Global oil and gas development expenditure needs to increase by around 20 percent to meet future demand growth to ensure companies sustain production over the next decade, Wood Mackenzie said Wednesday.
The energy and natural resource consultancy's upstream oil and gas director Malcolm Dickson said that companies would need to start investing again to sustain their businesses. "But decision-making will be fraught with uncertainties, the oil price and energy transition not least among them," Dickson said in a written statement.
Wood Mackenzie’s research shows the recovery is much slower and shallower than in previous cycles.
According to the research, development spend will increase 5 percent this year, after a 2 percent rise in 2017.
"Investment rises from a low of $460 billion in 2016 to just over $500 billion in the early 2020s - far below the $750 billion peak in 2014," it said.
Tom Ellacott, senior vice president of corporate research at Wood Mackenzie, added that four years of deep capital rationing had had a severe impact on resource renewal, especially in the conventional sector.
"Companies are rightly cherry-picking the best conventional projects in their portfolios for greenfield development. But not enough new high-quality projects are entering the funnel to replace those that have left," he said.
- What's needed to kick-start a new investment cycle?
Wood Mackenzie calculated that annual development spend would need to increase to around $600 billion to meet future demand for oil and gas throughout the next decade. "Many companies will justifiably be concerned about committing substantial capital to long-term projects with peak oil demand and energy transition risks within the investment horizon," Ellacott said.
According to the research, bigger and better conventional projects will ultimately be required.
"Around half of the reserves in our pre-FID [Final investment decision] project dataset need oil prices above $60 per barrel to achieve a 15 percent return - in this disciplined world many companies are screening new projects on long-term oil prices well below spot.
"Further progress in project re-scoping, digitalization and better fiscal terms will all need to play their part in getting these projects over the line," Mackenzie concluded.
(Anadolu Agency)
