It has come to light that almost $4.9 trillion worth of upstream investment in oil and gas will be required by 2030 so as to ensure sustained supplies as well as prevent an energy crisis in the upcoming years, as per a report rolled out by the International Energy Forum as well as S&P Global Commodity Insights.
As per the report, a massive investment is the need of the hour to meet up with the market’s needs and at the same time prevent a shortfall in supply. This is even in case the demand growth slows towards a plateau.
The International Energy Forum said that global oil as well gas upstream capital expenses surged by 39% last year to $499 billion. This was the highest level since 2014 and also the largest year-on-year gain, which in all terms was historic.
The IEF said that it is the higher costs that essentially drive the investment increase; however, activity has also begun to recover. The global rig count happens to be 22% higher than it was a year ago, but at the same time is still below 10% on the 2019 levels. The report also went on to claim that annual upstream spending will have to increase from the 2022 levels of $499 billion to $640 billion by 2030 so as to ensure proper and adequate supplies. The estimate for 2030 happens to be 18% higher as compared to what was assessed last year, mainly due to the rising cost.
The report added that underinvestment in oil and gas vertical also threatens to dwarf the energy security in the short as well as medium term.
The state-owned giants from the Middle East are expanding their oil and gas production capacities. That said, several leading western energy firms are yet to commit to similar investments in upstream as well as capacity enhancement projects by the decade’s end.
One of the chief executives of a state-owned major has on many occasions asked for US as well as Europe-based energy giants to scale up oil and gas investments while also committing themselves to a real energy transition. Apart from this, one of the oil majors is planning for a $150 billion spend in the next five years as it looks to bring forward a 5-million-barrel oil production capacity goal on the back of enhanced market fundamentals.
There is yet another oil major that is investing billions of dollars to elevate the production capacity of some of its largest oil fields.
While the report asks for further upstream investments, it also warns that near-term economic headwinds weigh heavily on investors as well as markets. The report adds that if the world steps into recession this year, depending on depth and duration, it may very well be possible that the growth in oil demand could remain very well below the trend in the next 2 years, thereby extending the post pandemic demand stagnation to 5 years.
The report has also gone on to hint at a massive amount of uncertainty involving the Russian losses in production. It remarks that this decade’s need for new upstream projects as well as investments will depend upon how much Russia invests and also produces. It is estimated, as per the report, that Russian production will dip by 1.1 million bpd this year, to a whopping 9.4 million bpd.