IEA: Oil & gas decline rates sound the alarm over global energy security risks

Given the accelerated decline in hydrocarbon production rates, a new report from the International Energy Agency (IEA) has warned about the supply risks that output drops carry, as ignoring them has the potential to undermine energy security, market stability, and emissions reduction aspirations, with a global energy shortfall as a potential outcome.

While calling for a shift in global energy discourse to balance supply-side risks with demand-side trends, the IEA’s ‘Implications of Oil and Gas Field Decline Rates’ report points out that ignoring the fall in production volumes, which has significantly accelerated globally, largely due to higher reliance on shale and deep offshore resources, represents a threat to global markets and energy security.

Locations of approximately 230 billion barrels of oil and 40 trillion cubic metres (tcm) of gas resources, which are discovered but not yet approved for development, show the largest volumes in the Middle East, Eurasia, and Africa. The IEA’s calculations indicate an addition of around 28 million barrels per day (mb/d) and 1,300 billion cubic meters (bcm) to the supply balance by 2050, if these resources are developed.

This report indicates the need for more upstream investments, since without new fields, oil supply by 2050 could fall by 45 million barrels a day. As a result, a lack of continued investment in these fields would mean the world would lose the equivalent of Brazil and Norway’s combined production from the global oil balance each year.

On the other hand, natural gas production would decrease by an average of 9%, or 270 bcm, each year, which is equivalent to total natural gas production from the whole of Africa today, according to the IEA’s analysis.

The new report, which draws on production data from around 15,000 oil and gas fields from around the world, shows that decline rates vary widely across field types and geographies, with onshore supergiant oil fields in the Middle East declining at less than 2% per year, while smaller offshore fields in Europe average more than 15% per year.

The analysis highlights that tight oil and shale gas tend to decline even more steeply, with output decreasing by more than 35% over one year and a further 15% over a second year without further investment.

The International Energy Agency outlined: “Nearly 90% of annual upstream oil and gas investment since 2019 has been dedicated to offsetting production declines rather than to meet demand growth. Investment in 2025 is set to be around USD 570 billion, and if this persists, modest production growth could continue in the future.

“But a relatively small drop in upstream investment can mean the difference between oil and gas supply growth and static production. At the same time, less investment is required in a scenario in which demand contracts.”

While a halt in upstream investment would have cut oil supply by just under 4 million barrels per day each year in 2010, the equivalent figure is 5.5 mb/d now, while natural gas decline rates have risen from 180 billion cubic meters per year to 270 bcm.

The International Energy Agency underscored: “Under natural decline rates, global oil and gas supply would become much more concentrated among a small number of countries in the Middle East and Russia, with implications for energy security. 

“Most oil production in the United States comes from fast declining unconventional sources, while in the Middle East and Russia most oil is produced from slowly declining conventional supergiant fields. Absent further capital investment, advanced economies would face rapid production declines – a 65% drop over the next decade – while declines would be shallower in the Middle East and Russia (45%).”

Based on the report’s findings, it has taken almost 20 years on average to move from issuing an exploration license for oil and gas until first production, including nearly a decade to discover new fields and a further decade for appraisal, approval, and construction.

Fatih Birol, IEA’s Executive Director, emphasized: “Only a small portion of upstream oil and gas investment is used to meet increases in demand while nearly 90% of upstream investment annually is dedicated to offsetting losses of supply at existing fields. Decline rates are the elephant in the room for any discussion of investment needs in oil and gas, and our new analysis shows that they have accelerated in recent years.

“In the case of oil, an absence of upstream investment would remove the equivalent of Brazil and Norway’s combined production each year from the global market balance. The situation means that the industry has to run much faster just to stand still. And careful attention needs to be paid to the potential consequences for market balances, energy security and emissions.”

With this in mind, the IEA’s report underlines the need to develop new resources to keep global oil and gas production constant over time, as over 45 mb/d of oil and nearly 2,000 bcm of gas from new conventional fields would be required by 2050 to maintain production at the current levels, even with continued spending on existing fields.

Since this would imply the equivalent of adding the total oil and gas production from all the top three producers combined, the amounts could be reduced if oil and gas demand were to come down, as filling the remaining supply gap to maintain the current production would require annual discoveries of 10 billion barrels of oil and around 1,000 bcm of natural gas, adding about 18 mb/d and 650 bcm of new production by 2050.

“As oil and gas supply increasingly relies on fields with higher decline rates and complex operating environments, the interplay of investment decisions, economics, and regulation will shape supply resilience and market stability,” concluded the IEA.

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