ARAMCO Warns Underinvestment, High Capex, Will Lead To Energy Insecurity

Global oil producers have warned that underinvestment in oil and gas production, mainly due to pressure on oil majors to invest in renewables, coupled with higher borrowing costs, could lead to global energy insecurity in the future even as demand starts to increase.

Senior oil officials from Saudi Arabia, the United Arab Emirates and the Organization of the Petroleum Exporting Countries, known as OPEC, reiterated their concerns this week about global energy insecurity. Amin Nasser, the CEO of Saudi Aramco, one of the world’s largest oil companies, said that elevated capital costs will weigh on the availability of sufficient supplies at reasonable prices in the future.

Investment in oil and gas is currently nearly half of what it was around 10 years ago, Nasser said during a speech at the Saudi Capital Market Forum 2023 in Riyadh on February 12. “This will negatively affect global energy security,” he added.

The United Arab Emirates echoed Saudi Arabia’s position later in the week about meeting supply concerns. “I’m not worried about demand — what worries us is whether we are going to have enough supplies in the future,” the UAE’s Energy Minister Suhail Al Mazrouei told Bloomberg TV on February 14.

Major oil and gas companies are being pressured by environmental activists and institutional investors with big ESG agendas, such as Blackrock and State Street, to shift their investment strategies to a focus on renewable energy rather than hydrocarbons. This has occurred as Washington and some European governments curtail oil and gas exploration and implement policies that prioritize renewable investments.

Efforts by governments to meet environmental targets, such as net zero emissions, will disrupt stable energy supplies, according to the oil officials. OPEC’s Secretary General Haitham Al-Ghais called for much more investment in oil to meet the world’s future energy needs and said climate policies need to be more “balanced and fair.”

The oil industry had been “plagued by several years of chronic underinvestment,” OPEC’s Al-Ghais said, adding that it needs about $500 billion of investment annually until 2045.

Imperative

Al-Ghais said at an energy conference in Cairo that it is “imperative that all parties involved in the ongoing climate negotiations pause for a moment; look at the big picture.” He called on them to “work towards an energy transition that is orderly, inclusive and helps ensure energy security for all.”

While environmental, social and governance factors are "clearly a rising trend" in capital allocation decisions and a move in the "right direction," the energy crisis in Europe has demonstrated that “alternatives are not ready to shoulder the heavy burden of global demand," Aramco’s Nasser said.

“From my perspective, for a less risky global energy transition, everyone – including capital markets around the world – must take a more realistic and balanced view of how the global energy transition will unfold,” he said.

$4.9 Trillion by 2023

When global economic growth picks up, significant energy investment will be required.

A cumulative $4.9 trillion will be needed between 2023 and 2030 to meet market needs and prevent a supply shortfall, even if demand growth slows toward a plateau, according to a report on February 16 by the International Energy Forum (IEF) and S&P Global Commodity Insights. Annual upstream investment will need to increase from $499 billion in 2022 to $640 billion in 2030 to ensure adequate supplies.

“This estimate for 2030 is 18% higher than we assessed a year ago primarily because of rising costs,” the IEF said. “If investment falls short, high-prices and high-volatility could become the new standard. Underinvestment threatens to undermine energy security in the short and medium-term.”

Some oil companies are heading the warnings. BP Plc said on February 7 that it aims to increase investment into resilient high-quality oil and gas projects - again by an average of up to $1 billion a year, or up to a cumulative $8 billion to 2030.

“The investment will help to meet near-term demand for secure supplies of oil and gas, generating additional earnings that can further strengthen bp and support investment in its transition,” it said.