According to the International Energy Forum (IEF), oil and gas upstream investment will need to increase and be sustained at pre-COVID levels of $525 billion into the 2030s in order to maintain market balance despite slower demand growth.
This is contained in an IEF report obtained by the News Agency of Nigeria (NAN) on Tuesday at the World Petroleum Congress being held in Houston, Texas, and signed by Mr Joseph McMonigle, Secretary General.
According to the estimate, upstream investment in the oil and gas sector would be $341 billion in 2021, representing an almost 25% decline from the previous year.
The decision by several countries also highlighted widespread concerns about the stability of global energy markets in the aftermath of the COVID-19 pandemic, according to the report. Several countries, notably the United States, Japan, and India, have agreed to release strategic petroleum reserves in order to keep oil prices low.
“This winter’s energy crisis in Europe and Asia is a preview of what we can expect in the coming years.” Years after years of large and abrupt underinvestment in oil and gas development are a recipe for higher prices and volatility later this decade.
“Meanwhile, oil and gas demand has returned to pre-pandemic levels and is expected to rise further in the coming years, particularly in developing countries.”
“The investment environment for the oil and gas sector is becoming more difficult in the face of unprecedented uncertainty and risks, including record price volatility, evolving government regulations, increasingly diverging long-term demand narratives, and non-standardised Environmental, Social, and Governance (ESG) criteria,” according to the report.
McMonigle stated that the recent six-year low price cycle, as well as long-term demand debates, had raised investment hurdles and the cost of capital for long-cycle oil projects.
He claimed that this was creating a climate of “pre-emptive underinvestment” in oil and gas supply, with investments lagging behind robust demand.
According to the secretary-general, the next two years (2022-2023) are critical for sanctioning and allocating capital to new projects in order to ensure adequate oil and gas supply is available within the next five to six years.
According to him, operators will continue to favor projects that have access to existing infrastructure because they require less capital, have shorter payback periods, and are more insulated from long-term demand risks.
“Fear of a mismatch between demand and future supply may begin to manifest in this time frame.”
“The role of unconventional US production (shale oil) in the global supply mix is changing, bringing traditional investment trends to the fore.”
“The rapid growth in US production both masked and amplified the impact of lower investment in conventional production prior to 2020.”
“While unconventional resources will continue to be an important component of new oil and gas supply over the next decade, industry consolidation and more balanced spending behavior will structurally limit the United States’ supply response, compared to the tremendous growth over the last decade.”
“Transparent and standardized greenhouse gas emissions data are critical as sustainability becomes more important in strategic planning and financing.”
“Data on emissions could be critical for future investment during the energy transition.” Projects with low breakeven prices, carbon and methane intensities will be preferred over projects with less favorable characteristics,” he said.
According to McMonigle, “inadequate upstream investment would result in increased price volatility and adverse economic consequences.”
“Increased price volatility would undercut the prospects for the inclusive and long-term economic recovery that producers, consumers, and governments all desire.”
“It would also make policy decisions during the energy transition more difficult.” Concerns about lower future investment can cause prices to rise.
“Delayed investment decisions and a greater reliance on short-cycle production raise uncertainty about the source of future output.”
“Increased uncertainty about future supply security can add a premium to prices,” he explained.
The International Energy Agency (IEA) is the world’s largest international organization of energy ministers from 71 countries, including both producing and consuming countries.
The International Energy Agency (IEA) has a broad mandate to investigate all energy issues, including oil and gas, clean and renewable energy, sustainability, energy transitions and new technologies, data transparency, and energy access.
Officials, industry executives, and other experts participate in a dialogue of increasing importance to global energy security and sustainability through the forum and its associated events.
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