Big Oil’s Exploration Cuts Exacerbate Supply Deficit – Could fit into Saudi Aramco’s long term plans

BP has decimated its oil and gas exploration team, another report by Reuters, citing company sources, also revealed this week. From more than 700 a few years ago, there were now fewer than 100 people in this team, with the rest either laid off or moved to low-carbon energy divisions—BP’s top priority for the future.

Big Oil's Exploration Cuts Exacerbate Supply Deficit - Could fit into Saudi Aramco's long term plans - Energy News Beat

Energy News Beat Publishers Note: An excellent article by Irina Slav for Oil Price. With the major oil companies getting out of oil and gas, Saudi Aramco has stated that they will be producing oil and gas, while operating renewables simultaneously. They are planning on most E&P companies getting out, and the prices will go up. I would put my money on Saudi Aramco in the long term play. 

The idea that crude oil could ever again hit three-digit price levels may sound ridiculous at a time when slack demand amid a pandemic has oil stuck in the $50s. Yet one thing any market is not is static, and many expect vaccines to boost demand before this year’s end. In fact, some are warning about a looming oil deficit. And Big Oil is slashing exploration activities.

Reuters reported this week, citing data from Rystad Energy, that new onshore and offshore lease acquisitions by the world’s top five oil companies fell to the lowest in at least five years in 2020. Of course, much of this decline was caused by the pandemic, but it is also the pandemic that is spurring a potentially permanent change in the agenda of Big Oil.

BP has decimated its oil and gas exploration team, another report by Reuters, citing company sources, also revealed this week. From more than 700 a few years ago, there were now fewer than 100 people in this team, with the rest either laid off or moved to low-carbon energy divisions—BP’s top priority for the future.

“The winds have turned very chilly in the exploration team since Looney’s arrival. This is happening incredibly fast,” Reuters quoted one company employee from the exploration team as saying.

Perhaps the reduction in exploration activities is fully justified by the change in priorities for BP and its peers. Big Oil is all about renewable energy, EV charging, and energy storage now. All European supermajors have some plan or other for an oil production reduction over the long term. BP eyes a cut of 1 million bpd by 2030, for example.

The change in priorities for the European supermajors is largely driven by the European push for an energy transition that aims to dethrone oil—and later gas—from their top spot as energy sources in favor of solar and wind. Asian economies also have ambitious plans in this direction, which must have helped Big Oil’s motivation. Yet, there is a small chance they may have overestimated the pace of the energy transition.

Recently, a German think tank rejoiced about Europe’s latest achievement in the transition: renewable energy accounted for a bigger portion of Europe’s power generation than fossil fuels for the first time. At 38 percent, wind, solar, and hydro beat oil, coal, and gas by a percentage point.

And yet, it may be fair to mention the overall energy demand slump the pandemic caused last year, which may have well played a part in Europe’s energy supply situation change. We saw evidence of this very recently: earlier this month, a typical winter cold spell in Europe pushed natural gas prices to multi-year highs as wind power generation declined. Solar is generally not at its best during the winter.

Regarding oil, practically every bank and energy consultancy forecasts a rebound in demand as soon as enough people are vaccinated for life to begin to return to normal. That strong oil demand is still part of the normal should be telling enough: the energy transition will not happen as fast as many may hope, including some Big Oil supermajors.

The bullish oil demand forecasts have given rise to warnings about a possible deficit coming as soon as this year. This may or may not happen, but such warnings do hint at the possibility that Big Oil, with its fast shedding of new oil and gas exploration, might just be putting the cart in front of the horse on the whole energy transition issue. Even with the EU’s intentions to discourage investments in oil and gas production globally.

By Irina Slav for Oilprice.com

About Stu Turley 3230 Articles
Stuart Turley is President and CEO of Sandstone Group, a top energy data, and finance consultancy working with companies all throughout the energy value chain. Sandstone helps both small and large-cap energy companies to develop customized applications and manage data workflows/integration throughout the entire business. With experience implementing enterprise networks, supercomputers, and cellular tower solutions, Sandstone has become a trusted source and advisor.   He is also the Executive Publisher of www.energynewsbeat.com, the best source for 24/7 energy news coverage, and is the Co-Host of the energy news video and Podcast Energy News Beat. Energy should be used to elevate humanity out of poverty. Let's use all forms of energy with the least impact on the environment while being sustainable without printing money. Stu is also a co-host on the 3 Podcasters Walk into A Bar podcast with David Blackmon, and Rey Trevino. Stuart is guided by over 30 years of business management experience, having successfully built and help sell multiple small and medium businesses while consulting for numerous Fortune 500 companies. He holds a B.A in Business Administration from Oklahoma State and an MBA from Oklahoma City University.