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Aramco, IEA warn of future supply crunch

27 Apr 2017 10:14 (+01:00 GMT)
Aramco, IEA warn of future supply crunch

London, 27 April (Argus) — Two of the most influential voices in the oil market today separately set out a stark picture of a coming crude supply shortfall.

The IEA and state-owned Saudi Aramco both pointed to the sharp reduction in investment levels since the oil price began to fall in 2014, and warned of trouble ahead.

The IEA said crude discoveries and project approvals both fell to multi-year lows in 2016, as low prices squeezed investment spending. Discoveries of 2.4bn bl in 2016 fell way below the 9bn bl annual average for the previous 15 years, and the number of projects receiving a final investment decision (FID) last year was at the lowest since the 1940s, it said.

"The key question for the future of the oil market is for how long can a surge in US shale supplies make up for the slow pace of growth elsewhere in the world", said IEA executive director Fatih Birol.

Speaking in Paris, Aramco chief executive Amin Nasser said: "The supplies required for the years ahead are falling behind substantially because the vast, long-term investments in proven and reliable energy sources are not being made. This presents a grave and growing threat to world energy security", Nasser said, adding that 30mn b/d of oil production capacity needs to be developed over the next five years. The IEA last month warned that crude output growth "all but stalls" after 2020, and today said exploration spend and project approval are likely to be low again this year.

"When we talk about normal decline today… [it is] a decline of 5pc/yr," Nasser said. A significant proportion of work happening now is infill drilling, which he said will actually increase rates of decline.

"What we need in the industry is… megaprojects that would mitigate the decline over the long-term. Otherwise the decline will accelerate… closer to 10pc, which would be difficult to compensate for over the long term."

Nasser said in the immediate term the market is moving toward balance, and given predictions of global economic growth he decried the idea of 'peak demand'. Oil demand "will continue to grow, in absolute terms, at fairly healthy levels, for the foreseeable future," he said. The IEA pegs global demand growth at 1.2mn b/d a year in the next five years.

"I believe 'peak oil demand' is not in sight for at least the next few decades, and… the notion of 'stranded resources' is not one I recognise," he said. Later, Nasser declined to comment on preparations to list 5pc of Aramco, but reiterated that the plan remains on track for next year.