Why oil needs more investments
PARIS — The lack of investment in new oil projects risks creating a new market upheaval in several years, the International Energy Agency (IEA) warned on Wednesday.
“We estimate that, if new project approvals remain low for a third year in a row in 2017, then it becomes increasingly unlikely that demand... and supply can be matched in the early 2020s without the start of a new boom/bust cycle for the industry,” the IEA said in its annual World Energy Outlook report.
The oil market has been plagued for the past couple of years by oversupply, with the price of a barrel of oil plunging from over $100 (€933) in mid-2014 to under $30 at the beginning of this year.
As a result, oil companies have slashed investment into new projects. After peaking at $780 billion in 2014, investment in exploration and production dropped by $200 billion last year, and should drop by another $140 billion this year, according to the IEA.
It said in 2015 the approval of the development of new conventional crude projects was the lowest since the 1950s.
As it takes between three and six years to get new conventional oil fields producing, without a rebound in investment there is a risk of a mismatch between supply and demand, the IEA said.
The IEA estimates that $700 billion per year in investments in exploration and production are needed per year, and $80 per barrel the price to balance supply and demand of oil in 2020. Brent crude was trading around $46 per barrel on Tuesday. The Opec group made a similar warning last week.
“While the recent oil market environment has been one of oversupply, it is vital that the industry ensures that a lack of investments today does not lead to a shortage of supply in the future,” the group said in its annual report on longterm market trends.
Both the IEA and Opec see demand for oil continuing to grow through 2040.
The IEA expects global oil consumption to peak no sooner than 2040, leaving its long-term forecasts for supply and demand unchanged despite the 2015 Paris Climate Change Agreement entering into force. — AFP/Reuters
algiers — A number of energy ministers from Opec oil-producing countries are likely to meet informally in Doha on Friday to try to build consensus over decisions taken by the full group in September in Algiers, an Algerian energy source said.
At the September meeting, Opec agreed on modest, preliminary, oil output cuts in the first such deal since 2008, with special conditions given to Libya, Nigeria and Iran, whose output has been hit by wars and sanctions.
Doha this week is hosting a meeting of the Gas Exporting Countries Forum (GECF). Industry sources said on Tuesday that the Saudi Arabian and Russian energy ministers might meet on the sidelines of the forum.
The GECF unites 12 countries, including Russia and Opec members Algeria and Iran. Saudi Arabia is not a member but Energy Minister Khalid Al Falih was due to travel to Doha this week for meetings with peers.
Al Falih was expected to meet other energy ministers from Opec and possibly Russia’s Energy Minister Alexander Novak on Friday, the sources said.
It was not immediately clear whether Al Falih would meet Iranian Oil Minister Bijan Zanganeh, the sources said, as there was no confirmation from Tehran yet on whether Zanganeh would attend the gas forum.
The agreement made in Algiers is expected to be finalised at the next meeting of the Organisation of the Petroleum Exporting Countries on November 30 in Vienna, but disagreements persist among Opec members and non-Opec Russia on the details of the deal.
Iran, which remains one of the main stumbling blocks to a final deal, has refused to cap production below four million barrels per day as it seeks to regain market share lost under sanctions. Tehran said it pumped 3.92 million bpd in October.
Iraq has also signalled it wanted its production to be calculated according to its own estimates and not the estimates of Opec.
Russia has said it prefers to freeze output while Opec wants Moscow to contribute to cuts.
Oil prices have fallen towards $45 per barrel from over $53 per barrel in recent weeks after experts, including the International Energy Agency, said a failure by Opec to reach a deal would mean the market might remain oversupplied for the whole of 2017.