The International Energy Forum (IEF) says oil and gas upstream investment will need to increased and be sustained at near pre-COVID level of 525 billion dollars through 2030s to ensure market balance despite slowing demand growth.
This is contains in an IEF report obtained by the News Agency of Nigeria (NAN) on Tuesday at the ongoing World Petroleum Congress in Houston, Texas, signed by the Secretary General, Mr. Joseph McMonigle.
According to the report the upstream investment in the oil and gas sector in 2021 is depressed for a second consecutive year at 341 billion dollars, nearly 25 per cent below 2019 level.
The report also said that underline widespread concerns about the stability of global energy markets in the wake of the COVID-19 pandemic followed a decision by several countries. including the US, Japan and India to release strategic petroleum reserves to cool prices.
“The energy crisis in Europe and Asia this winter is a preview of what we can expect in the years ahead. The years, in a row of large and abrupt underinvestment in the oil and gas development, is a recipe for higher prices and volatility later this decade.
“Meanwhile, the oil and gas demand is now near pre-pandemic highs and will continue to rise for the next several years, particularly in developing countries.
“The investment environment for the oil and gas sector is becoming more challenging 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, ” the report said.
McMonigle said that lower price cycle of the past six years and long term demand debates had driven up investment hurdles and the cost of capital for long-cycle oil projects.
He said this was fostering an environment of “pre-emptive underinvestment” for oil and gas supply, where investments are lagging behind robust demand.
According to the secretary-general the next two years (2022-2023) are critical for sanctioning and allocating capital toward new projects to ensure that adequate oil and gas supply comes online within the next five to six years.
He said operators would continue to favour projects with access to existing infrastructure as these required less capital, have shorter payback periods and are more insulated from long term demand risks.
“Fear of a mismatch between demand and future supply could start to materialise in this time frame.
“The role of US unconventional production (shale oil) in the global supply mix is evolving, bringing conventional investment trends back to the fore.
“The swift growth in US production both masked the impact of pre-2020 lower investment in conventional production and amplified it post-2020.
“While the unconventional resource will remain an important component of new oil and gas supply through the next decade, consolidation of the industry and more balanced spending behaviour will structurally limit US’s supply response, compared to the tremendous growth over the past decade.
“Transparent and standardised greenhouse gas emissions data is essential as sustainability plays an increasingly important role in strategic planning and financing.
“Emissions data could be key for future investment during the energy transition. Projects with low breakeven prices, carbon, and methane intensities will be preferred over projects with less favourable attributes,” he said.
McMonigle said: “Insufficient upstream investment would result in more price volatility and spur adverse economic consequences.
“Increased price volatility would weaken the prospects for the inclusive and sustainable economic recovery that producers, consumers, and governments all want.
“It would also complicate policy choices during the energy transition. Concerns about lower future investment can inflate prices.
“Delayed investment decisions and the increased reliance on short cycle production increase the uncertainty surrounding the source of the future output.
“Increased uncertainty around future security of supply can add a premium to prices, ” he added.
The IEF is the world’s largest international organisation of energy ministers from 71 countries, including both producing and consuming nations.
The IEF has a broad mandate to examine all energy issues, including oil and gas, clean and renewable energy, sustainability, energy transitions and new technologies, data transparency and energy access.
Through the forum and its associated events, officials, industry executives, and other experts engage in a dialogue of increasing importance to global energy security and sustainability.