billion last year.  This had a profound impact on new oil discoveries.

According to the IEA report:

Oil discoveries declined to 2.4 billion barrels in 2016, compared with an average of 9 billion barrels per year over the past 15 years. Meanwhile, the volume of conventional resources sanctioned for development last year fell to 4.7 billion barrels, 30% lower than the previous year as the number of projects that received a final investment decision dropped to the lowest level since the 1940s.

By taking the IEA’s oil discovery data and comparing it to the total amount of conventional oil consumed by the world in 2016, here is the following chart:

The world consumed 69 million barrels per day of conventional oil last year, which equaled a total of 25 billion barrels (source: IEA report above).  Which means, conventional global oil discoveries of 2.4 billion barrels were less than 10% of total world conventional oil consumption.  This is extremely bad news.

To understand the breakdown in the different oil types, the IEA provided the following data:

Conventional oil production of 69 mb/d represents by far the largest share of global oil output of 85 mb/d. In addition, 6.5 mb/d come from liquids production from the US shale plays, and the rest is made up of other natural gas liquids and unconventional oil sources such as oil sands and heavy oil.

Global Conventional oil production was 69 million barrels per day (mbd) of the total 85 mbd, which included natural gas plant liquids and other unconventional sources such as shale oil (U.S.), heavy oil and tar sands.  Typically, conventional oil is the higher quality, cheaper to produce oil.

Now, what is even more alarming, is that global oil discoveries have been much lower than production for quite some time.  The IEA also stated that the amount of world conventional oil discoveries averaged about 9 billion barrels for the past 15 years.  If we assume that the world was producing 65 mbd of “conventional oil” for the past 15 years (it was likely higher), the world was only replacing about 38% of its annual oil consumption.

Here are the oil figures:

65 mbd X 365 = 24 billion barrels

9 billion average annual barrels oil discovery / 24 billion barrels consumed = 38%

So, not only did the world only discover 10% of the conventional oil it consumed last year, it has only been replacing a little more than a third of what it has been consuming for in the past 15 years.  This is extremely bad news and it is starting to catch up to us.

I will be writing more energy articles showing how the situation is becoming more dire for the U.S. and global oil industries.  I am waiting for the top U.S. oil companies to release their detailed SEC quarterly results in a week to provide more information, but they have already released some results.

For example, ExxonMobil cut its capital expenditures another 19% during Q1 2017 versus the same period last year.  Falling exploration and capital expenditures will grind to a halt future oil discoveries.  Investors need to understand that this will impact global economic growth quite negatively in the future.

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47 Comments on "Future World Economic Growth In Big Trouble As Oil Discoveries Fall To Historic Lows"

  1. Any data on amount expended , regardless if less is total being spent on exploration, to discover each new barrel of oil? It is one thing to discover an oil patch in Oklahoma and it is another to have to send a very expensive expedition to go looking ( we’re not even talking about the costs of drilling for it and bringing it market). How much are exploration costs increasing and if so , is this even significant compared to the massive costs entailed to bring the new discovery to market?

    And then is it conceivable that at some point it will cost so much in energy to just go looking for these rarefinds that we will have a new paradigm: EDOI whose calculation may supersede any decision to drill.
    (Energy Discovered On Investment?)

  2. Slip slidin’ away
    Slip slidin’ away
    You know the nearer your destination
    The more you’re slip slidin’ away

    • It appears that the massive debt subsidization of the spiraling decline of the ERO(E)I does not extend to CapEx making the slippery slope of the Seneca Cliff even steeper.

      It is beginning to look like Hill’s predictions of the closing of 75% of gas stations is coming to fruition.

  3. Interesting numbers Steve, as always, thanks.

  4. I’m sleeping with my gold tonite in my bed

  5. Why does the industry need to discover new fields when technology has greatly increased the percentage they can extract from the existing fields?

    Just adopting current fracking technology around the world means discoveries can be put on hold for who knows how many years?
    The price of oil says it all.
    You still haven’t wrapped your arms around the concept that as the price of oil goes up, the resource base grows.
    A 1,000,000 barrel per day Canadian Oil Sand Project that has a EROEI of 6 to 1 is much more valuable than a well that has a EROEI of 50 to 1 but only produces 10,000 BPD
    Matt Simmons believed the world peaked in 2005.
    You believe we are peaking now.
    Nonsense!

    • Steve,

      With all due respect, you are making incorrect assumptions. Nice try though.

      steve

    • When discussing conventional oil, it did peak several years ago. Destructive, short lived fracking extended the peak to a plateau, which turned the production bell curve into a Seneca cliff.

      A rising price doesn’t always result in more available; the term for this in extream is priceless.

      • What incorrect assumptions am I making?
        A rising oil price will make more supply available.
        And again, the resource base expands tremendously.
        The EROEI might go down but it doesn’t matter because of the scalability.
        Canadian Oil Sand projects use the energy contain within the sands to extract the oil.
        If EROEI was only 2:1 net net you’re gaining energy and if it can be scaled to millions of barrels a day, it is extremely profitable.

        • Well, what would the cost of production look like for the producers at 2:1 ? And by extension, producers may well operate at 300$ per barrel oil, but the real economy will have come to a sudden halt way before that as the vast majority of people could not afford 10-20$ per gallon gas at the pump. So good luck producing oil anywhere near 2:1 EROEI at current prices.

          That is the oil dilemma. For the majority of producers current prices are too low, for the real economy too high, and an ever decreasing EROEI will make this situation only worse, with no way out. In absence of some energy miracle (like a Thorium or fusion reactor revolution or a perpetuum mobile) that happens real quick over the next few years – and I see nothing that could work on a large scale to replace oil on my radar, do you ??? – then the energy status quo is doomed, and by extension, the global fiat paper ponzi economy.

          • If most of the Energy that is used to extract the resource is contained in the resource itself, a 2:1 EROEI is Extremely Profitable.
            SAGD Canadian Oil Sand projects use the energy contained in the Resource.
            There are other resources where this can be done – Coal to Liquids.

          • Farmer Joe | May 3, 2017 at 10:21 am |

            Steve,

            I believe what you are arguing is the distiction between technically feasible oil extraction and economically feasible extraction. I agree with you that a price increase in crude results in a larger amount of technically feasible oil extraction becoming economically feasible, thus enlarging the total amount of oil which can be extracted at a profit.

            However, the problem I see in that argument is that above a certain price point a phenomenon occurs called demand destruction. If the price becomes too high it stops being feasible for consumers to purchase the products derived from oil. As a result, the oil brought on by going after these fields that were feasible at higher prices are no longer economically viable, and because they can’t just be turned on and off, the producer is forced to sell at a loss. This is the situation as it exists currently for many of the oil majors.

            Do some more digging and keep asking good questions. You’ll get to the truth. 😀

          • The price of oil is already too high….

            HIGH PRICED OIL DESTROYS GROWTH
            According to the OECD Economics Department and the International Monetary Fund Research Department, a sustained $10 per barrel increase in oil prices from $25 to $35 would result in the OECD as a whole losing 0.4% of GDP in the first and second years of higher prices.

            http://www.iea.org/textbase/npsum/high_oil04sum.pdf

  6. Better to have the economy slow by design than by collapse.
    Infinite growth on a finite planet is impossible. A new group you might like to join.
    https://www.facebook.com/groups/1295234503849294/

  7. Great article again Steve, many thanks. Some might find this Chinese article about a renewed fuel cell interesting too, they need six to 10 grams of platinum per car to make it work if I understand it correctly. http://www.scmp.com/news/china/article/2091424/could-green-car-breakthrough-drive-fuel-cell-future

  8. They just can’t print oil, can they? Cheap credit to pump and to go looking for more, yes, but that ever-growing mountain of debt related to fossil fuels (oil/NG/coal) will prove to be bad / not repayable, us much of the rest of the ever-growing debt as an ever-decreasing EROEI will throw many a spanner in their fiat works. What could possibly go wrong? The new normal is that we’re in this short period of interesting time called the Weimar World – nothing to see here, move along, move along…

  9. This shows the world seriousness in the direction of solar and other clean energy in days to come

    • I hate to burst your bubble but none these “renewables” work without oil,coal,and gas. Does a solar panel manufacturering company use solar energy to build solar panels? Does it use materials extracted from the the ground with machines built by and powered by solar power? Do these materials get shipped and refined using solar power? The answer is absolutely not like Steve always says there isn’t an energy tooth fairy that makes this happen its fossil fuels. Wind is even worse.

      • James Eberle | May 1, 2017 at 9:21 am | Reply

        Exactly. That is why it is more appropriate to refer to so-called alternative energy sources as “derivative” energy sources, because they are derived from oil and or natural gas.

      • While it’s true it takes energy to make energy, we are NOT out of oil or natural gas yet…or anytime soon for that matter. Best to use it wisely though and if a one time use gives you decades of energy, that’s a no brainer.

  10. How much longer before a supply deficit? It seems Iran unloaded all of their oil in storage…OPEC is honouring production cuts, yet the world currently remains oversupplied.. How far off is the tipping point?

  11. The exact timing of when it will be uneconomical to use petroleum product to fuel our civilization I s up for debate but it is fairly certain the day is approaching , technologies lack fracking light push that date out nut there are consequences. There is a lot of damage to infrastructure and ground water as a result of fracking. Further the market forces needed to rcalibrate our relationship to petroleum are muted when cheat financing susidizes fracking extraction. It’s on us as individuals to plan for a future with much less energy.

  12. joe lindell | May 1, 2017 at 8:01 am | Reply

    As usual Steve, great stuff! But as usual for me you are 10 to 20 years too soon. Trump will make the FIAT system work for the next 8 years. The Fed has a printing press that prints what the USA citizenry has faith in. Worst case along the road is a currency devaluation. His first action will be the “lower” the dollar against foreign currencies. Venezuela has had a currency devaluation these past 5 years or so. They will survive. You’ve been preaching “peak oil” and now EROI these past 7 years or so and nothing sand I mean nothing ever comes of it. Do you remember years back when you talked as 2020 being
    that date now even you are saying in 5 to 10 years from now?

    • DisappearingCulture | May 1, 2017 at 12:01 pm | Reply

      As usual Joe you say the same things over and over.

      You’re 7 year meme/theme is BS becasue this column didn’t exist 7 years ago for you to be reading.

    • DisappearingCulture | May 1, 2017 at 12:03 pm | Reply

      And by the way Joe, the Fed or federal government can’t print oil or the oil used to make solar or wind “alternative” energy.

    • Joe Lindell,

      Sorry, you got the time frame wrong. You need to add another zero. It’s not 10 years, it’s 100 years.

      Hope that clarifies things up a bit for you.

      steve

  13. Excellent article, excellent timing. It’s worth pointing out that (conventional) oil discoveries were the centerpiece of Hubbert’s prescient forecast.

  14. Anything new from the Hills Group? I recall Louis Arnoux mentioned 2022 when the Thermodynamics cliff really becomes apparent.

    • Petedivine,

      I continue to have correspondence with Bedford via the email. I would still like to interview Bedford, but it has not be easy to work out schedules. Anyhow… I am going to ask him to consider providing some articles on the site.

      As it pertains to Louis, we are both working on an extensive report together I have been overwhelmed with other things, but we hope to get cracking on it shortly.

      steve

  15. I would like to share this excellent comment from ‘Steve from Virginia’ (Economic Undertow):

    steve from virginia Post author
    April 25, 2017 at 3:00 pm
    Debt expands exponentially because the only way to retire maturing debt is to borrow more. This is the creditor’s concern when a potential borrower comes through the bank’s front door looking for a loan; will this person or firm come borrow again later? If the answer is no there is no loan! All new loans have to be large enough to rollover the balance of the previous loan(s) … plus interest … plus enough left over to fund continuing operations. Over time the expansion of credit becomes significant as it is now, hundreds of trillions of dollars. How significant does it have to get before it all blows up? Who knows?

    Right now the productivity of credit is negative, that is, adding more credit does not produce more business activity: credit surplus like all the others is subject to ‘The First Law’. Also, increased credit cannot call forth resources that are gone. No additional activity, and yet credit increases relentlessly. Why? The system must have credit because industry offers no ‘real’ returns! In this sense the world is a bit like Greece, but on a larger scale. We borrow our profits, using credit to fool ourselves …

    How long can you fool yourself if you really set your mind to it? who knows?

    At some point the cost of debt service consumes the entire lending capacity of a system. This is the Minsky Moment (not Minsky’s ‘Minsky Moment but my own variation). That occurs in a perfect world where there are no failing institutions to bring down counterparties or accounting control frauds. Both took place in 2008-09, same thing is likely to occur even as the system is well short of the degree of exposure when all of finance system borrowing capacity is absorbed by debt service.

    As for the ‘CB’s vandalizing: this is a myth but a persistent one. I’ve explained this over and over but I must have not done a good job. Any – every bank does four things and four things only: lend, don’t lend, borrow and don’t borrow. That’s it (maybe they also rent office furniture). There are also two kinds of banks: commercial banks (which make unsecured loans) and central banks (which cannot make unsecured loans).

    Commercial banks lend new money into existence, that is, they make loans in excess of collateral or without collateral at all = ‘leverage’. I call this ‘the bank exporting its losses to its customers’. As the bank lends, it exports losses enabling it to keep the profits; this means the bank is ‘strong’. (A weak bank cannot export its losses – make enough loans to stay in business). The outcome is the commercial bank becomes less solvent over time: as Murray Rothbard famously said, “The bank is insolvent because it lends money it doesn’t have”. One way or the other the commercial banks’ destiny is to fail (no different from other firms actually). It is either too weak and cannot ‘sell’ its product (its own losses) or is too strong and is over-leveraged (it makes too many loans that are not repaid).

    Commercial banks hedge their exposure by having a capital structure which includes ownership with investment ‘skin in the game’: a percentage interest- or stake in the firm equal to a reasonable demand for funds from liability side. The commercial bank ledger does not have to balance exactly (assets = liabilities) because the bank can borrow any funds it might need (or it can lend its own excess funds) to other banks in the interbank markets. This is what the ‘Libor’ is all about, (London Inter-Bank Overnight Rate) the interest rate banks charge each other for short-term loans.

    Central banks act as lenders of last resort, when the interbank market is roiled and liabilities (depositor demands) cannot be met by the banks’ own ‘capital’ or ability to borrow from the other banks. The central bank will guarantee the commercial bank liabilities indirectly by providing a market for commercial bank assets. In other words, these assets are collateral for central bank loans: the central bank must accept only ‘good’ collateral that would command its face price on a market … when it is not distorted by a panic for money. In general the assets that have been pledged as collateral are government bonds, the best of the bonds are US Treasuries.

    Central banks do not have a capital structure, they have only a balance sheet. That is, their assets and liabilities match exactly. Any loan a central bank makes must be secured with an asset that is with the same or more than the amount lent.

    In general, a commercial bank or two will get into trouble at any given time and the central bank will provide liquidity against assets offered by the banks as collateral, it will also act as a broker to organize the individual banks to act in ways that serve the system interest even at some cost to these individuals. However, there are times when ALL the banks in the system have liquidity issues simultaneously … or their assets are mispriced by illiquid markets. When that occurs, the interbank market freezes and the banks cannot lend to each other, nor can they bail each other out. An insolvent bank cannot bail out another insolvent bank (otherwise Citigroup would have written checks to Lehman Brothers in September, 2008). The central banks must step in as lenders of last resort and make available the needed credit! Remember, the banks (including ‘CB’s) can lend or not lend, borrow or not borrow.

    If the commercial finance system is entirely insolvent, it can only be bailed out by an entity that is outside the system. If the central bank makes unsecured loans it INSTANTLY becomes another large insolvent commercial bank; it is insolvent for the exact same reason the other commercial banks: excess leverage! At that point there is no entity able to bail out the commercial banks, all banks are insolvent, there is no guarantor for bank liabilities, there is a run on the bank because all deposits are at risk.

    When there are runs out of markets out of currencies out of banks = the central banks is PERCEIVED to be making unsecured loans. YES, there are runs. YES central banks are seen to be making unsecured loans … but there is also the effect of dollar preference and energy deflation which do the same thing. Even a well run central bank and a (more or less) solvent finance system is going to face consequences.

    Our world is run on petroleum. Money is just a way to allocate it, right now- and going forward there is less to allocate.

    • houtskool,

      Thanks posting Steve From Virginia’s comment. He wraps it up rather nicely in just a few paragraphs.

      steve

  16. Wow Steve! I got your dander up. You’ve been a peak oil guy for 5 years plus now. So if
    you really think about it, you are saying the same things today. If you think I’m bad, listen
    to Tom Cloud’s latest thrust. Silver is heading to $16 and he’s saying buy more. Can’t anyone see that he sells silver for a commission? No one wants silver. They want lousy stinking US dollars. And no matter how much you are disgusted with me, your articles, Cloud’s comments, Morgan and the rest of these gurus are not only too soon on investing, they are
    dead wrong in their forecasts for at least 10 years. Cloud says silver is up 8%+ this year.
    when in fact is is down 66% from its high. After 7 years of reading all these articles of good ole undervalued, it is heading south.

    • DisappearingCulture | May 1, 2017 at 5:07 pm | Reply

      “After 7 years of reading all these articles…”

      Where have you been reading these articles for 7 years? Not this column. Didn’t exist 7 years ago. Another piece of misinformation you persist on mentioning. Either you are intentionbally embelishing [lying], or just unable to get your facts straight.

      “Cloud says silver is up 8%+ this year. when in fact is is down 66% from its high”
      In fact after today’s COMEX beatdown [and it will probably rebound] spot price is $16.94, and on January 2nd it was $16.00. That would be about 6% up for the year. Get your facts straight; I see you don’t want to…or can’t.

      Normally polite, I just have to say you are a total moron with a sour outlook on life.

      By the way don’t compliment yourself that you were able to “get Steve’s dander up”. You aren’t that successful in affecting his mood. He feels sorry for you…finds you amusing…or something.

  17. Peak oil discovery occurred in the early 1960s the last 50 years we have been living off past discoveries. I didn’t realize the situation was so dramatic only 10% replacement. Unless the price goes up we can only make withdrawals from the oil bank. Unlike the cash banks no fractional lending will happen. The best we can do to cheat is use ethanol, oil sands and fracting.

    Like other banks someday there will be a run on the oil Bank!

  18. Joe is a fag.

  19. “What incorrect assumptions am I making?
    A rising oil price will make more supply available.”

    This is true if we assume demand is linear, but it is not. A rising oil price decreases demand, but to what extent?
    Once again I say we are experiencing a shift in the demand curve because the economy is not as viverant as it once was.
    For every dollar the govt or central banks print and inject in the economy, less and less activity is created. It’s like the bigger a home, office building, or factory gets; the more capital is eaten up in maintance and utility costs.

    Just as there is less energy return on energy invested (EROEI) there is less growth per dollar injected into the economy.

    • Another way to look at our present economic situation is to compare the country or the world for that matter to the household structure. A family buys a $50,000 car when a $25,000 car would make do, they buy a $500,000 home when a $250,000 would suffice.
      They are upside down in everything or soon will be.

      The country is the same, it is upside down in all infrastructure. There is not enough true production or wealth creation to maintain, much less build new.
      Thus the demand for energy at a higher price is just not there.

      The whole thing is about to grind to a halt. Only solution for country is same as for household.
      Bankruptcy and then start over.

      • DisappearingCulture | May 2, 2017 at 9:34 am | Reply

        “Thus the demand for energy at a higher price is just not there.”

        The demand is there, there just isn’t enough money or currency or wealth to pay for it is what I think you mean

        • DisappearingCulture

          Tks for reading. Seems you understood the under lying meaning of my words.
          This economy is producing no disposable wealth, folks are not even making ends meet.

  20. the lack of infrastructure spending is due to the ballooning of entitlement spending that is crowding out everything else. specifically pensions for public service employees. most states and locals now spend more on pensions than they spending on the working employees. with two sets of employees on the books infrastructure is crowded out. This is a demographic crisis that was predicted when I was young back in the early 1970’s.

    Now we can add in an oil crisis. We are facing both a decline in total oil due to depletion and no new discovery and a plunging EROI.

    I think that the hills group is right about EROI, but is probably wrong about a falling price. I don;t think demand will collapse faster than supply. For these reasons.

    1. Oil is cheap compared to what it provides. People will pay a larger share of their income for oil if they have to do it.

    2. The price is all political. The Saudi’s and OPEC can jack it up if they want. Just cut production by 30%. See what happens. We would have an instant recession, but oil’s price is not very price elastic. Most of the demand would still be present. At least for now.

    3. Hills group analysed wells and supply. however, they did not factor efficiency improvement in useage. As the price goes up or the product gets scarcer, the marginal uses will decline. They didn’t do this because their contention is that the EROI gets so low that nothing can be produced, anyway. They claim that the “DEAD State” is an EROI of about six. This will not be a wonderful time, but their will still be applications and uses for oil at this level. This implies an energy return of about 80% of the barrel.

    Unfortunately, most of it will be stored in legacy fields in the middle east and russia.
    There may be little oil going into “exportland”.

  21. Into this debt bomb void of high costs and low productivity, Trump and his deconstructions will open up the pipelines, the federal lands for drilling and mining, push offshore while cutting away whatever they can in the way of environmental regs and protections. With prices of gas and oil relatively low and worldwide demand stagnant, it should be real interesting to see what the Trump, Perry, Pruit et al gang do to the current mix.

  22. Bruce Armstrong | May 5, 2017 at 5:38 pm | Reply

    Oh dear, so much rubbish from so many trolls.

    On the Capex side, in 2014, Steven Kopits, then MD of Douglas-Westwood, delivered a lecture at Columbia university on the pinch between revenue and escalating upstream costs (exploration and well development) and the market’s capacity to pay for oil.
    It’s available on youtube.

    He was predicting exactly what you are reporting and went further to say that the oil majors will also have to start selling assets to maintain cash flow and dividends to the pension funds that largely own their stock.

    In view of Shell habing to borrow to pay their dividends a couple of yeard ago, it may be a good time to review your 401K’s investments.

    • Bruce Armstrong,

      Yes, I saw Steven Kopits presentation. So, the Major Oil Companies will continue to CANNIBALIZE themselves to keep from going under. I give it ten years… at most.

      steve

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