Annual upstream oil and gas investment needs to rise by 28 per cent to reach $640 billion by 2030 to ensure adequate global supplies, according to a new report published by the International Energy Forum (IEF) and S&P Global Commodity Insights, the leading independent provider of information, analysis and benchmark prices for the commodities and energy markets.
Capital expenditure in 2022 rose by 39 per cent from the previous year to $499 billion, the highest level since 2014, but drilling remained below pre-pandemic levels as inflation ate away at the spending, stated the report.
The number of drilling rigs rose by 22 per cent in 2022, but this was still 10 per cent below 2019 levels, it added.
Joseph McMonigle, Secretary General of the IEF, said: "While we ramp up investment in renewables and pursue the energy transition, we also need to lift investment in oil and gas to support the global economy, and protect the quality of life for everyone."
The recovery in 2022 marked a change from the previous two years, when capital expenditure slumped with the Covid-19 pandemic contributing to a tightening of global energy markets, price spikes and shortages of natural gas, noted McMonigle.
"The global economy continues to need adequate and reasonably priced hydrocarbon supply alongside the scaling up of renewables and low-carbon technologies," said Daniel Yergin, Vice Chairman of S&P Global.
"The energy future must be secure and affordable, as well as sustainable. Adequate investment that avoids shortages and prices spikes, and the economic hardship and social turbulence that they bring, is essential to that future," he added.
According to the report, cumulative $4.9 trillion will be needed from now until 2030 to meet market needs, even if the growth in oil and gas demand slows down.
"As we saw last year, high energy prices and volatility have disastrous effects on households all over the world, hitting the poorest people the hardest. Underinvestment in oil and gas threatens energy security and stalls progress on climate goals by increasing reliance on more carbon-intensive options," remarked McMonigle.
If consumer countries wish to support markets they would need to send clear signals about future demand, build and maintain sufficient inventories, support long-term offtake contracts, and prevent prohibitive policies, he noted.
Meanwhile, the report stated that producers can support markets by promoting investment.
Operators need a certain level of assurance and fiscal certainty to invest in capital-intensive, long-cycle projects. They will be increasingly constrained in committing capital, or will require higher returns to do so, as risks evolve.
Future supply must clear an acceptable hurdle rate that accounts for policy uncertainty, variable oil and gas prices, and, increasingly, carbon price assumptions, it stated.
Additionally, governments should base policies on realistic energy demand outlooks and to ensure adequate and affordable energy supplies during the transition, said the report.
The IEF-S&P report pointed out that the governments need to ensure assumptions do not underestimate energy demand growth coming from the 80 per cent of the global population in the developing world.
McMonigle said: "We don't yet have viable alternatives to oil and gas to power heavy industry, food production or plastics. So, the transition to a carbon neutral economy is challenging and will take time and innovation."
"Even as we invest in new technologies to cut greenhouse gas emissions, we also need to invest in oil and gas during the transition," he added.
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