The Organisation of Petroleum Exporting Countries (OPEC) has again warned that reducing investment in the oil and gas industry due to pressure from activists and climate change crusaders might have serious implications for energy supply in the coming years.
Dr. Sanusi Barkindo, Secretary General of the organisation, while speaking during the 55th Meeting of the OPEC Joint Technical Committee (JTC), noted that given the projected dynamics in the market, lack of investment could lead to tighter supply which could distort the market.
Earlier, during the launch of its 2021 World Oil Outlook (WOO), OPEC had said the organisation was continuing to see oil demand growing, strongly in the short- and medium-term before demand plateaus in the long term.
It had insisted that fuel would continue to retain the largest share in the energy mix at 28 per cent in 2045.
Cumulative investment requirements in the global oil sector could amount to $11.8 trillion over the 2021-2045 period, of which upstream could account for 80 per cent.
The document indicated a modest change from last year’s estimates, rising to 103.6mn b/d in 2025 from 90.6mn b/d 2020, with long-term demand slightly lower at 108.2mn b/d in 2045 compared with 109.1mn b/d previously.
But the view from OPEC was in contrast with that of the International Energy Agency (IEA), a strong voice for renewable energy sources, which in a May report had said investors should not fund new oil projects if the world wants to reach net zero emissions by 2050.
However, Barkindo said current tightness in the gas market was having ripple effects across sectors that depend on the all-important fuel, with potentially negative implications for the world’s economic growth potential.
He stressed that already, there are signs that tightness in the gas market could further drive demand for substitute fuels, including oil products for heating and power generation.
These developments, he said, reinforce the need to keep a close watch on supply and demand fundamentals in the coming months, taking into consideration the weather and seasonal factors.
“The situation in the gas market appears to be exacerbated by logistical problems, supply disruptions and investment challenges stemming from last year’s demand slump.
“Regarding investment, what we are seeing now could become more pronounced in the future, given the current policy efforts and investor activism aimed at crowding out investment in essential fuels like oil and gas,” Nigerian-born Barkindo argued.
In view of the observed downward trend in commercial oil stocks over the past five months and recent tightness in the gas market with heightened market volatility, the secretary general urged the committee to carefully look at the supply requirements in the coming quarter and entering into the first quarter of 2022.
He urged its members to bear in mind the uncertainties and associated downside risks, particularly in the second half of 2022.
He mentioned some uncertainties that merited close attention as clogged supply chains, inflationary pressures and unease about mounting piles of debt which represent risks to recovery.
Barkindo reiterated that the global economy remains on course to grow by a robust 5.6 per cent this year and by a healthy 4.2 per cent in 2022 as China and India continued to see strong economic activity, although localised COVID-19 restrictions, supply bottlenecks and weaknesses in some key indicators could slow the momentum.
He said: “To put the overall situation in perspective, allow me to turn back the clock to January and the 47th JTC, when we expected the global economy to grow by 4.4 per cent this year – a full 1.2 percentage points lower than the current outlook!
“Solid underlying fundamentals are supporting the oil market, with the outlook remaining similar to the last JTC meeting. For this year, we continue to see demand rising by 6.0 mb/d, to average 96.7 mb/d. In 2022, oil demand is expected to grow by around 4.2 mb/d and return to pre-pandemic levels of around 100.8 mb/d.”
The secretary general stated that the OPEC and non-OPEC ministerial decisions to begin returning 400,000 b/d to the market each month continue to help balance the need for incremental increases to address demand, while guarding against the potential for supply overhangs.