Wood Mackenzie (WoodMac), a global energy, chemicals, renewables, metals and mining researching and consulting firm, states companies need to raise investment into new production by 20%. Oil and gas companies need to increase annual investment before a supply demand in 2025. The investment could reach about $600 billion to ensure companies sustain production and growth for impending demand.
Crude Oil has seen a resurgence, reaching more than $80 a barrel in recent weeks, compared to the collapse of close to 75 per cent between mid-2014 and early 2016. With the lowest point being at $30 a barrel during that time, prices have seen a revival. With a low of $460 billion spend in 2016, development spend increased 2% in 2017 and 5% again this year.
Tom Ellacott, senior vice president, corporate research of WoodMac, 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.”
One critical aspect is exploration. Shale oil in the US is likely to be an important investment in the coming years as well as larger conventional projects. However, will Oil and Gas companies be willing to invest? The impact of the 2014 oil price collapse is still being felt across the upstream sector. Bigger and better conventional projects will ultimately be required. With exploration budgets being slashed during the downturn, companies will have to open up their wallets to find the potential.
Posted last month to WoodMac’s website, “Guyana is one of the very few giant oil discoveries made during the downturn. Fact is, we need more Guyanas, a lot more, and we need them soon. Without them, the oil market is in danger of tightening in the not too distant future,” stated Wood Mac Chairman and Chief Analyst Simon Flowers.