Whatever the pace of the energy transition, it is widely regarded that the world will still rely on oil and gas for much of its energy needs until well beyond 2040.

Exploration will be critical in meeting this future demand, yet it is still widely perceived as discretionary, even unwarranted. Some see risk, declining demand, an existing resource base and a supply pecking order that pushes exploration to the end of the queue. There’s also the mistaken belief that each new discovery somehow extends the fossil fuels era.

Wood Mackenzie’s latest analysis leads them to a different view. They have found that companies that are showing signs of fatigue with exploration are questioning their long-term commitment to upstream petroleum.

Only about half the supply needed to 2040 is guaranteed from fields already onstream. The rest requires new capital investment and is up for grabs.

Wood Mackenzie forecasts that cumulative global demand for oil and gas over the next two decades will be at least 1,100 billion barrels of oil equivalent (boe) even in a 2°C scenario. It could be as much as 1,400 billion boe on their base-case forecasts.

According to Wood Mackenzie, around 640 billion boe can be met by proven developed supply from onstream fields. This leaves a supply gap of between 460 billion to 760 billion boe.

“All of this supply gap – indeed much more – could be met from existing discoveries. But these need investment. Only resources with the lowest cost and best economics are advantaged and should attract capital. Much of the known resource, however, does not fit the bill,” the firm highlights.

Exploration can hold its own in this competition. Wood Mackenzie considers that over 100 billion boe – split roughly 50:50 between oil and gas – will come from exploration. This means the industry is required to maintain its success rate of the past five years until at least 2030.

Moreover, Wood Mackenzie notes that full-cycle costs including discovery are surprisingly similar to point-forward costs of incremental brownfield and greenfield alternatives.

“Whatever gains the incremental volumes enjoy from existing infrastructure are offset by the law of diminishing returns. The easy barrels have been developed already, the remaining resources harder to recover.”

A recent report from Dr Andrew Latham, vice president, exploration, at Wood Mackenzie, and Adam Wilson, senior analyst, takes a closer look at exploration’s future. It can be accessed online here.