Oil Updates – Prices are steady as investors gauge the extension of OPEC+ production cuts

RIYADH: The oil and gas industry will need a cumulative investment of $4.3 trillion from 2025 to 2030 to meet growing demand and maintain market stability, according to an analysis.

In its latest report, the International Energy Forum said the growing capital spending needs are based on an outlook that sees oil demand grow from 103 million barrels per day in 2023 to 110 million bpd in 2030.

“More investment in new oil and gas supplies is needed to meet growing demand and maintain the stability of the energy market, which is the foundation of global economic and social well-being,” said Joseph McMonigle, IEF Secretary General.

He added: “Well-supplied and stable energy markets are essential to making climate progress, because the alternative is high prices and volatility, which undermines public support for the transition, as we have seen over the past two years.”

An insight into global upstream oil and gas capital

Global capital spending on upstream oil and gas is expected to grow by $24 billion this year, surpassing $600 billion for the first time in a decade, according to the report.

The IEF pointed out that annual investment needs to increase by another $135 billion, or 22 percent, to $738 billion by 2030 to ensure adequate supply.

“This 2030 estimate is 15% higher than we assessed one year ago and 41% higher than assessed two years ago, mainly due to rising costs and a stronger demand outlook,” it said energy reflection group in the report, which was published in association. with S&P Global.

Roger Diwan, vice president at S&P Global Commodity Insights, said expected production declines and future demand growth will require existing cash flows to be reinvested even as the transition unfolds.

According to the energy think tank, North America and Latin America will dominate projected growth in upstream capital spending between now and 2030, with more than 60% of total global investment set to take place in the region.

“While North America is expected to be the largest driver of investment growth through 2030, Latin America will continue to play an increasingly important role in increasing non-OPEC (Organization of the Petroleum Exporting Countries) supply , especially for conventional crude oil, with planned expansions. for Brazil and Guyana,” the IEF said.

It added: “About 2.2 million bpd in new or expanded conventional projects have been approved and are expected to be produced in Latin America by 2030 – this is more than a third of the total 6 million bpd that has been sanctioned globally”.

The report also noted significant uncertainty regarding the trajectory of global oil and gas demand and the pace of the energy transition to net zero carbon dioxide emissions.

“Consensus-leading organizations’ baseline forecasts differ by as much as 7 million bpd for 2030, and this gap widens to 27 million bpd when more ambitious climate scenarios are included,” the energy think tank said.

Increased investment supports the energy transition

According to the IEF, increased capital spending on upstream oil and gas could support the energy transition and ensure energy security.

“A just, orderly and equitable energy transition requires a foundation of energy security. The past two years have demonstrated the consequences of messy transitions: price shocks, shortages, disruptions, political backlash, bitter divisions and conflicts,” the report said.

He added: “Ensuring adequate levels of investment can help ensure stability and enable a just transition. But it will require the market to remain nimble and flexible to overcome potential obstacles and adapt to new realities.”

However, the IEF pointed out that global conventional crude oil production would fall by more than 20% by 2035 without additional drilling.

The energy think tank added that investments in the oil and gas sector made this decade will impact production levels into the next decade and beyond.

“Continued upstream investment is needed to first offset expected production declines and then meet future demand growth. Without additional drilling, we estimate that non-OPEC conventional production would fall by 9 million bpd by 2030 and 14 million bpd by 2035,” the IEF said.

It added: “The rates of decline for unconventional crude, including US shale, are significantly steeper and are set to decline by more than 80% over the next decade.”

The analysis also showed that oil and gas companies around the world have increased their spending to reduce carbon dioxide emissions.

“The upstream sector accounts for approximately 60% of the oil and gas industry’s greenhouse gas emissions. Companies are increasingly focused on reducing Scope 1 and 2 emissions in their upstream operations to meet regulatory requirements, investor expectations and environmental objectives,” the report said.

Scope 1 emissions are “direct emissions” from sources owned or controlled by the company, while Scope 2 denotes emissions released into the atmosphere from the use of purchased energy.

These are also known as indirect emissions because they are generated in another facility, such as a power plant.

Increased focus on upstream decarbonisation also contributed to the upwardly revised investment forecast, according to the report.

The IEF also pointed out that energy companies’ strong profits over the past two years have helped them invest in capital expenditures directly from operating cash flow, ultimately reducing reliance on debt financing.

“This is a notable change from the COVID and pre-COVID years, when the main constraint on investment was the availability of capital due to poor cash flow, reliance on external capital and low investor appetite,” the statement added.

In an additional report published in May, the IEF said that to meet widespread electric vehicle goals, the world needs to mine more than double the amount of copper ever mined in human history.

The analysis showed that the electrification of the global vehicle fleet would require the opening of 55% more copper mines by 2035 – and this expansion must be encouraged by governments.