While Politics Dominates The News, Big Oil Invests In Global Energy Reality
One of the big concerns during the depths of the oil price bust of 2014-2016 was the fact that so many big, integrated and state-run oil companies were delaying or taking a full pass on investing in major and highly-costly international projects. During the financial retrenchment of this dark period, exploration for major new resources consistently took a back seat to finding ways to pay the bills and service the company's debt.
This lack of investment in new exploration and infrastructure projects led to concerns among many energy analysts that we could be facing a shortage of global supply early in the next decade as decline rates caused existing reserves to play out without the needed new production coming on line to replace them. The surge in new supply from U.S. shale plays has served to alleviate those concerns for the near-term, and a new report issued by the Norwegian research firm Rystad Energy documents a similar surge in new international investments that should help avoid supply shortages further down the road.
“We expect global FID volumes in 2019 to triple over last year, and 2019’s megaproject awards could lead to billions of subcontracting dollars in coming years,” said Rystad Energy upstream research analyst Readul Islam, “The only supply segment likely to shrink this year is the oil sands, whereas deepwater, offshore shelf and other conventional onshore developments are all poised to show substantial growth. From a geographical perspective, all regions are headed for robust growth except Europe and North America, still bearing in mind that shale plays are not included in these numbers.”
That last point - that shale plays are not included in this report - is key. As I pointed out last week, the Permian Basin has become a focal point for major development not just for big independents like Pioneer Natural Resources, Noble Energy, Apache Corporation and others, but also for major, integrated companies like ExxonMobil, BP, Shell and Chevron. These U.S. shale plays are likely to sustain significant production growth for years to come, giving the big investments documented by Rystad in its report the running room they need to move from final investment decisions to first production, which can easily consume five-to-seven years.
So, if you've been wondering why all those stories about concerns of a looming supply crunch on the horizon have disappeared from your daily news clips, this is the reason.
Then there's the other aspect of this Rystad report that runs counter to the prevailing mainstream media narrative of Green New Deals, booming solar and wind businesses, Peak Oil demand scenarios and shareholder initiativesdesigned to force oil companies to invest in renewables. Why all this new investment in major international projects to develop oil and natural gas resources when the conventional wisdom seems to indicate that fossil fuels will be disappearing soon?
The simple answer is that reality runs counter to the conventional wisdom, as is so often the case. The simple reality is that the world needs affordable, abundant and scalable energy, and that every authoritative study projects that fossil fuels - oil, natural gas and coal - will provide the vast majority of that growing energy demand for decades to come. No shareholder initiative, no act of the U.S. congress can change that immutable equation.
As summarized by the Global Energy Institute, Here is what the UN's International Energy Agency had to say on this subject in its World Energy Outlook 2017:
Demand Growth: Energy demand between 2015 and 2040 is expected to grow by a bit more than 28%, or 3,770 million tons oil equivalent (mtoe) worldwide. All of the increase in global demand—in fact, more than all (about 3,922 mtoe or 104%) of it—will come from non-Organization of Economic Co-operation and Development (OECD) countries (i.e., developing countries).
Hydrocarbon Fuels Continue to Dominate: Combined petroleum, natural gas, and coal use is forecast to grow 18% by 2040, with natural gas leading the way (up 47%) followed by petroleum (12%) and coal (2%). Although the share of energy demand met by fossil fuels declines by 2040, hydrocarbons still are expected to account for 75% of total global demand compared to 81% in 2015.
So, even the United Nations projects that demand for oil and natural gas will grow significantly through the year 2040. The U.S. Energy Information Administration's projections are even more robust than that.
This is the world's energy reality, and meeting the demands of reality requires major new investments in future production and infrastructure. Luckily, as the Rystad report documents, those new investments in our global energy future will be ramping up in a big way in 2019.