Oil shortage as early as 2023 - Dec 9
Posted: Thu Dec 09, 2021 2:44 pm
Is the oil & gas industry at risk of underinvestment?
This week’s remarks at the WPCC 2021 (in Houston) from Saudi Aramco President & CEO Amin
Nasser is a sobering note on the need to ensure that the path to de-carbonization
doesn’t create an energy shortage over the next decade. Summarizing key aspects of his
speech:
‘I believe our industry has a new quest before us …the world is facing an ever more
chaotic energy transition. Several highly unrealistic scenarios and assumptions about the
future of energy are clouding the picture. For example, it is increasingly assumed that
the entire world can run on alternatives, and the vast global energy system can be totally
transformed, virtually overnight. Or that investments requiring roughly $115 Tn will be
made in less than 30 years.
Most worrying of all is the assumption that the right transition strategy is in place. It is
not, it is deeply flawed. Energy security, economic development & affordability
imperatives are not receiving enough attention. Until they are, and unless the glaring
gaps in the transition strategy are fixed, the chaos will only intensify.
So the urgent new quest for our industry is to chart a course that will continue to
realistically meet the world’s rising energy needs – reliably, affordably, and sustainably.
This is not about changing our climate goals…..and everyone on the planet has a vested
interest in the ultimate goal of limiting temperature rise to well below two degrees (but)
there are several stubborn facts that need to be part of a credible transition strategy.
> The first is that alternatives are nowhere near ready to carry a big enough load, so
new and existing energy sources will need to operate in parallel for a long time.
More than 99% of the world’s vehicle fleet is still conventional. Despite a lot of good
work underway, there are still no truly viable alternatives to conventional fuels (aviation,
shipping, and trucking) and even the most aggressive transition plans offer few
alternatives when it comes to petrochemical feedstock and lubricants.
The combined share of solar and wind in the world’s primary energy mix is still less than
2%. Alternatives are making progress… but their deployment at scale will take longer
than is being assumed. It does not help when the pressure is mounting to stop all new
investments in oil and gas.
Across the industry, upstream capex fell by more than 50 percent between 2014
and last year, from $700bn $300bn.
Consequently, supplies of oil have started to lag. This is also hurting spare oil production
capacity, which is declining sharply… against the backdrop of healthy demand growth.
> Second, the rest of the world will not transition at the same speed as the developed
world.
Because the developing world is where most of humanity lives, and most of the roughly
2bn new energy consumers on the planet by 2050 will be living there too. It is where
more than 2.6bn people still do not have access to clean cooking, and three quarters of a
billion lack electricity. And it is where people aspire to ride on two wheels, not four. So
affordability is a real issue, and a one-size-fits-all strategy will not cut it in a multi-speed,
multi-source transition.
> Third, because oil and gas will be needed for decades to come, accelerating the
reduction in their emissions is a strategic and urgent necessity for climate goals to
be met.
We are not short of opportunities, such as producing lower carbon products, developing
more efficient and lower emission internal combustion engines and making the Circular
Carbon Economy that G20 world leaders endorsed last year a reality. And there is
currently no credible course towards the climate goals that does not include Carbon
Capture, Utilization, and Storage.
There is one more thing that can no longer remain unsaid. A majority of key stakeholders
agree with these realities as much as they believe in addressing climate change. We
know this, because they say so in private. They should say it publicly too. I understand
their dilemma. Publicly admitting that oil & gas will play an essential and significant role,
during the transition and beyond, will be hard for some. But admitting this reality will be
far easier than dealing with energy insecurity, rampant inflation, and social unrest if
prices become intolerably high. And net-zero commitments by countries may start to
unravel.
I do not have all the answers, no-one does. But I do know that stopping all new
investments in oil and gas is not one of them. While there may be pushback on my
remarks, I know that if we do not speak out as an industry, no-one else will on our behalf
… it is time for these stubborn facts to be heard loud and clear around the world before
it is too late.’
BofA Equity Research:
From our perspective non-OECD demand for oil and gas is expected to continue to grow
over the coming decades. With annual O&G upstream spending declining by more than
50% since 2014 ($505bn to $251bn per Wood Mackenzie), supplies have already started
to lag with spare production capacity also declining.
MY TAKE: We are only 6-8 months away from a world that will be totally out of spare oil production capacity. In that world, it will only take small disruptions (like a hurricane) to cause regional shortages and significant oil price spikes.
This week’s remarks at the WPCC 2021 (in Houston) from Saudi Aramco President & CEO Amin
Nasser is a sobering note on the need to ensure that the path to de-carbonization
doesn’t create an energy shortage over the next decade. Summarizing key aspects of his
speech:
‘I believe our industry has a new quest before us …the world is facing an ever more
chaotic energy transition. Several highly unrealistic scenarios and assumptions about the
future of energy are clouding the picture. For example, it is increasingly assumed that
the entire world can run on alternatives, and the vast global energy system can be totally
transformed, virtually overnight. Or that investments requiring roughly $115 Tn will be
made in less than 30 years.
Most worrying of all is the assumption that the right transition strategy is in place. It is
not, it is deeply flawed. Energy security, economic development & affordability
imperatives are not receiving enough attention. Until they are, and unless the glaring
gaps in the transition strategy are fixed, the chaos will only intensify.
So the urgent new quest for our industry is to chart a course that will continue to
realistically meet the world’s rising energy needs – reliably, affordably, and sustainably.
This is not about changing our climate goals…..and everyone on the planet has a vested
interest in the ultimate goal of limiting temperature rise to well below two degrees (but)
there are several stubborn facts that need to be part of a credible transition strategy.
> The first is that alternatives are nowhere near ready to carry a big enough load, so
new and existing energy sources will need to operate in parallel for a long time.
More than 99% of the world’s vehicle fleet is still conventional. Despite a lot of good
work underway, there are still no truly viable alternatives to conventional fuels (aviation,
shipping, and trucking) and even the most aggressive transition plans offer few
alternatives when it comes to petrochemical feedstock and lubricants.
The combined share of solar and wind in the world’s primary energy mix is still less than
2%. Alternatives are making progress… but their deployment at scale will take longer
than is being assumed. It does not help when the pressure is mounting to stop all new
investments in oil and gas.
Across the industry, upstream capex fell by more than 50 percent between 2014
and last year, from $700bn $300bn.
Consequently, supplies of oil have started to lag. This is also hurting spare oil production
capacity, which is declining sharply… against the backdrop of healthy demand growth.
> Second, the rest of the world will not transition at the same speed as the developed
world.
Because the developing world is where most of humanity lives, and most of the roughly
2bn new energy consumers on the planet by 2050 will be living there too. It is where
more than 2.6bn people still do not have access to clean cooking, and three quarters of a
billion lack electricity. And it is where people aspire to ride on two wheels, not four. So
affordability is a real issue, and a one-size-fits-all strategy will not cut it in a multi-speed,
multi-source transition.
> Third, because oil and gas will be needed for decades to come, accelerating the
reduction in their emissions is a strategic and urgent necessity for climate goals to
be met.
We are not short of opportunities, such as producing lower carbon products, developing
more efficient and lower emission internal combustion engines and making the Circular
Carbon Economy that G20 world leaders endorsed last year a reality. And there is
currently no credible course towards the climate goals that does not include Carbon
Capture, Utilization, and Storage.
There is one more thing that can no longer remain unsaid. A majority of key stakeholders
agree with these realities as much as they believe in addressing climate change. We
know this, because they say so in private. They should say it publicly too. I understand
their dilemma. Publicly admitting that oil & gas will play an essential and significant role,
during the transition and beyond, will be hard for some. But admitting this reality will be
far easier than dealing with energy insecurity, rampant inflation, and social unrest if
prices become intolerably high. And net-zero commitments by countries may start to
unravel.
I do not have all the answers, no-one does. But I do know that stopping all new
investments in oil and gas is not one of them. While there may be pushback on my
remarks, I know that if we do not speak out as an industry, no-one else will on our behalf
… it is time for these stubborn facts to be heard loud and clear around the world before
it is too late.’
BofA Equity Research:
From our perspective non-OECD demand for oil and gas is expected to continue to grow
over the coming decades. With annual O&G upstream spending declining by more than
50% since 2014 ($505bn to $251bn per Wood Mackenzie), supplies have already started
to lag with spare production capacity also declining.
MY TAKE: We are only 6-8 months away from a world that will be totally out of spare oil production capacity. In that world, it will only take small disruptions (like a hurricane) to cause regional shortages and significant oil price spikes.