There's Little Reason to Hunt for Fresh Oil in 2020

Matt Posky
by Matt Posky
theres little reason to hunt for fresh oil in 2020

Ever since the first major oil fields were discovered at the start of the 20th century, the world has been on a never-ending hunt to see where else black gold might be hiding. Monetizing seepage areas goes back even further. But with global oil demand having dissipated on account of the pandemic, there’s little reason to spend cash on additional procurement.

Combine that with the green movement doing everything it can to convince governments there’s only one ethical way to handle energy, and we’re likely to be moving into an era where fossil fuels sell for less but cost more to harvest/utilize thanks to carbon emission regulations.

This has left oil companies pondering the true value of seeking new sources of oil, with some having already decided there’s no point.

Earlier this month, BP said it no longer had any interest in conducting exploratory surveys in new countries. It has what it needs for the foreseeable future, noting that pricing had become unstintingly low as swaths of the industry finds itself having to pay just to find someone to take surplus product off its hands. Meanwhile, oil-producing nations have cut output by record levels this year to curb their bloated supply and reduce worldwide inventories. The Organization of the Petroleum Exporting Countries (OPEC+) recently eased agreed-upon cuts to 7.7 million barrels per day (bpd) from 9.7 million bpd.

Rystad Energy AS expects roughly 10 percent of the world’s recoverable oil resources (representing around 125 billion barrels) to become obsolete in the near future. Using the Falkland Islands as an example, Bloomberg attempted to explain the ramifications in a recent report. Despite holding a sizable and mostly untapped oil reserve, the South Atlantic region won’t see any of its previously planned rigs going up.

From Bloomberg:

Larger companies have also begun voicing that realization for other projects. BP said in June it would evaluate its portfolio of discoveries and leave some undeveloped. Chief of Staff Dominic Emery already hinted last year at what kind of resources might never “see the light of day.” Complicated projects could be shelved in favor of fields that are quicker to develop, such as U.S. shale, he said.

The pressure to curb emissions may also prompt companies to leave the most carbon-intensive reserves in the ground, as France’s Total SE acknowledged last month when it took an $8 billion writedown on carbon-heavy assets.

The list of projects most at risk includes deepwater discoveries off Brazil, Angola and in the Gulf of Mexico, said Parul Chopra, vice president for upstream research at Rystad. Canadian oil-sands projects such as the expansion of the Sunrise development in Alberta are also in doubt, he said.

While this may be a triumph for ecosystems in underdeveloped parts of the world, anywhere that has easy access to oil and doesn’t need additional refinement processes should be sitting pretty. Of course, it’s difficult to predict what will happen in the long run — especially with most oil production firms seeking to transition into energy companies with a greener public persona. Contributing factors include how we count carbon emissions in terms of oil procurement and refining, as well as how successfully national grids can be bolstered for the presumed influx of electric vehicles (and a higher reliance on renewable forms of energy).

That’s assuming non-fossil fuels are even capable of providing the amount of energy the world needs to keep humming, however.

[Image: Maksim Safaniuk/Shutterstock]

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  • Lorenzo Lorenzo on Aug 18, 2020

    For those with money to invest, keep an eye on the oil companies that continue to explore, even if they don't develop fields right away. Covid has put us in a recession, but put the world into a depression. Once we recover, the world economy will ramp up, and all energy will be in demand again. The companies able to tap discovered but undeveloped supplies will be the first to benefit.

  • Jeff S Jeff S on Aug 19, 2020

    Agree energy demand will increase once the economy recovers. I do believe that in the long run there will be more environmental regulations mandating stricter emission and efficiency standards on ICE and electric generation which will increase the use of EVs and alternative sources of energy in the next 20 to 50 years. Batteries need to get smaller, less expensive, more range, and more capacity. Infrastructure to support EVs will need to become more widespread. There will need to be other alternative sources of energy in addition to solar and wind especially in areas that don't have an abundance of both. Additionally more oil and gas companies will transition to producing and providing cleaner energy alternatives but this will take some time.

  • MaintenanceCosts We hear endlessly from the usual suspects about the scenarios where EVs don't work as well as gas cars. We never hear the opposite side of the coin. From an EV owner (since 2019) who has a second EV reserved, here are a few points the "I road trip 1000 miles every day" crowd won't tell you about:[list][*]When you have a convenient charging situation, EV fueling is more convenient than a gas car. There is no stopping at gas stations and you start every day with a full tank.[/*][*]Where there are no-idling rules (school pickup/dropoff, lines for ferries or services, city loading, whatever else) you can keep warm or cool to your heart's content in your EV.[/*][*]In the cold, EVs will give you heat from the second you turn them on.[/*][*]EVs don't care one bit if you use them for tons of very short trips. Their mechanicals don't need to boil off condensation. (Just tonight, I used my EV to drive six blocks, because it was 31 degrees and raining, and walking would have been unpleasant.)[/*][*]EVs don't stink and don't make you breathe carcinogens on cold start.[/*][*]EV maintenance is much less frequent and much cheaper, eliminating almost all items having to do with engine, transmission, or brakes in a gas car. In most EVs the maintenance schedule consists of battery coolant changes and tire maintenance.[/*][*]You can accelerate fast in EVs without noisily attracting the attention of the cops and every passerby on the street.[/*][/list]
  • MaintenanceCosts Still can't get a RAV4 Prime for love or money. Availability of normal hybrid RAV4s and Highlanders is only slightly better. At least around here I think Toyota could sell twice the number of vehicles that they are actually bringing in at the moment.
  • Tree Trunk Been in the market for a new Highlander Hybrid, it is sold out with order time of 6 months plus. Probably would have bit the bullet if it was not for the dealers the refuse to take an order but instead want to sell from allotment whether it fits or not and at thousands over MRSP.
  • AKHusky The expense argument is nonsense. My mach e was $42k after tax credit. Basically the same as similarly equipped edge. And it completely ignores that the best selling vehicles are Rams, F150s, and Silverados, all more expensive that a bolt, MAch e or ID4. As an owner, I'd say they are still in second car territory for most places in the country.
  • Johnster I live in a red state and I see quite a few EVs being purchased by conservative, upper-class Republicans (many of them Trump-supporters). I suspect that it is a way for them to flaunt their wealth and that, over time, the preference for EVs will trickle down to less well-off Republicans.