Years of underinvestment in upstream oil and gas could leave the world facing tight supply and higher prices across all forms of energy for at least another 3-4 years until new projects under development are ready to come on stream, according to senior energy executives.
Speaking at the Columbia Global Energy Summit on 12 April, the chief executive of Kuwait's state-owned KPC, Sheikh Nawaf al-Sabah, said he is "extremely worried" about the world's limited spare oil production capacity, caused by "massive underinvestment" over the past seven years. "The world used to discover about 6bn bl of oil per year. But after that, with exploration budgets drying up, we were discovering less than a third of that," al-Sabah said.
Most, if not all, of current investment in new crude capacity is coming from Mideast Gulf Opec producers like Kuwait, Saudi Arabia and the UAE, all of which are several years into their respective expansion plans, he added.
The chief executive of US shale producer Pioneer Natural Resources, Scott Sheffield, echoed the same concerns at the conference. The scale of global underinvestment in upstream oil and gas is around "$1 trillion since 2015", according to Sheffield. "The reasons why? First, we've had two [price] downturns, in late 2014 and early 2020," he said. Sheffield also pointed to lower oil prices for much of the second half of the 2010s, and the growing trend of reallocating capital towards projects that help countries reach their environmental, social and governance (ESG) goals.
"We were already going to get a tight market, in my opinion, even before the situation a year ago," Sheffield said, referring to Russia's invasion of Ukraine. "Even before what happened… most people were predicting a very tight market in 2024-25."
Sheffield expects Brent crude prices to creep towards the $100/bl mark before the end of the year as demand continues to recover. "We're only $13/bl away," he said. "I think it's a question of whether or not it breaks through $90/bl. If it does ꟷ it's at $87/bl today ꟷ it will run towards $100/bl in my opinion, and we'll see something between $90-100/bl for a while."
Decision time
The executive chairman of US LNG producer Tellurian, Charif Souki, issued the conference with an even starker warning about the gas market, pointing out that it will be a few years before any significant additional LNG capacity comes online.
"There is nothing OK about what is going to happen," Souki said. "By 2025, Qatar will not have brought their new trains on. Those will start in 2026, 2027 and 2028," he said, referring to LNG expansion projects at Qatar's giant North gas field that will increase the country's export capacity to 126mn t/yr from around 77mn t/yr now. "And in the US, we have 40mn t/yr that is supposed to arrive somewhere in the 2025-27 timeframe what is still under construction," Souki said.
The world will need "about 200mn t/yr" of additional LNG production capacity over this period "just to stay in place", but this "is not going to happen", he said. "2025 is not going to be good, 2026 is not going to be good, and 2027 is not going to be good," he said. What happens beyond that through to the end of the decade will depend on the investment decisions that are taken today, he added.
