Over the past three months, oil prices have corrected dramatically as global oil demand has waned and concerns about a Chinese slowdown have added to a possible European recession. The demand growth picture may be weakening, but the global balance between supply and demand remains tight, and years of underinvestment could cause oil prices to last longer. high oil.
The Organization of the Petroleum Exporting Countries (OPEC) has “lowered its global oil demand growth forecast for 2022 for the third time since April,” Reuters reported. “He expects oil demand in 2022 to grow by 3.1 million barrels per day (bpd), or 3.2%, down 260,000 bpd from the previous forecast.” The International Energy Agency (IEA), on the other hand, “raised its forecast from 380,000 bpd to 2.1 million bpd”, but it was mainly updating and approximating other estimates from international bodies. .
The EIA estimates that U.S. crude production will increase to 11.86 million bpd in 2022 and 12.70 million bpd in 2023, from 11.25 million bpd in 2021. It expects states United States are close to record consumption of 20.75 million bpd in 2023.
Global oil demand growth in 2022 is revised down but still shows a tight supply-demand balance with a growing call for OPEC crude and 3.1 million bpd growth in consumption, including “the recently observed trend of burning more crude in power generation”. OPEC said in its August monthly oil report.
Global oil demand will likely average 102.7 million bpd by 2023. However. Non-OPEC production is expected to remain flat at 67.5 million bpd, with most of the growth coming from the United States, Norway, Brazil and Canada, according to OPEC’s monthly report. This means that the world will have an increased need for oil from OPEC, and proof that the massive subsidies have not had a significant impact on the energy mix of electricity and transport.
A tighter market with significant geopolitical challenges has been tightened by policymakers’ burdens on investing.
Global capital expenditure for oil and gas development has fallen from $740 billion in 2015 to an average of $350 billion, according to Morgan Stanley. Underinvestment in energy development and exploration is a major problem today.
According to Deloitte, the global upstream industry “will need to invest a minimum of approximately $3 trillion ($2.7 trillion non-MENA investment, real 2015 dollars) between 2016 and 2020 to ensure its long-term sustainability.” . This means that there is a funding gap of at least $2 trillion in the industry when considering balance sheet requirements, debt maturities and estimated cash flows.
Over the past five years, most global energy companies have had to cut capital expenditures, in some cases by more than 50%, due to environmental activism, regulatory and political pressures, and reduced access to credit. .
Banks have restricted oil and gas financing due to political pressure and even from central banks, such as the European Central Bank, for example, which has included environmental requirements in its analysis of banks. Balance sheet problems and weak cash flow in an environment of low commodity prices have also reduced the ability of energy companies to finance exploration. From 2011 to 2015, companies had ample access to equity to finance new exploration and development activities. All of that has changed dramatically, and even state-owned companies around the world have reduced their capital expenditure commitments.
Interestingly, limiting access to capital in the energy world in developed countries has created more bottlenecks and less respect for the environment, as most investment and growth has shifted to countries with lower environmental standards and which run state-owned oil companies.
For years, governments and policymakers have demanded less investment in fossil fuels while relying on cheap energy to support economic growth. Now it seems the political nudge has backfired. As funding has dried up, global oil and gas discoveries in 2021 are set to end at a 75-year low, according to Rystad Energy, and global inventories remain well below the five-year average, even with lower demand.
Policymakers in developed countries have presented the oil and gas sector with the following proposition: We don’t want your product. We say we won’t use your product in 2030. However, you have to invest hundreds of billions of dollars every year to deliver it cheaply and in abundance when we want it.
The energy sector had to think: Where do we sign? Note the irony.
If there is a tight oil market, it is not because of a lack of resources or opportunities, but because of reduced access to capital created by misguided interventionism in energy policy.
The opinions expressed in this article are the opinions of the author and do not necessarily reflect the opinions of The Epoch Times.