Recently, market analyst Julian Lee wrote an article saying that Saudi Arabia’s warning about the collapse of oil supply was correct. The world’s need for cheap oil isn’t going away anytime soon. If supply doesn’t increase, that’s not a good sign.
Saudi Arabia warns that global oil production will plummet by 30% in 2030 due to reduced investment
Saudi Energy Minister Abdulaziz bin Salman said in an interview last week that global oil production will fall by 30% by 2030 due to reduced investment in fossil fuels. He also predicts that daily oil production may decrease by 30 million barrels in 2030 due to insufficient investment in exploration and development of new resources, which means daily production will be less than 70 million barrels.
One thing to note is that the world’s need for cheap oil isn’t going away anytime soon. As shown in the figure below, even the International Energy Agency (IEA) believes that oil demand will remain near pre-epidemic levels by 2030 (the blue column in the figure represents transportation demand, the black column represents industrial demand, and the gray column represents construction industry demand, while the red column represents the demand of other industries)
Even with the environmental policy announced ahead of the United Nations Climate Change Conference last November, the agency projected oil demand in 2030 at 500,000 barrels per day, just 0.5% below pre-pandemic levels. In its “sustainable development” scenario, advanced economies achieve net-zero emissions by 2050, and all other countries by 2070 at the latest. Under this scenario, emissions reductions by the end of the decade are estimated to be just 9 million barrels per day, or 9%. Saudi Arabia said that even so, the world will still need about 90 million barrels of oil per day by 2030, leaving a supply gap of 21 million barrels, which is more oil than the United States consumed in 2019.
Many countries around the world are working hard to increase production. U.S. production has increased but is still below the pre-epidemic peak.
Saudi Arabia is investing in increasing its own oil production, but only plans to add another 1 million barrels per day in the coming years. Other Middle Eastern countries such as the United Arab Emirates, Kuwait and Iraq are also investing in increasing production capacity. Russia has big plans for its Arctic wilderness, but it’s a remote, inhospitable place that’s one of the worst places to invest in oil extraction from an environmental perspective.
There are also large projects under construction in other regions such as Kazakhstan, Azerbaijan and Brazil that will also increase supply before the end of the century. However, production in all oil fields is currently declining, averaging 4% to 8% per year, requiring significant investment to keep production constant.
Meanwhile, U.S. oil production is slowly rising. By the end of next year, oil production is expected to remain about 760,000 barrels per day below its pre-pandemic peak. The heady days of the first and second shale oil booms are behind us.
As shown in the chart below, U.S. oil production is expected to remain below its pre-pandemic peak through the end of 2022
In 2020, global oil and gas project spending fell by 30% to US$309 billion, with only a slight recovery this year. Over the next 10 years, a return to levels close to pre-pandemic levels of $525 billion a year is needed to meet rising demand, according to the International Energy Forum, a Riyadh-based think tank and consulting firm IHS Markit. Western oil majors such as Royal Dutch Shell, BP, Total Energy and others are increasingly focusing their investments on natural gas and renewable energy rather than oil. For example, BP’s oil production in 2022 is expected to be higher than this year, but output is still expected to be 6.5% below its 2017 peak.
The editor reminds that based on the above information, we can see that, as Saudi Arabia warned, future oil supply will face huge challenges due to reduced investment. At the same time, the world’s demand for oil will not disappear. If the epidemic is controlled or improved, demand may rise further. Taking these factors into account, oil prices are expected to be supported in the medium and long term, and investors need to pay attention to this.
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