Comments from European Oil Majors: shifts away from oil and oil supply gaps

The IEA recently estimated that if oil investments stay at 2020 levels until 2025, the world could see oil supplies drop by nearly 9 mb/d by 2025. I don't think that means they expect a 9 mb/d supply gap, but that is a daunting drop in supply.

Per OilPrice (Feb 10), Total appears to up the IEA forecast:

"We have seen in 2020 how OPEC managed to bring back market discipline. We've seen the cracks in the US shale model, and we've seen a continued underinvestments in the oil industry as a whole," [Helle Kristoffersen, President, Strategy and Innovation at Total] said.

The market needs new oil projects, considering the fact that many producing oilfields will see natural declines in production, the executive said.

"And that's true, even if you take very cautious view on short-term demand recovery and on future demand levels," Kristoffersen added, noting that "a 10 million barrels per day gap in supply between now and 2025, that's a massive shortfall of supply to cover in just a very few number of years."

IEA discusses a 9 mb/d decline in supplies by 2025. Total ups this to 10 mb/d and indicates that they see this as a gap in supply. And if I read the quote correctly, they're coming up with this supply gap via the use of a "very cautious" demand forecast. Considering it can take up to six years to develop an oil discovery, the world might not have much time to avoid Total's forecast. Each year that passes without an increase in investment means it'll be all that much harder to get oil pumping out of the ground in time to avoid a supply gap (outside of shale, which doesn't take as long to get out of the ground).  

As mentioned in this post, we know that BP will be a small reason for this investment short-fall. It now appears that European major Shell will be another driving force. Per Bloomberg via MSN (Feb 11):

In a sign of how much the petroleum industry has shifted away from its mantra of growth and exploration, Shell said its oil production will fall by 1% to 2% a year. Output of “traditional fuels” will be 55% lower by 2030.

In a wide-ranging strategy update published on Thursday, the Anglo-Dutch company set new targets for electric-car charging, carbon capture and storage, and electricity generation. 

It'll be interesting to see if Shell is making the right call. If Total is correct about a significant supply gap, Shell will be leaving a lot of money on the table a few years from now. On the other hand, maybe they're making the better long-term call.