Global oil and gas investment rises even as demand slows risking overcapacity in the sector
Energize Weekly, June 21, 2023
Global demand for oil is set to slow in the next five years even as investment in oil industry infrastructure is projected to grow, risking an overcapacity in production, according to the International Energy Agency (IEA).
A 2026 peak in demand for oil for transportation fuels and the shift to cleaner energy technologies in response to high oil prices and security of supply concerns.
At the same time, oil industry investment is set to reach $528 billion in 2023 – the highest it has been since 2015.
“Global oil markets are gradually recalibrating after three turbulent years in which they were upended first by the COVID-19 pandemic and then by Russia’s invasion of Ukraine,” the IEA oil market report said.
Based on current government policies and market trends, the IEA projects overall demand rising 6 percent between 2022 and 2028 to10.57 million barrels a day, spurred by demand from the petrochemical and aviation sectors.
The petrochemical sector will be the key driver of global demand growth, with liquefied petroleum gas, ethane, and naphtha accounting for more than 50 percent of the rise between 2022 and 2028 and nearly 90 percent of the increase compared with pre-pandemic levels.
Despite this cumulative increase, the agency said annual demand growth is expected to “shrivel” to just 400,000 barrels a day in 2028 compared to 2.4 million barrels a day in 2023.
Demand for oil for all combustible fossil fuels is on course to peak at 81.6 million barrels a day in 2028, the final year of the IEA forecast.
The use of oil for gasoline is projected to decline after 2023 with all transport fuels peaking after 2026, the result of an increase in electric vehicles, biofuels and more fuel-efficient cars and trucks.
By 2028, the IEA projects demand for oil-based road transportation fuels to be 1 million barrels a day below 2019 levels.
Nevertheless, global investment in oil and gas exploration, extraction, and production are on course to increase 11 percent in 2023 to $528 billion – an eight-year high.
Plans for increasing global supply capacity in the medium – by about 5.1 million barrels a day – are focused in the United States, Brazil, and Guyana.
Saudi Arabia, the United Arab Emirates, and Iraq lead the plans for capacity building within the Organization of Petroleum Exporting Countries (OPEC) and the countries coordinating with organization, such as Malaysia and Bahrain.
“This level of investment, if sustained, would be adequate to meet forecast demand in the period covered by the report,” the IEA said. “However, it exceeds the amount that would be needed in a world that gets on track for net-zero emissions.”
The investment trend – if not changed by slowing demand – is expected to result in a spare capacity cushion of at least 3.8 million barrels a day concentrated in the Middle East.
“The shift to a clean energy economy is picking up pace, with a peak in global oil demand in sight before the end of this decade as electric vehicles, energy efficiency and other technologies advance,” Fatih Birol, IEA’s executive director, said in a statement. “Oil producers need to pay careful attention to the gathering pace of change and calibrate their investment decisions to ensure an orderly transition.”
