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Collapse in global energy investment risks slowing transition, create supply shortage: IEA

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Collapse in global energy investment risks slowing transition, create supply shortage: IEA

Highlights

Global energy investment seen plunging by 20% in 2020

Over 2 million b/d oil supply sidelined by 2025

Oil companies claim clean energy push unshaken by crisis

London — Global energy investment is expected to plunge by 20%, or almost $400 billion, in 2020 as the COVID-19 crisis risks slowing the world's transition to cleaner and sustainable energy systems, said the International Energy Agency on May 27.

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Through a combination of falling demand, lower prices and a rise in non-payment of bills, world energy revenues flowing to governments and industry are set to shrink by well over $1 trillion this year, according to IEA's World Energy Investment 2020 report.

Set to mark the largest ever collapse in global energy investment in history, the decline will take the heaviest toll on oil, said the IEA, with global consumer spending on the commodity set to fall below the amount spent on electricity for the first time.

"The historic plunge in global energy investment is deeply troubling for many reasons," said Fatih Birol, the IEA's Executive Director, adding:

"It means lost jobs and economic opportunities today, as well as lost energy supply that we might well need tomorrow once the economy recovers."

Coronavirus toll on global energy investment

"The slowdown in spending on key clean energy technologies also risks undermining the much-needed transition to more resilient and sustainable energy systems," said Birol.

The report comes a day after the heads of the world's biggest oil and gas producers pledged to maintain a strategic focus on producing cleaner energy and helping to mitigate climate change despite reeling from the impact of the pandemic on oil and gas prices.

Noting "concerns" that the COVID-29 crisis could push oil and gas companies and governments to delay climate action, the industry-led Oil and Gas Climate Initiative said May 26 that it is dedicated in maintaining this mission to help "combating the climate challenge."

Oil seen hardest hit in end-use energy spend

Supply crunch risk

With oil producers slashing upstream budgets and many national oil companies forced to limit spending overseas to focus on their domestic markets, however, global investment in oil and gas is expected to fall by almost one-third in 2020, according to the report.

The US shale sector is set to be hit hardest, with investment in shale forecast to fall by 50% in 2020 as investor confidence and access to capital has now "dried up", said the IEA.

The spending slump is also creating a "clear risk" of tighter oil and gas markets in the coming years if demand starts to move back toward its precrisis growth path, according to the report.

The decline in upstream investment in 2020 takes an estimated 2.1 million b/d away from anticipated oil supply in 2025, and some 60 Bcm of natural gas output.

"The lasting implications of today's crisis also depend on the scars that it leaves on the oil and gas industry," the report said, adding:

"A prolonged period of lower prices could provoke a profound industry shake-out, with weaker or higher-cost players forced to the sidelines or out of the business altogether...A more concentrated and risk-averse industry could struggle to invest adequately in new supply."

By comparison, the IEA had said at the start of 2020 that global energy investment was on track for growth of around 2%, which would have been the largest annual rise in spending in six years.