President Biden spent much of 2022 urging US and foreign energy providers to produce more oil and natural gas. He’s finally getting his wish, though not exactly where he might have hoped.

A new analysis from consultancy Wood Mackenzie finds that global exploration for fossil fuels in 2022 reached the highest levels in more than a decade. The company measures new energy discoveries in terms of “value creation,” which combines the efficiency of new energy discoveries with the amount of energy discovered. Value creation in 2022 amounted to $33 billion, assuming oil sells for $60 a barrel. The value would be higher if oil prices increased.

The value of new oil and gas exploration in 2019, the last year before the COVID pandemic, was $22 billion. Exploration rose slightly in 2020 but plunged in 2021 as energy prices collapsed and energy companies faced intense pressure to cut costs. The discoveries of 2022 are almost 6 times more valuable than those of 2021.

More than that, the 2022 discoveries include many “higher-quality hydrocarbons,” according to WoodMac’s analysis, that will require less new infrastructure and energy expenditure to extract, and therefore generate less overall carbon emissions than previously expected. It has been typical for the past decade.

The most valuable new find is in waters off Namibia, in the southwestern tip of Africa. Other important finds are found in Algeria, Guyana and Brazil. France’s TotalEnergies had the highest net worth, followed by Brazilian and Qatari state-owned companies Petrobras and QatarEnergy. The only US company in the top 10 was Exxon Mobil (XOM)at number 9.

[Follow Rick Newman on Twitter, sign up for his newsletter or sound off.]

“The oil and gas sector has undergone its biggest reset in years as low oil prices forced them to cut costs and improve portfolios,” says Julie Wilson, director of global exploration research at Wood Mackenzie. “They are only drilling the best prospects, what they see as the lowest cost, lowest carbon deposits. That means the oil and gas found in 2022 have a better chance of moving toward development than less value creation in the past.”

Newly discovered energy deposits could take several years to reach global markets as fields need to be developed and deals finalized between drillers, governments and other involved parties. But a revival in oil and gas exploration represents something of a return to normal for an industry torn in recent years by overproduction that depressed profits, followed by massive losses during the COVID pandemic. At the same time, global warming caused by carbon emissions is driving a shift to green energy and increasing pressure on fossil fuel companies to save cash rather than expand.

The skyrocketing prices of oil and natural gas in 2022 revealed an alarming gap between the well-intentioned goal of reducing carbon emissions and the need for fossil fuels that still power most of the world economy. Gasoline prices in the US reached $5 a gallon last June, the highest level ever, creating a serious political problem for President Biden and other world leaders. Natural gas levels have also spiked, pushing winter heating costs to levels that are still painful.

The Russian invasion of Ukraine and subsequent sanctions on Russia, a major energy producer, added to the shortage of fossil fuel supplies. But the fundamental factors actually laid the foundation. Oil and gas companies heavily overspent and overproduced during the decade before the COVID pandemic, keeping prices paid by consumers low but ruining returns for energy shareholders. The drop in demand during COVID spread pain throughout the industry. From 2015 to 2021, more than 600 US Oil and companies declared bankrupt.

A student from Camoes School next to signs reading

Will activists reduce oil production? A Camoes school student stands next to signs reading ‘End Fossil Fuels’ as a protest over climate change and against the use of fossil fuels in Lisbon, Portugal, November 14, 2022. REUTERS/Pedro Nunes

Biden campaigned for president in 2020 on the promise of “end fossil fuels.” But he started to require oil companies to drill more as gasoline prices approached $4 a gallon, then $5, in 2022. US energy companies, however, are private sector companies that do not take government orders, as what do nationalized oil companies in many Middle Eastern nations. Most US power companies now resist large expansions in capacity, well aware that increased power production typically drives prices down and sometimes turns booms into busts. Biden asked Saudi Arabia and other foreign producers to drill morewith the same unsatisfactory result.

Market forces now appear to be persuading energy companies that there is money to be made through cautious expansion. Despite the shift to green energy, global demand for oil is Still likely to grow, not shrink, until at least 2030, according to the research firm Energy Intelligence. Demand for natural gas could peak even later than that, as gas is the cleanest-burning fossil fuel, with a key role as a baseline energy source, even with the widespread adoption of renewables such as wind and solar.

US energy companies are also gradually increasing production. In its latest forecastthe US Energy Information Administration expects US oil production to reach 12.4 million barrels per day in 2023, which would slightly exceed the record of 12.3 million barrels set in 2019 The EIA believes that US production will reach 12.8 million barrels per day by 2024. That’s not the gush of oil Biden may be hoping for, but it’s a significant increase, given that drillers face windy against such as labor shortages and material inflation, as well as opposition from activists.

The Intl. Energy Agency expects a very small increase in world oil supply this year, which could be outpaced by rising demand. Whether the price of retail products, such as gasoline or heating oil, will rise depends on two things. The first is Russia. US and European sanctions on Russian energy supplies will tighten again in February, which could reduce global supplies of refined products like diesel fuel. The sanctions are designed to reduce Russia’s energy revenue without hurting global supplies, but the methods are novel and there are many things that could go wrong.

The other factor is the resilience of the Chinese economy. Strict COVID lockdowns constrained the Chinese economy for much of 2022, and with China being a huge energy consumer, that helped ease global energy demand. That’s a big factor behind falling energy prices in the second half of 2022. But China has ended those lockdowns, and the economy looks set to pick up. An increase in Chinese energy demand would drive up energy prices everywhere.

In general, oil and natural gas supplies are likely to be tighter in the coming years than they were before COVID. “The market likes to see a supply cushion,” says Wilson. “But we’re going to have to get used to a future where we don’t have that extra capacity. We will probably continue to have volatility in oil prices.” That means every bit of new production, from anywhere, will be welcome.

Rick Newman is a feature columnist for yahoo finance. Follow him on Twitter at @rickjnewman

Read the latest financial and business news from Yahoo Finance

Download the Yahoo Finance app to Apple Prayed android

Follow Yahoo Finance on Twitter, Facebook, instagram, flip board, LinkedInY Youtube

By sbavh

Leave a Reply

Your email address will not be published. Required fields are marked *