Companies are either investing too much or too little in oil and natural gas, depending on whether or not the world takes aggressive action to reduce greenhouse gas emissions, concludes a new International Energy Agency report.
Driving the news: Oil spending levels, which have dropped since 2014 when oil prices collapsed, would need to drop even more to be consistent with the goals outlined in the 2015 Paris Climate Agreement. But investment levels also “fall well short of what would be needed in a world of continued strong oil demand,” the report states.
Where it stands: The above chart shows how conventional oil and gas discoveries are at record lows, creating risk in the coming years of either not enough oil for current demand or too much oil in a carbon-constrained world.
- The report says investment in exploration is set to rise to $60 billion this year, an increase of 18% compared to 2018, which “would be the first one since 2010.”
- “Nonetheless, the share of exploration in total upstream investment remains almost half the level in 2010.”
Between the lines: IEA excluded from this chart unconventional resources, like the ones found in shale rock formations driving America’s oil and gas boom. That’s because shale resources aren’t “discovered” the same way conventional kinds are. And anyways, the latter remain the dominant channel for investment (about two-thirds).
What they’re saying: Government uncertainty on climate policy is leading oil and gas companies to focus on more profitable projects with shorter lead times — like shale resources — that expose them less to long-term uncertainty, according to IEA expert Michael Waldron: “Governments have not clearly committed nor have they clearly not committed to reaching the Paris Agreement targets.”
Go deeper:
- A new survey of oil officials by consultancy Wood MacKenzie sees optimism for exploration spending.
- Five more trends of the new IEA report.