Oil Investment Must Rise To $525 Billion Per Year To Avoid Supply Crunch

• Investments in oil and gas exploration and production continue to be depressed

• Moody's: Global annual upstream spending needs to increase by as much as 54 percent to $542 billion if the oil market is to avert the next supply shortage shock

Upstream oil and gas investment must rise to the pre-pandemic levels of around $525 billion per year through the end of the decade so that the industry can ensure a demand-supply balance, Saudi Arabia-based International Energy Forum (IEF) and IHS Markit said in a new report this week.

This year, upstream investment is still depressed, for a second year in a row, and is estimated at around $341 billion. This is almost 25 percent below the investment levels of the last “normal” year in 2019, says the report from IHS Markit and IEF, which is the world’s largest international organization of energy ministers from 71 countries including both producing and consuming nations.

While investments in oil and gas exploration and production continue to be depressed, global demand is “now near pre-pandemic highs and will continue to rise for the next several years, particularly in developing countries,” according to the report titled “Investment Crisis Threatens Energy Security.”

The next two years will be critical for the sanctioning of new projects to make sure that there is enough supply coming online within five to six years, the report noted.

“Insufficient upstream investment would result in more price volatility and spur adverse economic consequences,” IHS Markit and IEF say.

The report echoes the concern of many industry professionals, who have said in recent months that underinvestment in oil and gas threatens future energy supply because oil and gas will be consumed for decades to come, regardless of the pace of the energy transition.

A rushed transition into renewable energy would cause spiraling inflation and social unrest, Amin Nasser, the chief executive of Saudi Aramco, warned at the World Petroleum Congress in Texas this week, noting that investments in oil and gas needed to continue in order to avoid such a scenario.

Global annual upstream spending needs to increase by as much as 54 percent to $542 billion if the oil market is to avert the next supply shortage shock, Moody’s said in October.