Do we really need new oil and gas exploration?

Venus has proved to be a beauty for TotalEnergies. In February, the French company announced an enormous discovery from the Venus-1 well offshore Namibia, possibly holding 3 billion barrels of oil and gas, the largest ever found in Sub-Saharan Africa. But what is the future of exploration in a world constrained by climate at one frontier and war at the other?

Searching for oil and gas resources in new areas had been in the doldrums since 2014’s price crash. About 3,000 exploration and appraisal wells (to assess previous finds) were drilled each year in 2012-14. This fell to about 2,000 between 2015-19, and then to barely 1,300 in the pandemic year of 2020.

Not surprisingly, discovered resources dropped too. The world produces about 60 billion barrels of oil and gas equivalent annually. In 2015, 35 billion barrels equivalent were discovered, not enough to replace all production, but adequate when combined with upgrades of known fields. Between 2016 and 2021, this fell to about 10-15 billion barrels per year, implying a steady drawdown of reserves.

In May 2021, the International Energy Agency’s report on reaching net-zero carbon by 2050 concluded that no new oil or gasfields would be required. Remaining, shrinking hydrocarbon demand could be met solely from existing producing assets.

Disappointing financial returns from the industry over the past decade gave another reason to investors to turn away from financing new exploration. International oil corporations focused drilling ever more on a dwindling number of the most promising areas, with BP saying its output would drop over this decade and the company would not enter new geographies. The smaller aggressive wildcatters of the early 2000s have retreated to safer pastures, gone bust or been acquired.

But the remaining hotspots are proving lucrative. New geological concepts, or a fresh look at underexplored areas, have yielded some giant finds, mostly along the deep-water Atlantic margins of South America and Africa.

Guyana’s first major oil discovery, Liza, was made by ExxonMobil in May 2015. Since then, 11 billion barrels of oil equivalent has been found in its Stabroek offshore block alone. ExxonMobil says that the South American country and adjoining Suriname could easily hold another 10 billion barrels. TotalEnergies extended the known oil area eastward in Suriname with its February 2022 Krabdagu well.

Since its giant “pre-salt” fields of the early 2000s, Brazil has remained prominent, with four of the world’s top-10 discoveries last year. Across the ocean, last August saw Italy's Eni unearth 2 billion barrels of oil and 2.4 trillion cubic feet of gas at Baleine, off the West African nation of Côte d’Ivoire.

Namibia was geologically connected to Brazil before the opening of the Atlantic about 140 million years across, and many geological structures are contiguous.

After decades of disappointing drilling results, the Venus success was anticipated by Shell’s Graff find in February, now thought to hold 2 billion barrels equivalent. TotalEnergies had already discovered gas off South Africa in 2019. Further wells are planned in the giant Orange River basin that spans marine territory between Namibia and South Africa.

But do we need all this new oil and gas? Is it even feasible to produce, given the climatic imperative to reduce carbon emissions drastically?

Two things have changed drastically since the 2020 low. The first is the rebound of energy demand, driving gas prices, in particular, to record highs. Production, whether in the Opec+ states or the US, has not been able to keep up.

The second is Russia’s war in Ukraine, and the sanctions on it, threatening to eliminate its oil and gas exports to Europe entirely. Rystad Energy, a consultancy, has downgraded its prediction of Russian oil output in 2030 by 1.6 million barrels per day, more than what Algeria produces, and of gas by 104 billion cubic metres per year, as much as Saudi Arabia’s entire output.

This changes the dynamic. Consuming countries can either rely even more on the core Gulf producers, who would gain enormous market power, or seek to have a more diversified and balanced global output. For comparison, ExxonMobil’s co-venturer Hess says Guyana could be producing 1.5 million bpd by 2030 and Rystad estimates Suriname could yield another 0.65 million bpd by then.

Turkey, a major importer of Russian and Iranian gas, will be well-served by its big gas discoveries in the deep-water Black Sea in August 2020 and last June. Cyprus and Israel have potential to help supply southern Europe’s gas.

Yet for new exploration to make sense for companies and governments, it needs to satisfy three conditions.

First, it has to meet market need, by coming into production quickly, while demand is still there. There is no room for the interminable negotiations that will see Uganda go 19 years from discovery to first production, or Tanzania’s offshore gas, found in 2010 but not likely to start output until 2030.

Secondly, the revenue must be spent wisely. New producers face a challenging road to invest in profitable and sustainable national development, and to save the surplus. Too many governments have blown their windfalls in corruption, white elephant projects and lavish handouts to win political favour. Companies and energy-importing governments have responsibilities to offer constructive help.

Thirdly, development must be low-carbon. This means incorporating best practices: electrified facilities, carbon capture and storage, zero flaring of surplus gas, high energy efficiency. Done well, fresh fields can be lower-carbon than legacy ones.

But with production from new finds likely extending beyond the 2050 net-zero carbon goal, it needs more than that. It will require a plan for using all hydrocarbons sustainably: either in non-emitting uses, such as making “blue” hydrogen or long-lived materials; or fully offsetting emissions with direct capture of atmospheric carbon dioxide.

After a few years at a dead end, frontier exploration is back. But the next few years will determine whether it is on one last adventure, or a voyage to new environmental as well as geological frontiers.

Robin M. Mills is chief executive of Qamar Energy and author of 'The Myth of the Oil Crisis'

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