Baku, Azerbaijan, Oct.24
By Leman Zeynalova – Trend:
Wood Mackenzie forecasts that global oil and gas development spend needs to increase by around 20 percent to meet future demand growth and ensure companies sustain production next decade.
Malcolm Dickson, director, upstream oil and gas, said that companies will need to start investing again to sustain their business. “But decision-making will be fraught with uncertainties, the oil price and energy transition not least among them.”
Wood Mackenzie’s research shows the recovery is much slower and shallower than in previous cycles. Development spend will increase 5 percent this year, after a 2 percent rise on 2017.
“Investment rises from a low of $460 billion in 2016 to just over $500 billion in the early 2020s – far below the $750 billion peak in 2014,” said the analysis from Wood Mackenzie.
Wood Mackenzie calculates that annual development spend will need to increase to around US$600 billion to meet future demand for oil and gas through next decade.
“Many companies will justifiably be concerned about committing substantial capital to long-term projects with peak oil demand and energy transition risks within the investment horizon,” said Tom Ellacott, senior vice president, corporate research. “There's also a prevailing mindset of austerity designed to appease shareholders — investment is lower in the pecking order for surplus cash flow than dividends and buy-backs.”
Wood Mackenzie expects strict capital discipline to continue to frame investment decisions, at least in the near-term. “This will favor short-cycle, higher-return opportunities.”
---
Follow the author on Twitter: @Lyaman_Zeyn