Friday, May 20, 2022

Analysis show US$525 billion in upstream investments will be needed annually this decade

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Even as the momentum surrounding de-carbonization continues to increase, a recent industry analysis by IHS Markit and the International Energy Forum (IEF) has concluded that demand for fossil fuels is nearing pre-pandemic levels, as such, US$525 billion would be needed annually through 2030 in the upstream sector so as to meet this need.

The report notes that upstream investment in the oil and gas sector in 2021 was depressed for a second consecutive year at US$341 billion – nearly 25% below 2019 levels. The document was careful to point out that oil and gas demand is now near pre-pandemic highs and will continue to rise for the next several years, particularly in developing countries. In light of this growing appetite for oil, the report says the global energy transition needs to be careful and strategic.

Furthermore, the IEF and IHS Markit analysis shows that oil and gas upstream CapEx needs to recover to nearly US$525 billion per year by 2030 which is more than a 50% increase over 2021 levels – simply to meet expected demand. While there are enough known low-cost oil and gas reserves and projects to meet demand over the next decade, the analysis said the primary uncertainty remains whether companies will or can commit sufficient investment to sanction the necessary projects.

Additionally, the analysis states that the next two years (2022-2023) are critical for sanctioning and allocating capital toward new projects to ensure adequate oil and gas supply comes online within the next 5-6 years. “Operators will continue to favour projects with access to existing infrastructure as these require 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 materialize in this time frame,” the report stated.

IHS Markit for years has been regarded as a global leader in information, analytics, and solutions for the major industries and markets that drive economies worldwide. It partners with clients in business, finance, and government to help them see the big picture with unrivaled insights that lead to well-informed, confident decisions and currently serves more than 50,000 key customers in over 140 countries, including 85 percent of the Fortune Global 500.

As for the International Energy Forum, it is the world’s largest international organization of energy ministers from 71 countries and includes both producing and consuming nations. It 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.

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