BAKU, Azerbaijan, Aug.8. Investments in oil and gas projects are expected to moderate in 2023, Trend reports with reference to Fitch Solutions.
The company says that a wide range in uncertainty for both supply and demand sees firms taking a cautious approach to new investment in oil and gas, as it expects investment to moderate in 2023 with growth falling to just 3.8 percent as most capital expenditure guidance remains fairly muted.
Increased capex guidance for most oil companies is expected to achieve less production growth as cost inflation begins to erode the impact of fresh capital. The cost inflation wave impacting the industry will see capital become less efficient yielding fewer barrels that pre-pandemic times. In our view this will lead to higher than expected growth in capex in the coming years, potentially well above our current outlook for 3.8 percent growth in 2023 as a tighter supply outlook seems to be firmly entrenched as investment remains well below peak levels and new supply growth lacking,” reads the latest report released by Fitch Solutions.
The report reveals that overall, expectation for oil prices to retreat in the long-term on fears of waning demand from the energy transition is reducing the appetite for decades long investments which may fail to produce returns should oil and gas prices fall.
“This hesitancy facing international oil companies is amplified by investor scrutiny of emissions and efforts to reduce the climate impacts from operations. Counter to this are state backed NOCs who have more freedom from investor scrutiny and are looking to secure a combination on national energy security and maximizing below ground hydrocarbon reserves before peak demand erodes the value of sector. With lower capital expenditure levels than past boom cycles, even accounting from greater efficiency and technological improvements, oil production growth is expected to be relatively muted against even modest growth in consumption in the coming years,” says the company.
Fitch Solutions’ analysts believe that this chronic tightness in the market could see elevated oil prices persist into the mid-term without an appreciable increase in capital expenditure or sustained decline in oil demand.
“Another factor fueling a view for tighter supplier is the unrealistically low break-evens sought by oil majors for new upstream developments. There are a limited number of global projects that meet the strict criteria of a sub USD60/bbl breakeven cost. The lack of sufficient growth projects at this level will not change in the near-term as diminished exploration efforts are less likely to yield large discoveries. The lack of significant numbers of substantial undeveloped reserves at this low cost level will little new growth can be expected outside of the lowest cost areas currently Guyana, Brazil, the Permian and key Middle East producers,” reads the report.
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