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What do the low oil prices mean for sustainability?

Author: Miguel Van Damme

The massive impact of the COVID-19 pandemic on the economy intensifies the risks of tightening crude oil supply coming years. The temporary drop in consumption has a positive effect on available oil in the short term. Without a radical OPEC decision to cut production, the production surplus will maintain prices at low levels for many months, further weakening the industry and those who depend on it.

Declining oil supply

Worse, announcements of a few million additional barrels from Saudi Arabia or Russia could suggest that global production capacity is easily scalable, up or down. This is only true from the relative flexibility of the Saudi fields already in production. As soon as the natural decline in field productivity will need to be compensated for by the exploitation of new discoveries, latency will be felt very quickly, the average time between discovery and their production being two to four years. The current oil surplus situation could then quickly turn around in an oil shortage.

HSBC, among others, estimates that roughly 80% of the 100 Million Barrel (MBD) produced each day [4] come from files with a natural declining output (-4% to -8%/year). In addition, the International Energy Agency already warned that the main source of production growth was American shale oils. [5] However, these are one of victims of the current Russian-Saudi price war. As we are cutting investment in the exploration and production of new fields and weakening the American shale oil producers, where will the oil of tomorrow come from?

At less than US$45 a barrel, it is hard to imagine the future of the energy sector calmly. First, insufficient investment could jeopardize the possibility of ensuring continuity of oil supply in the medium term. But it also risks delaying short-term funding for low-carbon energies which, unsubsidized, will become de facto less attractive for end users drowned in inexpensive fossil fuels.

Looming shortages post-crisis

A likely outcome of this health and economic crisis would be to transform in depth, a