Global oil discoveries fell to a record low in 2016 as companies continued to cut spending, and conventional oil projects sanctioned were at the lowest level in more than 70 years, according to the International Energy Agency, which warned that both trends could continue this year.

Oil discoveries declined to 2.4 billion barrels in 2016, compared with an average of 9 billion barrels per year over the past 15 years. Meanwhile, the volume of conventional resources sanctioned for development last year fell to 4.7 billion barrels, 30 percent lower than the previous year as the number of projects that received a final investment decision dropped to the lowest level since the 1940s.

This sharp slowdown in activity in the conventional oil sector was the result of reduced investment spending driven by low oil prices.

The slump in the conventional oil sector contrasts with the resilience of the U.S. shale industry. There, investment rebounded sharply and output rose, on the back of production costs being reduced by 50 percent since 2014. This growth in U.S. shale production has become a fundamental factor in balancing low activity in the conventional oil industry.

With global demand expected to grow by 1.2 mb/d a year in the next five years, the IEA has repeatedly warned that an extended period of sharply lower oil investment could lead to a tightening in supplies. Exploration spending is expected to fall again in 2017 for the third year in a row to less than half 2014 levels, resulting in another year of low discoveries. The level of new sanctioned projects so far in 2017 remains depressed.

“Every new piece of evidence points to a two-speed oil market, with new activity at a historic low on the conventional side contrasted by remarkable growth in U.S. shale production,” says Fatih Birol, the IEA’s executive director. “The key question for the future of the oil market is for how long can a surge in U.S. shale supplies make up for the slow pace of growth elsewhere in the oil sector.”

The U.S. shale industry has lowered its costs to such an extent that in many cases it is now more competitive than conventional projects. The average break-even price in the Permian basin in Texas, for example, is now at $40 to $45 per barrel. Liquids production from U.S. shale plays is expected to expand by 2.3 mb/d by 2022 at current prices, and expand even more if prices rise further.

Mike Consol (m.consol@irei.com) is editor of Real Assets Adviser.