A huge drop in investment in the energy industry since mid-2014, when crude prices started falling, may lead to a short supply in oil within three to four years, hampering global economic growth.
Since mid-2014, it is estimated that $380bn of investment has been deferred in the oil and gas sector projects.
And according to HE the Minister of Energy and Industry, Dr Mohamed bin Saleh al-Sada, the current Opec president, 2015 alone would have seen a drop in investment to the tune of $130bn.
The impact of the substantial drop in investment is already beginning to be seen in a drop in drilling rigs worldwide, both conventional and non-conventional, especially the US. It is bound to manifest itself down the road, while world demand is increasing annually.
In 2015, it was reported that some 24 US oil and gas companies went bankrupt and sought Chapter 11 protection. That was while Brent oil averaged $52.
With prices further going down it is feared that the hardship on oil and gas companies and bankruptcy will get further aggravated. Since the beginning of 2016, the oil price had fallen about 18%.
In its recent energy outlook, ExxonMobil said the global demand for energy will rise by 25% between 2014 and 2040.
In this time frame, the energy major expects oil, natural gas and coal to continue to meet about 80% of global demand.
The biggest expected growth will be in natural gas, which provides a practical energy solution for many applications while also providing a significant cost advantage versus other options to help reduce climate change risks.
Renewable energy and nuclear power also are expected to see significant growth over this period, together accounting for about two-thirds of the increase in energy demand for power generation.
Policies to address greenhouse gas (GHG) emissions will increasingly influence the energy landscape. In ExxonMobil’s view, after rising more than 50% from 1990 to 2014, global energy-related CO2 emissions will likely peak around 2030.
For global economic growth, uninterrupted energy supply is absolutely essential. To ensure steady supply, facilities worth billions of dollars will have to be created- from upstream production to refining and marketing.
With oil prices remaining at the current low and unsustainable levels, it is only expected that energy-rich countries and companies will shy away from investments.
It was in this context that al-Sada emphasised that the cut in capital expenditure (capex) was likely to go up if oil price remained in the current range.
Many industry captains believe that oil price may start climbing in 2018 on the back of shutdown of many production facilities and erosion of global oversupply.
Recently, Oxy president and chief operating officer Vicki A Hollub told Gulf Times that she expected an “adjustment” and that supply would be more in line with demand in two years, because of the low level of investments in the industry and cancellation or postponement of many projects around the world.
So it may not be too long before oil again turns into a new bull market.
Prashanth
