Oil and gas investments need to rise to $525bln every year until 2030 to meet demand – IEF official

Oil and gas investments would need to increase to and sustain at the pre-COVID level till 2030 just to meet demand, a top official of the International Energy Forum (IEF) said.

Secretary General Joseph McMonigle said IEF’s 2020 and 2021 investment reports, and recent mid-year assessment had highlighted the underinvestment crisis vis-à-vis pre-COVID levels.

“We think investment needs to rise to about $525 billion every year until 2030 just to meet demand,” he said during a virtual interview with energy consultancy Gulf Intelligence.

He said capex cuts in 2020 and 2021 were about 25 percent each, and data indicates that 2022 could be the third year in a row of underinvestment compared to pre-pandemic levels.

According to the IEF official, while initial capex reductions were spurred by the demand collapse induced by pandemic lockdowns, the trend has persisted due to supply chain issues, and labour shortages. In recent months, the Russia-Ukraine conflict, global inflation and policy uncertainty have compounded the crisis.

McMonigle noted that companies in the Final Investment Decision [FID] stage would have to take inflation into account and even revisit previous FIDs.

“Even before the current year, the capital costs for hydrocarbons were much higher than other types of projects, and I think that is just increasing,” he said.

The downstream sector has felt the impact of underinvestment the most with policy confusion and decarbonisation contributing to a growing refining capacity deficit.

Capex hesitancy

Though oil companies have reported record profits in the previous two quarters, in the case of public companies, policy uncertainty coupled with investor pressures to maintain capital discipline, and pressures on ESG and transition have resulted in a reluctance to increase capex.

“If we want see a change here, we need to bring the investor community into the conversation,” said McMonigle, adding that investors too have started to realise the importance of energy security.

There is no replacement for hydrocarbons in energy transition, the IEF official said.

“[although] demand plunged by a record 8 to 10 million barrels per day (bpd) during COVID, the world still used 90 million bpd when we were in a global economic lockdown, which shows how prevalent hydrocarbons are to the global economy.”

“Curbing investment and supply ahead of demand will only result in higher prices and volatility,” he said, cautioning that prices could go higher than the current levels in the second half of 2022.

“Earlier this year, I had suggested that we could see $150 a barrel and I think that's still possible,” he said.

Until Russian supplies are normalised in the global market or energy demand reduces due to a global recession, which nobody wants, the world will have to live with high prices and volatility, McMonigle concluded.

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