A significant, years-long oil supply crunch may be approaching due to insufficient investment in exploration and production, Hess CEO John Hess said Monday at IHS CERAWeek.

"As an industry we're not investing enough for supply growth to keep up with demand growth," Hess said.

Hess said that decreased investment throughout the world, particularly in the offshore, will likely cause supply to plateau or drop as demand continues to rise. The supply crunch will likely hit in three to five years, when current cuts in investments will begin showing up in declining offshore supply.

"We're not investing enough to keep the offshore investment pipeline full," he said.

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Offshore rig utilization is falling and offshore drilling rates have fallen to about $200,000/d currently from about $600,000/d at its recent peak.

Still, he said that much has changed for the industry from a year ago, when debt markets had dried up and bankruptcies in the E&P sector were rampant.

Hess has increased its Bakken rig count to six from two, reflecting a similar expected growth in US shale oil, which he said is projected to grow by about 300,000 b/d this year and, potentially, 700,000 b/d next year.

"The shale business is back in business and starting to grow again," Hess said, pointing out that average shale breakeven costs may now be below $50/b.

Still, the growth in US shale would not be enough to meet global oil demand, which the International Energy Agency projects to grow between 1.4 million b/d and 1.6 million b/d over this year and next.

--Brian Scheid, brian.scheid@spglobal.com

--Edited by Jason Lindquist, jason.lindquist@spglobal.com

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