UPSTREAM NEEDS INVESTMENT

OGJ - Spending on worldwide oil and gas developments needs to increase by about 20% to meet future demand growth and ensure companies sustain production over the next decade, according to recent research from Wood Mackenzie.

"Companies will need to start investing again to sustain their business. But decision-making will be fraught with uncertainties, the oil price and energy transition not least among them," said Malcolm Dickson, director, upstream oil and gas.

WoodMac's research shows that recovery will be much slower and shallower than in previous cycles. Development spending will increase 5% this year, after a 2% 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.

Tom Ellacott, senior vice-president, corporate research, said, "Four years of deep capital rationing have 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."

As a result, conventional growth inventories have shrunk during the downturn. Global pre-financial investment decision conventional reserves now only cover 2 years of global oil and gas production. While there is a new wave of big LNG projects coming, investment in conventional, deepwater, US shale gas, and oil sands will be well below pre-downturn levels. Only US tight oil is set for consistent investment growth over the next few years, driven by activity in the Permian basin.

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Earlier:

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