Left: Global gas output by type, billion cubic metres (bcm). Right: Average annual change. Credit: IEA.
The shift towards unconventional resources, such as shale oil and gas, means that the output from existing fields will decline ever-more steeply without continued investments.
Indeed, the IEA report shows that this is already the case, with global “decline rates” for both oil and gas getting steeper – and the trend set to accelerate – as shown in the figure below, for gas only.
Left: Historical global gas production, bcm, (light blue) and decline rates if there had been no further investment as of 1980, 1990 and so on. Right: Average annual loss of production with no further investment, by decade. Credit: IEA.
The consequence of these accelerating rates of decline is that the oil-and-gas industry is already needing to “run fast to stand still”, the IEA report explains.
It notes that nearly 90 per cent of annual upstream investment in the sector since 2019 has been “dedicated to offsetting production declines rather than to meet demand growth”.
The industry needs to invest around US$500 billion per year, just to maintain current output, it says.
With investment set to reach US$570 billion in 2025, the IEA notes that this is enough to sustain “modest” production growth, but only a “small drop” away from flat or declining output.
The IEA also notes that around the world, on average, there is a delay of nearly 20 years from the issuing of oil and gas exploration licenses, until additional production starts to flow. It explains:
“This includes five years on average to discover the field, eight years to appraise and approve it for development, and six years to construct the necessary infrastructure and begin production.”
(In a recent speech pledging to “maximise extraction” of oil and gas from the North Sea, if elected, the UK’s opposition Conservative leader Kemi Badenoch talked of the need for new licenses.)
Need for new investment?
The IEA report goes on to show that without continued investment in maintaining output, global oil and gas production would plummet, as shown in the figure below.
Global oil (mb/d, left) and gas production (bcm, right) if upstream investment stopped. Credit: IEA.
The Financial Times said the IEA report illustrated the “costly battle” facing the oil-and-gas sector if it wants to maintain current output.
However, the newspaper added that the sector would likely welcome the findings:
“The IEA’s findings are likely to be greeted enthusiastically by the oil industry, which has consistently maintained that it needs to spend heavily to maintain its current production levels.”
The catch is that the report also spells out the implications of falling demand, in a world that limits warming to below 1.5°C above pre-industrial levels.
In the 1.5°C-compliant “NZE scenario”, the IEA says that a “huge acceleration in the pace of energy transitions relative to current trends” would see oil and gas demand falling dramatically.
It adds that if this drop in demand were to happen, then no investment in new oil and gas production would be needed, as shown in the figure below. Specifically, the IEA report says:
“The pace of demand reduction in the NZE [1.5°C] scenario is therefore sufficiently rapid that, in aggregate, no new long lead-time conventional upstream projects would need to be approved for development.”
(The IEA says that even in this 1.5°C-compliant “NZE scenario”, there would still need to be some investment in “existing and approved” projects, to balance decline rates.)
Global oil and gas production in 2024 (grey bar) and in the future with no investment (light blue) and with investment in existing and approved projects (dark blue). Demand under the 1.5C-compliant “NZE scenario” is shown by the green circles. Credit: IEA.
The new report, thus, reiterates the IEA’s previous finding that no investment in new oil and gas would be needed if the world got onto a 1.5°C path.
However, it puts the emphasis more firmly on the need for demand to decline, in order to eliminate the need for new investment, contrasting with the way this finding has been widely reported.
In its coverage of the 2021 finding, for example, the Guardian reported that oil and gas development “must stop…if the world is to stay within safe limits”.
On the contrary, the new IEA report says that investment in new oil-and-gas development will be needed to meet demand, unless demand is dramatically reduced in line with the 1.5°C limit.
In addition to making this point more firmly, the IEA report notes that a swathe of the highest-cost oil and gas projects in the world would need to close early – effectively becoming stranded assets – if demand for the fuels declines in line with the 1.5°C limit. It says:
“[T]o ensure a smooth balance between supply and demand, declines in demand in the NZE scenario would lead to the early closure of several higher cost projects before they reach the end of their technical lifetimes. In 2050, for example, around 8mb/d of oil production and 250bcm of gas production would be retired earlier than would be implied by observed decline rates.”
This story was published with permission from Carbon Brief.
