Adnoc chief warns 5m barrels a day at risk if oil investment halts

• Such a loss would make this year’s energy shocks a mere ‘minor tremor’
• 2022 is third consecutive year of underinvestment in oil and gas 
• Mena is forecast to invest $879bn in energy projects up to 2026

The head of the state-owned Abu Dhabi National Oil Company (Adnoc) has warned that the world will lose five million barrels per day of oil each year from next year if investments in the sector grinds to a halt.

“Now is not the time to point out that long-term underinvestment in oil and gas has made a difficult situation even worse, as the data is clear,” Dr Sultan Al Jaber, managing director and group chief executive of Adnoc, said on Monday.

Speaking at the Abu Dhabi International Petroleum Exhibition and Conference (Adipec), Al Jaber warned that “this would make the shocks we have experienced this year feel like a minor tremor”. 

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“If this year has taught us anything, it taught us that energy security is the foundation of all progress – economic, social and climate progress,” he said, adding that “energy is everybody’s top priority” as the global energy sector is battling “a perfect storm”.

Energy analysts have pointed to the fact that the initial disruption wreaked by the coronavirus crisis on supply chains has been exacerbated by Russia’s ongoing war in Ukraine. 

According to the International Energy Forum, oil and gas upstream investment needs to increase and be sustained near the pre-coronavirus levels of $525 billion through 2030 to ensure market balance. 

However, 2022 will mark the third consecutive year of underinvestment in the industry, according to the Riyadh-based International Energy Forum. 

In the first quarter of 2022, oil and gas companies spent 50 percent of the cash they generated on capital expenditure (capex), with 11 percent going towards share buybacks, 26 percent on dividends and 11 percent on servicing debts. By comparison, in 2015, firms spent 79 percent of their cash on capex. 

Meanwhile, upstream investment in 2021 was also depressed at $341 billion – about 25 percent below 2019 levels.

“The Ukraine war should definitely incentivise higher investments ex-Russia, because the loss of Russian oil and gas supplies is leaving a large gap to plug, particularly for Europe,” Emma Richards, associate director of oil and gas at Fitch Solutions, told AGBI. 

“Some of that supply loss can be offset through demand destruction, but new sources of production are needed too and that creates opportunities for other producers.

“That being said, we’d still expect global capex to remain depressed below its 2014 peak for several years to come.” 

The Middle East is bucking the global trend by boosting investment in oil and gas – the Mena region is forecast to invest $879 billion in energy projects from 2022 to 2026.

This is an increase of nine percent over the previous five years, according to the latest Mena Energy Investment Outlook from Arab Petroleum Investments Corporation.

“Our world is on its way to being home to 9.7 billion people by 2050. To meet their needs, the world will have to produce 30 percent more energy than today,” Al Jaber said.

Under current plans, Adnoc is aiming to significantly increase its investment in hydrocarbons and raise its output capacity to five million barrels per day (bpd) by 2030.

Yet fossil fuel companies are coming under intensifying global pressure to cut capex investment.

Despite windfall profits this year – the Ukraine war helped propel Brent crude to a 10-year high in June and natural gas to a 14-year peak in August – global oil companies have been reluctant to plough money into new drilling activity in the face of mounting pressure from investors and regulators.

At the same time, oil producers came in for heavy criticism earlier this month when the 23-member Opec+ alliance announced that it would be slashing its output by two million bpd from November.

This marked its biggest production cut since the start of the coronavirus pandemic in 2020, on expectations of a global economic slowdown.

Also speaking at Adipec, UAE minister of energy and infrastructure Suhail Al Mazrouei said Opec+ is “keen on” meeting global energy requirements, before adding: “At the same, time we are not the only producers in the world. There are others who need to do their part in investing and encouraging investments.” 

Khatija Haque, chief economist and head of research at Emirates NBD, said: “If you look outside of Opec+, we are not really seeing many investments into hydrocarbons and hydrocarbon technologies.

“Within Opec+, there are restraints as to how much each country can even produce, and some of them haven’t been able to meet their targets. 

“I think when you are looking at energy security there is a need to invest in hydrocarbons to provide energy for future projects, but it can also be done in a much better and environmentally friendly way. 

“So new technologies can be developed that will potentially allow hydrocarbons to be extracted and refined without causing the same kind of environmental impact.”

Haque noted that both the UAE and the GCC are increasingly investing in such technologies.

Meanwhile, Jihad Azour, director of the IMF’s Middle East and Central Asia department, said that the recent crisis has taught the world that “energy stability still matters” and the geopolitical impact of the Russia-Ukraine war showed the adversity for those who did not have energy resources.

“I think reconciling is going to be the new equation,” said Azour. “We need to accelerate investment in new kinds of energy to make it more affordable, as well as to have the capacity to develop technology very fast. We should work more on converging our strategy.”