• 3 minutes e-car sales collapse
  • 6 minutes America Is Exceptional in Its Political Divide
  • 11 minutes Perovskites, a ‘dirt cheap’ alternative to silicon, just got a lot more efficient
  • 4 hours GREEN NEW DEAL = BLIZZARD OF LIES
  • 7 hours How Far Have We Really Gotten With Alternative Energy
  • 9 hours If hydrogen is the answer, you're asking the wrong question
  • 4 days Oil Stocks, Market Direction, Bitcoin, Minerals, Gold, Silver - Technical Trading <--- Chris Vermeulen & Gareth Soloway weigh in
  • 6 days The European Union is exceptional in its political divide. Examples are apparent in Hungary, Slovakia, Sweden, Netherlands, Belarus, Ireland, etc.
  • 22 hours Biden's $2 trillion Plan for Insfrastructure and Jobs
  • 4 days "What’s In Store For Europe In 2023?" By the CIA (aka RFE/RL as a ruse to deceive readers)
Nick Cunningham

Nick Cunningham

Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon. 

More Info

Premium Content

The IEA's Dire Warning For Energy Markets

Global energy investment “stabilised” at just over $1.8 trillion in 2018, ending three years of declines.

Higher spending on oil, natural gas and coal was offset by declines in fossil fuel-based electricity generation and even a dip in renewable energy spending. China was the largest market for energy investment, even as the U.S. closed the gap.

After the 2014-2016 oil market bust, spending on oil and gas plunged, and only started to tick up last year. But the oil industry is not returning to its old spending ways. New investment is increasingly concentrated in short-cycle projects, namely, U.S. shale, “partly reflecting investor preferences for better managing capital at risk amid uncertainties over the future direction of the energy system,” the IEA wrote in its report.

Upstream spending rose by a modest 4 percent, which only partially repairs the savage cuts following the 2014 bust, which saw upstream spending fall by about 30 percent. However, the IEA said that 2019 could be a bit of a turning point, with a “new wave of conventional projects” in the works.

Despite the increase in spending on new oil projects, “today’s investment trends are misaligned with where the world appears to be heading,” the IEA said. “Notably, approvals of new conventional oil and gas projects fall short of what would be needed to meet continued robust demand growth.” Related: Will Russia Abandon The OPEC+ Oil Deal?

(Click to enlarge)

But in the next breath, the IEA warned that the world is on an unsustainable path in terms of carbon emissions. “There are few signs in the data of a major reallocation of capital required to bring investment in line with the Paris Agreement and other sustainable development goals,” the agency said. “Even as costs fall in some areas, investment activity in low-carbon supply and demand is stalling, in part due to insufficient policy focus to address persistent risks.”

These goals are at odds with each other – investing in new sources of oil and gas to ensure supply growth for years to come, while at the same time reallocating capital to renewable energy to accelerate an energy transition away from fossil fuels.

In fact, the IEA acknowledges as much. Despite oil and gas spending standing at a fraction of pre-2014 levels, the agency said that spending on fossil fuels “would need to taper further to be consistent with” the Paris Climate Agreement. “However, investment levels fall well short of what would be needed in a world of continued strong oil demand.”

In other words, on a business-as-usual trajectory, the world could find itself short on oil in the next decade absent a major increase in spending on developing new reserves. However, if there is any hope of reaching climate goals, spending on oil, gas and coal needs to fall. It’s largely a zero-sum equation, one that many governments have failed to reckon with. Related: Oil Opens Higher After Saudi Arabia Reports Attacks On Oil Tankers

It’s entirely conceivable that by 2030, clean energy accounts for 65 percent of total energy investment, up from 35 percent today, although it will require a “step-change in policy focus, new financing solutions at consumer and bulk power levels and faster technological progress,” the IEA said.

The good news is that costs continue to fall. Solar PV has seen costs decline by 75 percent since 2010, and onshore wind and battery storage costs are down by 20 percent and 50 percent, respectively. As such, a dollar spent on renewables buys a lot more energy than it used to, so flat investment is not entirely negative. And in a growing number of places, solar and wind are the cheapest option for power generation – increasingly cheaper than existing coal plants.

Geographically, investment is concentrated in rich countries. Roughly 90 percent of total energy investment – both for fossil fuels and for renewable energy – was funneled into high- and upper-middle income regions. Rich countries alone accounted for 40 percent of total energy investment, despite only making up 15 percent of the global population.

ADVERTISEMENT

Those figures are flipped for lower-middle and poor countries – 40 percent of the population but only 15 percent of total energy investment. Even within those unequal figures, India dominates, which means that the rest of the Global South sees a vanishingly small percentage of energy investment. Because higher income countries simply have more aging assets to replace, the investment breakdown will likely continue at current figures, but the IEA warns that the makeup needs to “rebalance towards the fast-growing needs of lower-middle and low-income countries.”

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:


Download The Free Oilprice App Today

Back to homepage





Leave a comment
  • James Hilden-Minton on May 14 2019 said:
    I don't think the energy industries really need the IEA to advise them on what to invest in. The IEA is pretty damn condescending in its recommendations. I think investors have a much clearer view of what it prudent to sink capital into. The IEA has proven it cannot predict how fast renewables are declining in cost and growing in scale. This is the big uncertainty about energy investments. Renewables are reshaping energy economics. Watch out for battery storage to dislocate peak generation and transform wind and solar into load-following resources (when they are not recharging batteries). EVs (inclusive of heavy duty EVs) are also at scale to shift oil demand by more than 100kb/d in a single year and by more than 1mb/d cumulatively over a 5-year horizon. This is big uncertainty the value of the marginal barrel of oil. Investors are smart to take a cautious stance.

    The IEA does provide a useful service tracking the data. I believe the should do more to track batteries and the battery supply chain. Automotive batteries are excluded from this analysis, which is becoming a significant gap. Batteries are significant energy assets and are increasingly reshaping multiple energy markets. The IEA does the public a disservice to underestimate the role and advance of batteries in the same way they have misunderstood renewables.


    Particularly as relates to understanding investments, batteries are reconfiguring investments in wind and solar. Paired with batteries, solar and wind will see an expansion of addressable segments of the power market. This very well can acceleration renewable investment. Longer-term batteries in the transportation will also allow renewables to more fully address transport fuel markets.

    If batteries are not adequately tracked, the IEA will not be able to see how batteries become an alternative to investing in oil and gas. Indeed adding 1GWh of batteries to the global fleet of batteries can satisfy demand for about 2500 boe/d of oil and gas. So investing in the battery supply chain is an alternative to investing in the marginal supply of oil and gas. This will become increasingly obvious as battery production ramps up.

    So if the IEA really wants to preach to the market about investing more in oil and gas, they would do well to encourage investments in battery production as well. But like I said, the energy markets don't really need the IEA to preach to them about what investments "ought" to be made. Investors will make these decisions well enough on their own.

Leave a comment




EXXON Mobil -0.35
Open57.81 Trading Vol.6.96M Previous Vol.241.7B
BUY 57.15
Sell 57.00
Oilprice - The No. 1 Source for Oil & Energy News