Just to stay even with current oil demand, the world has to add about 3.5 billion barrels a day of new capacity. This is roughly equal to the oil output of Iran -- one of the world's top producers -- each year.
The number of large fields discovered peaked in the mid-1960's, and oil is becoming harder to find. The oil we do find is in more and more remote (or politically unstable) areas. This puts upward pressure on exploration and development costs. More and more of it is heavy sour stuff, which is much more difficult to refine. This should mean that the cost differential between sweet and heavy crude will increase over time, to the benefit of those refiners such as Valero (VLO) which have the capability to do so. Other refiners will be busy upgrading their facilities which would benefit some of the Engineering and Construction firms such as Jacobs Engineering (JEC) and EN Global (ENG).
The ultimate in heavy sour crude is the unconventional oil of the Alberta Tar sands and the Orinoco belt of Venezuela. Yes, there are massive reserves in both places, but it will be a very significant challenge to have the yearly production of either resource be in line with the reserve potential.
Venezuela certainly has political issues with the development, which is holding down investment there. Most of the Alberta tar sands projects are both over-budget and behind schedule. The tar sands also require very large amounts of fresh water and natural gas to produce.
There have been some significant finds in very deep water, most recently off the coast of Brazil (5-8 billion barrels), but at the earliest these fields will be producing in 3-4 years. The biggest beneficiary of this find is Petrobras (PBR). In addition, there are very few rigs capable of drilling in such deep waters, and the owners of those rigs will also benefit. The two best plays there are Transocean (RIG) and Diamond Offshore (DO) Big fields are critical to the world's oil supply, since over half of world production comes from 3% of the world's fields.
Then there is the related problem that as the price of oil rises, the cash flows to the producing countries increase. In low- and middle-income countries in particular, increasing wealth tends to correlate with increased energy usage. Thus, these countries will consume more at home and have less available for export.
Read the full analyst report on VLO.
Read the full analyst report on PBR.
Read the full analyst report on RIG.
Read the full analyst report on DO.
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