Last year was a down one for adding new oil and gas discoveries to the global stockpile.  Less than 7 billion barrels of oil equivalent were discovered, the lowest total since the 1940s.  The combined reserve replacement ratio (defined as the amount of proved reserves added relative to the amount produced) for both oil and gas was approximately 11%, a drastic decline from the more than 50% experienced in 2012.  In fact, 2006 was the last year that the reserve replacement ratio reached 100%.  For discovered volumes in 2017, Mexico, Senegal, and Guyana led the charge, with Mexico’s promising year based on recent energy reforms that will continually open the oil and gas sector to more foreign investment.

To be sure, it’s worrisome that oil and gas discoveries in recent years haven’t been as high as before, given that global demand for both are increasing about 1-2% per year, but it’s not that surprising.  Due in large part to the collapse in commodity prices, global exploration expenditures have decreased year-over-year for three consecutive years now, dropping by over 60% from 2014-2017.  This lack of investment in new oil and gas supply lays the foundation for a potential threat to future supply and a possible price spike 7-10 years down the road.

Yet overall, the optimism on future oil and gas supply remains very high as global proven oil and gas reserves stand at record levels.  The world now has over 1,710 billion barrels of crude reserves, compared to 1,150 billion two decades ago.  Gas reserves, meanwhile, have surged more than 50% over that time to approximately 6,600 trillion cubic feet.

Additionally, the oil and gas resource is many times larger than our proven reserves.  Too widely misunderstood or misused by the public, the difference between the terms “reserve" and "resource" is highly significant.  Reserves impress banks and bring in shareholders, but it's the resource that ultimately indicates the amount of hydrocarbons a country really has.

Oil reserves are just subsets and simply reflect what can be produced today, given current prices and technologies.  But, these conditions are always in flux, and more of the resource gets elevated into the reserve category as time moves along.  In other words, when prices go up, more oil and gas gets counted as reserves and more can be produced profitably.  This makes the recent rise in both reserve totals and output under historically low prices even more impressive.

The U.S. itself illustrates why simply using reserves as a gauge of how much oil and gas a country has left is overly simplistic.  We’ve seen decades of failed predictions of “peak oil” production. Today, U.S. production is at levels not seen since the early-1970s and we have more proven crude oil reserves than at any time in our history, thanks in no small part to the shale energy revolution that started around 2008.  In fact, despite the extraction of 190 billion barrels over the period, the U.S. now has nearly 35 billion barrels of proven crude oil reserves, or 70% more than we had at the end of World War II.