As environmental policies tighten their grip, major oil firms are hesitating to ramp up production, despite soaring profits and rising crude oil prices that might soon cross the $100-per-barrel mark. Rather than investing in ramping up oil output, many are channeling their profits into rewarding shareholders via dividends or share buybacks.
Green activists argue that this trend could hasten the world’s pivot to renewable energy and reduce greenhouse gas emissions. But at the World Petroleum Congress held in Calgary, industry leaders expressed concerns that diminished investment in oil exploration might widen energy gaps in developing nations and fuel global inflation.
Exxon Mobil’s CEO, Darren Woods, emphasized the industry’s need for consistent investment. He mentioned that current reserves are depleting rapidly, with a 5-7% decrease yearly. Without sufficient investments, the world could face shortages, leading to skyrocketing prices.
Rystad Energy consultancy forecasts a modest rise in global upstream investments, reaching $579 billion in 2023, compared to an average of $521 billion annually from 2015 to 2022. This window includes the impacts of the oil price crash and the pandemic. Investments might remain stable for a few years but could decline around 2026 when electric vehicles and government policies begin to plateau oil demand.
Regulatory uncertainties are major concerns for companies. Alex Pourbaix, from Canadian producer Cenovus Energy, emphasized the need for clarity from governments, especially regarding significant projects. Countries, including the US and the EU, are pushing for a faster transition from fossil fuels in alignment with the Paris Agreement goals.
Recent Deloitte research indicates that global oil and gas investors are adjusting faster than the industries themselves. A significant portion is shifting their focus towards energy storage solutions.
Despite these challenges, not every oil firm is slashing their production budgets. For instance, Oil India Ltd, a state-owned enterprise, has plans to amplify its exploration investments within the country, which predominantly depends on oil imports.
However, the industry’s current emphasis on immediate returns might hint at a short-term vision instead of a future-focused strategy, observed Yrjo Koskinen, a professor at the University of Calgary. He noted a discrepancy between their claims about the long-term viability of oil and their present actions.