Eskil Jersing
Oil & Gas Senior Executive, Business Development Advisory

Oil is not well.."seen and not herd" (sic)..and that's ok for most..but is it though?

A number of ex top 10 producers (Venezuela, China, UK, Norway, China & Mexico) are in terminal decline.

Some 55 countries (representing ca.30% of current global production) have seen material declines in production over the last decade, from a collective output of c.35 Mmbo/day in 2010 to c.24 Mmbo/day in 2021.

A number of material Oil producers will struggle to maintain their current production (plateaus): Canada (ESG vs Oil Sands), US UCRs (Yield over growth drivers- note Conventional oil is c.43% of US production and declining at a reasonable c.4%/pa. However in the UCR space, just 7 counties in Texas represent the majority of the 31.5k wells in Permian production-how long can one keep drilling "sweet spots"?), Iran (Sanctions-lack of investment etc).

Despite anaemic capital markets and lack of material inflow, some countries such as Brazil (pre Salt) still have significant potential to grow, with aspirations to double their production this decade.

Money will of course be allocated preferentially on the lowest cost, highest margin barrels, with sub $45/Bo lifecycle breakevens being the focus of ongoing/new investments.

Equally, financing guidance to multilateral development banks (ie World Bank, Africa Development Bank etc) means many developing Nations / brownfield assets will find it hard (witness Total in Uganda) to secure fossil fuel funding unless less carbon intensive options are unfeasible. But of course Global "structural" consumption decline only really starts to bite next decade.

There will also be new oil production projects from new producers such as Guyana (650 kbopd), Suriname (200 kbopd initially), Senegal (100 kbopd), Uganda (250 kbopd) & Kenya (75 kbopd) etc.- but insufficient to plug a likely supply-demand gap later this decade, as we move away from fossil fuels as the cornerstone of a less carbon intensive landscape.

Many will be ok with that in principle, but in practice we should also be aware of the perils of "narrative Economics" with regards to achieving a real and just Transition, it's a journey of decades not years..onwards..

As Michael Cembalest, Chairman of Market and Investment Strategy for JP Morgan Asset Management, warns: “The overarching message is not climate nihilism; it’s that the behavioral, political and structural changes required for deep decarbonization are still grossly underestimated.”

KeyFacts Energy: Commentary