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Is the world running out of high-quality oil and gas?

The world is not going to run out of oil or gas any time soon. Total discovered and prospective oil and gas resources are more than double the demand estimated in Wood Mackenzie’s forecast to 2050. The upstream industry can prioritise advantaged barrels to produce lower-cost, lower-carbon options, while over two-thirds of commercial undeveloped resources are at risk of never being developed.

Does this mean the industry can relax? Far from it. Only enough truly advantaged resources with low break-even costs and low emissions can be seen to satisfy about half of the base-case oil and gas demand forecast to 2050. Even a much lower accelerated energy transition (AET-1.5) demand scenario will require the development of some disadvantaged supply.

This problem of ‘peak advantage’ presents a huge and urgent call to action. Both oil and, in particular, gas, will continue to need huge and sustained investment. There are three main investment themes to mitigate this coming shortage of advantaged resources:

  1. Portfolio renewal: New fields embrace modern decarbonisation technologies and are generally more advantaged than old developments. Exploration may persist for far longer than is widely believed.
  2. Decarbonising existing assets: Technology can lower emissions of older assets without raising costs much.
  3. Low-carbon alternatives: Investment in green energy businesses, including biofuels to cut oil and gas demand.

Even with these three remedies, the upstream industry faces a challenging outlook as environmental, social and governance (ESG) pressures increase. Upstream strategies will diverge as companies choose between flight or fight.

More companies will exit the sector, presenting those that stay the chance to double down. Competition will intensify as an increasingly concentrated industry scrambles for a dwindling pool of advantaged assets.

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