Global Energy Investment Down By 25% To $1.7 Trillion In 2016

Yemisi Izuora

Total global energy investment in 2016 was some US$1.7 trillion, 12% down on the previous year in real terms and accounting for 2.2% of the global gross domestic product, according to the International Energy Agency.

Looking ahead to 2017, many had hoped to see a resurgence of oil and gas spending in recent months after two years of declines, IEA executive director Fatih Birol told an audience at the World Petroleum Congress. But the numbers for this year are expected to be “more or less flat.” “Unfortunately enough, we do not expect a major rebound in expected investments in 2017,” he said.

Upstream oil and gas investment fell by more than a quarter, which failed to offset the 9 per cent increase in spending on energy efficiency and a 6 per cent hike in electricity networks, according to the International Energy Agency’s World Energy Investment 2017 report.

“Falling unit capital costs, especially in upstream oil and gas, and solar photovoltaics, was a key reason for lower investment, though reduced drilling and less fossil fuel-based power capacity also contributed,” said the IEA.

Oil and gas represented two-fifths of global energy investment, despite a fall of 38% in capital spending in that sector between 2014 and 2016.

The People’s Republic of China attracted 21 per cent of worldwide energy investment, while energy investment in India was up 7 per cent – cementing its position as the third-largest country behind the United States.

Despite a sharp decline in oil and gas investment, the share of the US in global energy investment increased to 16 per cent still higher than that of Europe, where investment declined 10 per cent mainly as a result of renewables.

The upstream industry, after a 44 per cent slump in investments between 2014 and 2016, is witnessing a modest rebound this year.

The report notes a 53 per cent upswing in US shale investment and resilient spending in large producing regions such the Middle East and Russia that has driven nominal upstream investment to bounce back by 6 per in 2017 (a 3 per cent increase in real terms).

“Spending is also rising in Mexico following a very successful offshore bid round in 2017,” added the agency. However, there are diverging trends for upstream capital costs. On a global level, costs are expected to this year fall again, driven mainly by deflation in the offshore sector, although with only 3 per cent decline. The rate of decline has slowed down significantly compared to 2015 and 2016. Meanwhile, the rapid ramp-up of US shale activities has triggered an increase in US shale costs of 16 per cent in 2017 after having almost halved from 2014 to 2016.

“The oil and gas industry is undertaking a major transformation in the way it operates, with an increased focus on activities delivering paybacks in a shorter period of time and the sanctioning of simplified and streamlined projects.

“The global cost curve has rebased, and a significant component of the cost reduction experienced over the last two years is likely to persist in the foreseeable future,” read the report.

IEA chief economist Laszlo Varro added that industry was focusing on projects with smaller reserves and three to four-year lead time.

“There is strong financial pressure” on upstream companies,” Varro said.

The IEA expects capital investment in the offshore sector to remain depressed this year although some signs of a revival are emerging albeit on projects where costs have been significantly reduced.

Such field developments include Statoil’s Johan Castberg and the BP-operated Mad Dog II, both of which have seen cost reductions and have benefited from simplification and standardisation.

Brazil’s is reportedly another country where offshore activities are expected to continue due to the combination of favourable factors including reservoir quality, recent cost reductions and the entrance of experienced offshore operators such as Total and Statoil.

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