Persistent claims of chronic underinvestment in the global oil and gas industry are exaggerated, according to Rystad Energy.
In a statement sent to Rigzone this week, Rystad said investments in the upstream sector have fallen since spending peaked at $887 billion in 2014, “with about $580 billion expected to be invested this year”.
“As a result, many market participants predict that this trend will continue and lead to chronic underinvestment and oil supply shortages in the coming years,” Rystad said in the statement.
“However, our modeling and analysis tell a different story. Lower unit prices, efficiency gains, productivity gains and evolving portfolio strategies have significantly increased the efficiency of the upstream industry,” the company added.
“In other words, the industry can do the same as before, but at a much lower cost. Although investments have been reduced, activity and production remain healthy and on par with the levels seen between 2010 and 2014,” continued Rystad.
In the statement, Espen Erlingsen, Rystad Energy’s head of upstream research, said: “Contrary to popular opinion, the world is putting adequate amounts of money into fossil fuel production to meet demand.”
“Cost savings mean operators can produce the same amount of oil at a lower cost, and we don’t foresee an oil supply crisis due to underinvestment in the immediate horizon,” Erlingsen added.
According to a chart included in the statement, which extended from 2010 to 2025, global upstream investments are expected to remain around $580 billion both next year and the year after. The lowest year of global investment came in 2020, at just under $400 billion, the chart shows. Global investments amount to about $600 billion in 2010, more than $800 billion in 2012, about $500 billion in 2016 and less than $600 billion in 2018, according to the chart.
“Global upstream investments peaked at nearly $900 billion in 2014 before falling to around $500 billion two years later following the 2015 oil price collapse,” Rystad noted in the communicated
“There was another drop in 2020 as investment fell to $400 billion due to the Covid-19 pandemic and the resulting drop in oil prices. Spending recovered in the year passed to $500 billion as oil and gas activity recovered,” the company added.
“Despite this pick-up, investments in 2022 reached only 60% of 2014 levels, so it might be easy to assume that upstream activity has declined by 40% since 2014,” the company continued.
Rystad went on to note, however, that this conclusion is “hasty and does not take into account falling unit prices and efficiency gains.”
“New resources will exceed total annual production until at least 2025, demonstrating the positive trajectory of the global oil industry and supporting our conclusion that an investment-driven supply shortage is unlikely in the near term,” Rystad said in the statement.
On May 30, during the 139th meeting of the OPEC Economic Commission Board (ECB), OPEC Secretary General Haitham Al Ghais said that “low investment has resulted in the reduction of excess capacity, production constraints and reduced refinery output at a time when demand for crude oil and petroleum products continues to rise,” OPEC said in a statement published on its website.
“All industry policymakers and stakeholders need to work together to ensure a long-term investment-friendly climate, with sufficient funding available. One that works for producers and consumers, and developed and developing countries,” Al Ghais added, according to the statement.
OPEC describes the ECB as its economic and technical think tank. The organization meets twice a year before the regular biannual OPEC conference meetings, and the council regularly reviews market conditions and developments in the global economy, OPEC notes on its site.
In a statement published on the OPEC site in October 2022, which accompanied the release of the OPEC World Oil Outlook 2022 and included the report’s highlights, OPEC state that the global oil sector will need a cumulative investment of $12.1 trillion upstream, midstream and downstream. by 2045, “equivalent to more than $500 billion each year.”
“Recent annual investment levels have been significantly below this due to industry downturns, the pandemic and increased attention to environmental, social and governance (ESG) issues,” said the OPEC in the statement.
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