The UAE Minister of Energy warns that an energy-industry investment drought could trigger prolonged, soaring crude prices.
Global investment in the sector, which has fallen by more than US$300 billion since last year, needs to grow to avoid a major price rise that could undermine market stability, officials said yesterday.
Suhail Al Mazrouei, the Minister of Energy, said that the lack of investments since last year could lead to prolonged, soaring prices.
The dearth of investments should be tackled by all stakeholders, countries and companies, he said. He was speaking at the Abu Dhabi International Petroleum Exhibition and Conference taking place in the capital.
“It has been seen that a significant level of investment has come down since we started this downturn,” said the minister. “For us members of Opec and many countries and companies that is a source of worry today. Can we catch up? Yes. It is everybody’s problem. We can’t afford to see a hike that stays for long.”
Global energy spending next year could fall for a third year, a precedent-setting event for the energy industry, the secretary general of Opec said.
Spending on global gas and oil exploration and production fell by 26 per cent last year and is expected to fall by a further 22 per cent this year, said Mohammad Barkindo. The two-year fall would equate to a $300bn decline in investment, he said.
“If market and financial conditions do not improve there is the distinct possibility that we will see a third year of investments shrinking,” said Mr Barkindo. “To put this into some oil industry context, there has never been a consecutive three-year decline in its history.”
Nearly $10 trillion in investment is needed by 2040 to meet future oil and gas demand, he said.
Opec’s global oil outlook forecasts demand increasing to more than 109 million barrels of oil per day (bpd) by 2040 from 93 million bpd last year. Oil and gas will still contribute 53 per cent to the global energy mix by 2040, contrary to other projections.
The investment is needed to stem a decline in existing oil and gasfields as well as in increasing production.
“This is a major concern for an industry that needs regular and predictable investment to provide the necessary supply in the medium and long terms,” said Mr Barkindo.
While Opec is committed to controlling production, international oil companies are cutting down investment, endangering the sustainability of the industry.
“We [Opec] remain unswerving in our commitment in meeting future requirement of consumers in a timely and sustainable manner,” he said. “At the global level, however, the situation that has evolved over the past two years or so is putting this future at risk.”
Sultan Al Jaber, the UAE Minister of State and the chief executive of Abu Dhabi National Oil Company (Adnoc), said that the UAE is forging ahead with investments, diversifying its product range and targeting new markets, with a focus on Asia. But it is keeping an eye on costs in the unpredictable oil price era.
“We will diversify our portfolio of products and open new markets to ensure long-term and sustained profitability,” said Mr Al Jaber.
The state-owned energy company plans to boost its oil, refining and petrochemical production facilities as part of a new strategy.
Adnoc is on an efficiency drive and recently combined operations at some of its units to deal with the low-price environment.
“Rules are being redefined where cost and price are the only variables regulating this market,” said Mr Al Jaber. “While today we can’t predict the future price of oil, one factor remains well within our own control and that is the cost of every barrel we produce.”
As part of its efficiency plans, Adnoc will combine by the end of this year three of its shipping and ports services units into one.
The state-owned energy company is also combining its two largest offshore operations, the Zakum Development Company (Zadco) and the Abu Dhabi Marine Operating Company (Adma-Opco), which account for the bulk of Abu Dhabi’s offshore oil production.