Oil and gas companies are having their worst year in decades in terms of new fossil fuel finds, and reserves are shrinking. According to Rystad Energy, the oil and gas industry is on course to discover only 4.7 billion barrels of oil equivalent (boe) by the end of 2021, its lowest performance in 75 years.
Large finds have historically accounted for the majority of new deposits around the world. In 900 oil and gas fields around the world, 40 percent of all petroleum ever discovered has been discovered. This year, the sector has made few such findings. The ratio of proven reserves to production, which measures how much extractable oil is left in the ground in relation to annual production, has dropped to its lowest point since 2011.
Existing well production naturally diminishes year after year, therefore the industry must constantly open new fields to meet demand. Without investment in current areas, the International Energy Agency projects that world oil production will fall by around 7% per year.
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Cash to reinvest in new supply is scarce. As their stock prices have fallen during the mid-2010s, US oil and gas companies have reduced capital spending. Firms slashed exploration budgets even more during the pandemic to pay down debt, pay dividends, and avoid large losses from a failed fracking boom in the United States. According to the American Petroleum Institute, “the industry was in survival mode throughout 2020, lowering capital expenditures to meet poor cash flows through the 2020 covid-19 slump” (API).
Industry investment will shrink by $145 billion in 2020 and stay the same in 2021. The OPEC+ group of oil-producing nations has also shown exceptional restraint in reducing output.
Oil and gas companies pay dividends at a rate about three times that of the S&P 500. As a result of the limited supply colliding with rising demand, prices are rising. The International Energy Agency warned nations in May that if the world is serious about reaching net zero emissions by 2050, all new oil and gas sources must be closed by 2021.
