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Global Oil And Gas Upstream Investment Hits Highest Since 2014

Global oil and gas upstream investments in 2022 rose by 39 percent from the previous year to $499 billion, the highest level since 2014, due to high costs, says a report by the International Energy Forum (IEF) and S&P Global Commodity Insights.

According to the report, drilling remained below pre-pandemic levels last year as inflation ate away at the spending. The number of drilling rigs rose by 22 percent in 2022, but this was still 10 percent below 2019 levels.

It also said 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 natural gas shortages.

According to the report, the industry has significantly improved capital efficiency over the past decade. Still, a high-cost environment means the sector will need even more investment than previously expected to ensure adequate supplies.

“Increased spending reflects both increased costs and increased activity. Cost inflation was up 15-20 percent year-on-year in 2022, with more expected in 2023,” the report said.

“While the global rig count is up 22 percent year-on-year, it is still 10 percent below 2019 levels.”

In 2022, the report said that nearly 2.2 million barrels per day (bpd) of new capacity were approved or sanctioned – falling short of 2019’s high.

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“In line with pre-pandemic trends, companies still favour small, modular, or phased projects over megaprojects (a single large-scale project with peak production of more than 500,000 bpd with new infrastructure),” the report said.

“Notably, no new greenfield megaprojects are planned in the next five years despite higher prices. In contrast, almost 250 small- to medium-scale projects will begin by 2030, assuming companies move forward with the investment.”

The report added that annual upstream investment will need to increase from $499 billion in 2022 to $640 billion in 2030 to ensure adequate supplies.

“This estimate for 2030 is 18 percent higher than we assessed a year ago primarily because of rising costs,” it said.

“A cumulative $4.9 trillion will be needed between 2023 and 2030 to meet market needs and prevent a supply shortfall, even if demand growth slows toward a plateau.”

According to the report, new challenges and hurdles have emerged in the past year that is no less difficult than the obstacles we highlighted in December 2021.

“While oil prices ended 2022 at nearly the same level as the end of 2021, the world is different. There is much more capital available for the upstream industry, but also acute short-term uncertainty,” it said.

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“More than anything else, 2022 may have marked the end of the era of perceived energy abundance and the restoration of energy security. In this new energy world, investment plays a critical role.”

Whereas the challenge through most of 2015-2021 was mainly prioritising limited capital in a low commodity price environment, the challenge for investors in 2022 and beyond consists of allocating excess capital in a high(er) commodity price environment, the report said.

It said: “Seven of the largest global International Oil Companies (IOCs) reported free cash flow deficits yearly except one between 2013 and 2020. The aggregate net free cash flow for the same group of IOCs between 2000 and 2020 equalled a deficit of $104 billion, but record profits have erased those deficits in the past two years.

“Major IOCs saw a record $97 billion surplus in 2021 that grew to an estimated $173 billion surplus in 2022. The surplus in 2022 is more than three times greater than the largest annual surplus experienced in 20 years between 2000 and 2020.”

Source: businessday

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