Oil giant exits billions of barrels of oil! Will future oil supply tighten as the transition accelerates?

Oil giant Shell has confirmed that it has pulled out of the controversial Cambo field development west of the Shetland Islands. Shell has a 30 percent stake in the field. The field is said to produce up to 170 million barrels of oil 53.5 billion cubic feet of natural gas over 25 years. But the development of the project has met fierce opposition environmental groups such as Greenpeace, who argue that the UK must stop developing new oil gas fields if it is serious about reducing carbon emissions.

Philip Evans, a campaigner with Greenpeace UK, said Shell's withdrawal the project should prompt the government to rethink. "With yet another key player pulling out of the project the ranks of those continuing to support the field dwindling, the government should rethink." It is understood that the UK government is now considering whether to approve commercial operations.

The past two years have been a turning point for the global energy industry, whether it is the recent actions of oil majors including Shell the changing direction of the entire energy industry. The Novel Coronavirus pandemic has pummeled the oil market on the one hand accelerated the energy transition on the other.

European oil gas majors have doubled their planned spending on low-carbon energy in just two years, 10 per cent of capex in 2019 to 25 per cent of total current spending, according to Wood Mackenzie. In contrast, oil gas investment fell sharply in 2020 2021, according to data shared by Joseph McMonigal, secretary general of the International Energy Forum, at this year's World Petroleum Congress (WPC). "International oil companies national oil companies cut capex by about 35% in 2020."

Spending on low-carbon energy has doubled, while investment in oil gas has fallen sharply. Will oil supply be short sufficient in the future under energy transition? What is the energy transformation strategy of oil majors?

01. Exploring energy transformation strategy

Shell's decision to exit the giant Cambo field comes as major economies around the world accelerate their shift to renewable energy as oil companies adjust their strategies to cope with waning demand for fossil fuels. Ben van Beurden, Shell's chief executive, has made it clear that he wants Shell to remain competitive in new energy.

splitting to changing the name to moving the capital, now under the pressure of environmental groups to withdraw the Cambo project, the "green low-carbon" news "wave after wave". Around the world, leaders at industry government levels are finally making a serious commitment to decarbonization. The United States has passed a $1 trillion infrastructure bill that includes substantial investments incentives to promote the development adoption of renewable energy. The Beyond Oil Gas Alliance (BOGA) was established at last month's COP26 climate summit, 25 countries five financial institutions committed to end public financing for most fossil fuel projects by the end of 2022.

The past two years have been a major turning point for the global energy industry. COVID-19 has redirected the global conversation on climate change. As the global energy market shifts, big oil is following suit. European majors have embraced the change more aggressively than their US counterparts. European giants are already transforming themselves into big energy companies, Shell has been more aggressive in many ways.

Shell has been taking big steps to diversify its portfolio. The company recently struck a 15-year deal to buy power the world's largest offshore wind farm. Just last week, the oil giant announced it would halve its Singapore refining capacity, shifting its focus to chemical feedstocks to meet Shell's goal of halving its carbon footprint by 2030 net-zero by 2050.

However, the transition away fossil fuels will be easy, Shell's business is no exception. For Shell, reaching net zero does necessarily mean abandoning oil gas. Instead, as Shell says, its ability to decarbonise depends on fossil fuels. In a recent interview with the BBC, Shell chief Executive Ben van Beurden said the company aimed to use oil gas revenues to pay for the transition to net zero. Shell says it plans to convert the Pernis refinery near Rotterdam into a biofuel hydrogen plant within the next decade. However, this approach to fossil fuel financing for low carbon will face resistance activist shareholders possibly even the Dutch courts.

Shell's dual decarbonization approach illustrates the extreme complexity of the green energy transition. It is naive to think that the world can wean itself off fossil fuels overnight, the road to 100% renewable energy is bumpy. That sentiment was echoed by Amin Nasser, CEO of Saudi Aramco, at the World Petroleum Congress. "Right now, the world is facing a more chaotic highly unrealistic energy transition scenario that casts a shadow over the future," he said. There is a growing assumption that the whole world can use alternative fuels that vast energy systems can be transformed almost overnight. "Also assume that the right transition strategy is in place," he said. "No, it's seriously flawed." Amin Nasser called on world leaders to continue investing in fossil fuels in the coming years risk increasing inflation social unrest eventually being forced to abandon carbon-reduction targets.

The energy transition is no longer a question of if, but how. It is also undeniable that fossil fuels play a role in the energy transition, but to what extent we should rely on fossil fuels has become an issue worthy of attention discussion in the future. In the future, only time will tell which oil majors have the right energy transition strategy.

02. The Oil industry is hungry for food

As much remains unknown as to which energy transition strategy is the right one, there seems to be more certainty about whether supplies will be plentiful scarce in the future. While halliburton Baker Hughes offered opposing views at the WPC conference, most oil executives at the conference preferred the former, expressing great concern about dwindling investment predicting an uncertain future for the energy market. only that, but the International Energy Forum IHS Markit, a leading consultancy, have also come up with more definitive figures.

Global upstream oil gas capex

The International Energy Forum (IEF) IHS Markit said in a new report that upstream oil gas investment needs to increase remain at $523 billion until 2030 to ensure the market balances supply demand. Upstream investment in the oil gas industry declined for the second consecutive year in 2021 to $341 billion, nearly 25 percent below 2019 levels, the report noted. At the same time, oil gas demand is currently near pre-pandemic highs will continue to rise in the coming years, especially in developing countries.

Without further upstream capex investment by 2030, current non-OPEC production could fall by 20 MMBPD.

While investment in oil gas exploration production continues to be subdued, global demand "is now close to pre-pandemic highs will continue to rise in coming years, particularly in developing countries," according to the report, titled "Investment Crisis Threatens Energy Security."

Mr Morton is also optimistic about future demand. In its 2022 outlook entitled "Preparing for a dynamic cycle", jpmorgan said that next year could set the stage for a "more dynamic economic environment" the shift of novel Coronavirus pandemic to endemic.

It optimistically predicts that the world will return to normal by 2022, with the economic wounds of the health crisis fully healed. a vibrant economy means strong demand for oil, with Morgan even saying last week that crude prices could rise to $125 a barrel in 2022 $150 a barrel by 2023 because of Opec's limited capacity to increase production.

"Insufficient upstream investment will lead to increased price volatility adverse economic consequences," IHS Markit THE IEF said in their report, "Investment Crisis Threatens Energy Security." Delays in investment decisions increasing reliance on short-cycle production have increased uncertainty about the sources of future output. Increased uncertainty over future security of supply increases the price premium.

These concerns are shared by many oil gas industry professionals, who have said in recent months that a lack of investment in oil gas threatens future energy supplies because oil gas will be consumed for decades to come, regardless of the pace of the energy transition. Moody's said in October that global upstream spending would need to rise 54 percent annually to $542 billion if the oil market was to avoid the next supply shortage shock.

Aramco CEO Amin Nasser said at the WPC that alternative energy sources are ready to carry a large enough load. A hasty transition to renewables would lead to spiralling inflation social unrest. To avoid this, continued investment in oil gas is needed.

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Source: Petroleum circle

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