OPEC raises worries about too little investment in oil, gas

Investments in oil and gas production continue to come up short, threatening energy security and affordability, the secretary general of OPEC said on Tuesday.

OPEC estimates that the world will need to invest $12.1tr through 2045 in upstream, midstream and downstream to keep up with demand, said Haitham Al-Ghais, OPEC secretary general of OPEC. He made his comments during the CERAWeek by S&P Global energy conference.

That comes to $500bn/year, he said. “We are not seeing those levels yet.”

OPEC has long warned about underinvestment in oil production, the result of the downturn from the later part of the previous decade.

The comments from Al-Ghais seem to contradict recent actions by OPEC and its allies, commonly called OPEC+. The group has maintained lower production targets.

However, the lower targets had little effect on actual production. Many members of the alliance have struggled to meet their targets.

OPEC ally Mexico, for all of its efforts, had failed to meet its stated goal of increasing oil production to 1.9m bbl/day for 2022.

Also, the lower target reflected concerns about weak oil demand caused by COVID-19 lockdowns in China.

China is reopening, and the head of Kuwait Petroleum Corp (KPC) said the resulting surge in demand is not a temporary blip.

OPEC expects demand for oil will increase by 2.3m bbl/day in 2023, and China will account for 500,000-600,000 bbl/day of that demand, Al-Ghais said. India will account for another large chunk of that increase in demand.

OIL PRODUCERS REMAIN CAUTIOUS

Outside of OPEC+, producers in other countries are taking a cautious approach to investments.

In the US, oil companies are under pressure to control costs after splurging on investments during earlier energy booms.

Another factor discouraging investments has been mixed messages from policy-makers and worries that investments that require years to pay off might become stranded because of regulations.

WORLD TO CONTINUE BURNING OIL

Al-Ghais’s concerns about underinvestment illustrate expectations that the world will continue burning hydrocarbons despite worries about climate change and talks about the energy transition.

Earlier, the CEO of KPC said that the company expects to continue to producing oil for 85 years.

The global economy will continue expanding and the world’s population will continue growing, and all of that will increase demand for energy, Al-Ghais said.

In many parts of the world, people still lack access to electricity and clean cooking fuel, he said.

According to the World Health Organization (WHO), about 2.4bn people – a third of the world’s population, cook on open fires or inefficient stoves that burn coal, kerosene, wood, animal dung or crop waste.

Efforts to strike the right balance between clean, low-cost and secure energy need to consider a energy reality, Al-Ghais said. US and European discussions about the energy transition mean nothing in parts of the world where people lack power to turn on lights.

“We have to look at energy with a clear focus on different countries’ capabilities and circumstances,” he said. “The world has to come to the sense of reality that all sorts of energy will be needed. The issue is how to reduce emissions.”

The oil market is important to the petrochemical industry because it provides it with feedstock such as naphtha and natural gas liquids (NGLs). Prices for petrochemicals tend to rise and fall with those for oil.

CERAWeek runs through Friday.

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