Up to $4.9 trillion worth of global upstream oil and gas investments will be needed by 2030 to ensure sustained supplies and prevent an energy crisis in the coming years, according to a report by the International Energy Forum and S&P Global Commodity Insights.
The massive investment will be needed “to meet market needs and prevent a supply shortfall, even if demand growth slows towards a plateau”, the report said.
The IEF said that global oil and gas upstream capital expenditure increased by 39% in 2022 to $499 billion, the highest level since 2014 and the largest year-on-year gain in history.
“Higher costs primarily drive the increase in investment, but activity has also started to recover. The global rig count is up 22% from a year ago but remains 10% below 2019 levels,” it said.
The report claimed annual upstream spending “will need to increase from $499 billion in 2022 to $640 billion in 2030 to ensure adequate supplies”.
“This estimate for 2030 is 18% higher than we assessed a year ago primarily because of rising costs,” the IEF said.
Underinvestment in the oil and gas sector “threatens to undermine energy security in the short and medium term”, it added.
Middle East spending
Middle East state-owned giants including Abu Dhabi National Oil Company (Adnoc), Saudi Aramco and QatarEnergy are greatly expanding their oil and gas production capabilities.
However, several leading Western energy companies have yet to commit to similar upstream investments and capacity enhancement projects by the end of this decade.
Aramco chief executive Amin Nasser has on several occasions called for European and US-based energy majors to aggressively scale up oil and gas investments, while committing to a realistic energy transition.
Adnoc plans to spend up to $150 billion on capital expenditure in the next five years, as it prepares to bring forward its 5 million barrels per day of oil production capacity target to 2027, on the back of improved market fundamentals.
Similarly, Aramco is also pumping in billions of dollars to increase the production capacity of some of its largest oilfields.
While the report calls for higher upstream investments, it also warned that “near-term economic headwinds weigh heavily on markets and investors”.
“If the world enters a recession in 2023, depending on the duration and depth, it is possible that oil demand growth could remain below trend in the next couple of years, potentially extending the post-pandemic demand stall to five years,” the report said.
It noted that the “near-term uncertainty of demand and the potential medium-to-long-term consequences add to investment hurdles and deterrents”.
However, it also provides a valuable opportunity for upstream investments to catch supply up with demand, the report added.
The report also hinted at enormous uncertainty concerning the extent of Russian production losses.
“This decade’s need for investment and new upstream projects will depend on how much Russia produces and invests,” it said.
The report assumes Russian production will decline by 1.1 million bpd in 2023 to 9.4 million bpd and then plateau at this level throughout the rest of the decade.