Middle East will have to take the investment lead if the challenge is to be met
RIYADH, Saudi Arabia/ Troy Media/ – To quench the still growing global thirst for crude will require a major increase in investments in the energy sector, according to the Paris based International Energy Agency (IEA), the OECD energy watchdog.
An in its recently released Energy Investment Outlook, IEA emphasized that the Middle East will have to take the investment lead if the challenge of meeting future global energy needs are to be met.
But whether the energy-rich Middle East is ready to do the heavy lifting remains a major variable on the future global energy balance.
With 1.3 billion people in the world still lacking adequate access to electricity, this ‘crude-driven civilization’ will also have to balance future energy needs, at affordable prices, while preserving the environment for posterity, according to IEA.
IEA estimates that $48 trillion in investments will be required by 2035 to meet the growing global energy demand, with more than half going toward just keeping the energy supply at current levels. The $48 trillion estimate is already a whopping 25 per cent increase per year from what is currently being invested in the sector globally.
Of the total amount, $8 trillion is estimated to be needed to ensure and enhance energy efficiency, $23 trillion for fossil fuel extraction, transportation and refining, $10 trillion for power generation ($6 trillion in renewables, $1 trillion in nuclear) and $7 trillion for transmission and distribution.
However, investments could touch the $53 trillion mark if, besides ensuring adequate energy supplies, the world were to opt for reducing emission to restrict the rise in global temperatures by only 2 degrees C by 2035.
To meet this challenge, IEA’s chief economist, Fatih Birol, warned while unveiling the report in London that the energy-rich Middle East will need to start investing “today if not yesterday.”
‘We look at the Middle East, where increased investment remains absolutely critical to the longer-term outlook for oil markets, once the current surge in non-OPEC production starts to plateau in the 2020s; if investment does not pick upas needed, this will mean much tighter and more volatile oil markets in the 2020s,’ IEA’s report underlined. That means that the world will again become (increasingly) dependent on the Middle East.
When the current rise in non-OPEC supply starts to run out of steam in the 2020s, and if Middle East investment fails to pick up in time to avert a shortfall in supply, IEA predicts the result will be tighter and more volatile oil markets, with an average price almost $15/barrel higher in 2025 ($130/barrel vs $116/barrel).
The report also warned that oil majors active in the sector will also have to amend their profit expectations because of the growing call on capital investments.
In a 2013 report the IEA had reported that nearly half of the total oil production growth between now and 2035 would come from Iraq and Brazil. Iraq has succeeded in boosting its production to 3.6 million bpd, the highest level in 30 years, but its ability to nearly triple its oil production over that timeframe – which the IEA is counting on – is suspect. As a result, oil prices could spike much higher by the 2020’s than the IEA current estimates of $15 per barrel, Nick Cunningham of Oilprice.com asserts.
But with the euphoria of energy independence permeating the northern hemisphere over finally being able to curtail the power of middle-eastern oil, will investors really go full throttle and make investments in the Middle East as is required?
One doesn’t need to be a pundit to answer that question. The overall environment is simply not conducive to making major investments.