Lack of investment, more demand to drive oil price volatility – industry Lack of investment, more demand to drive oil price volatility – industry leaders

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A lack of investment in new oil and gas supplies, as part of a shift towards cleaner fuels, is likely to lead to price volatility over the next decade as the Demand for traditional energy sources is increasing, senior industry leaders said.

Global energy investment saw its steepest decline on record in 2020 as the COVID-19 pandemic hammered demand, while pressure for the energy transition to meet greener goals attracted more funds in renewable resources.

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The International Energy Agency (IEA) has also called on investors to halt new fossil fuel projects to achieve net zero emissions by mid-century, although industry participants remain divided on the peak oil demand forecast.

Under-investment in the global oil and gas sector could lead to a tightening of supplies at a time when demand is expected to recover, have warned senior executives from Vitol, Trafigura, Hess Corp and Equinor.

“It seems likely that instead of falling, global demand for oil is expected to continue to rise as new markets and consumers emerge,” said Ben Luckock, co-head of oil trading at Trafigura at the annual conference of APPEC 2021.

“This raises the prospect of potential higher price cycles for traditional forms of energy.

“While this can be beneficial for oil producers in the short term, it also means significant costs to the global economy, which is not in anyone’s long-term interest,” Luckock added.

PRICE POINTS

A strong rebound in global demand for energy, electricity and metals has already led to tight supply and soaring prices.

Gas prices in Europe and Asia are at or near record highs, while those in the United States are at seven-year highs. Coal prices are at record highs and Brent has topped $ 80 a barrel, its highest level since 2018.

The Organization of the Petroleum Exporting Countries (OPEC) and its allies still have a cap on oil production, while a lack of investment has limited the output of the group’s two main African producers.

But the unused capacity could be called into question next year “if we do not see an accelerated pace of investment in the American sector and (…) a rapid rapprochement between the United States and Iran”, a said Mike Mueller, CEO of Vitol for Asia.

Several executives said investment in fossil fuel sources was needed to avoid shortages and price fluctuations.

“We are in a time where we are investing too little coming back from COVID,” said Eirik Waerness, senior vice president and chief economist at Equinor.

“This is probably exacerbated by a lot of uncertainties about what the energy transition will be, so there will be a wait-and-see attitude here in terms of investing in new types of investments in the energy transition.”

But it will be a long time before new energy sources can meet global demand, he added.

DEMAND OUTLOOK

Conference leaders said they expect global demand for oil to reach pre-pandemic levels by early next year, in line with OPEC’s bullish forecast.

“Depending on where the climate-to-energy transition is taking place, there is likely a peak in demand somewhere,” said Greg Hill, president and chief operating officer of Hess Corp.

“I think it’s a lot more distant than what a lot of experts think right now,” he added.

He noted that even under the IEA’s sustainable development scenario, oil and gas accounts for 46% of the global energy mix in 2040.

“The world needs cheap, affordable energy. We want to be in this space,” Hill said.

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