It don't rain but it pour. Or, in the case of oil, it don't trickle but it gush. The world has recently been awash with tales of oil bonanzas in far-flung corners of the globe. A cold shower is now in order.
Two weeks ago BP announced a “giant” find in the Gulf of Mexico. BG Group has celebrated two finds in the pre-salt area off Brazil in just the last 10 days. On Wednesday, Anadarko announced positive results from the Venus well off the coast of Sierra Leone. The significance here is not so much what Venus may produce, but what it says about the prospectivity of the wider region. Executives enthuse that the chances of success in an arc stretching from Sierra Leone to Ghana's deepwater Jubilee field have increased, at a stroke, from 5 to 25 per cent.
All numbers in the oil industry – from the odds of discovery to the scale of reserves – are uncertain. Still, it is easy to understand why these latest – unconnected – finds have caused excitement. For small companies they can be transformative. Even for giants like BP, the discovery of a new field is a major event, shoring up its reserve base.
For countries in whose territorial waters it is found, oil may be a blessing or curse depending on how it is used. Brazil is struggling with how to manage its transition to being an oil exporter. Things may be still harder in West Africa. While offshore production is less susceptible to physical interruption than, say, the Niger delta, the problems of managing massive income flows are the same. For some fragile states in West Africa, they may be acute, and dangerous.
Game-changers locally, the finds do not alter things globally. They are much smaller than the supergiants of the last century, still producing at dwindling rates today (Ghawar, the world's largest field, was discovered in 1948). And while the industry is getting better at finding and producing oil – seismic surveys are more accurate and recovery rates higher – these are often incremental improvements rather than technological leaps.
The world is still heading for an oil crunch, not necessarily due to physical scarcity of oil but because low investment and long lead-times mean it cannot keep up with demand. Averting such a crunch – and its economic consequences – is more about efficiency and government-mandated conservation than a few new finds.
There is one bright spot. If the market works, sustained oil prices will encourage investment in alternatives, weaning us off the black stuff sooner and averting a still worse crunch: climate change.
