Future of oil supply at risk of underinvestment, Aramco CEO says

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Pumping jacks can be seen in the Midway Sunset oil field, California.

Lucy Nicholson | Reuters

Continued underinvestment in the hydrocarbons sector will keep global supplies tight, the head of the world’s largest oil company has warned, suggesting higher energy prices in the future as China reopens and business the plane coming back.

When asked by CNBC’s Dan Murphy about the current state of the oil market, Saudi Aramco CEO Amin Nasser said, “There is continued underinvestment in upstream and even downstream oil. The latest report from the IEA talks of a demand of 101.7 million barrels – going from 100 million barrels in 2022 to almost 2 million barrels more with China opening up and the aviation industry,” which has not returned to pre-Covid levels yet.

“There’s a lot of potential for growth in aviation,” Nasser said. “And with China opening up and the lack of investment, there’s certainly a medium- to long-term concern about ensuring there’s enough supply in the market.”

International benchmark Brent crude was trading at $84.43 a barrel on Friday afternoon in London, about flat year-to-date and about 5% lower than this time a year ago.

US fuel stockpiles have been larger than expected in recent months and expectations of weaker global growth have helped lower energy prices. But as drilling activity slows in response, that reduction in production will threaten future supply, Nasser said.

According to oil services company Baker Hughes, the active rig count in the US fell from a recent high of 627 in early December to 600 at the end of February. The number of cranes in use at the end of February is the lowest since early July 2022, the company said.

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“I think it’s very difficult – if you look at the cost on the sector, it’s about $370 to $400 billion, right now in the upstream side, compared to in 2014 , about $700 billion,” said Nasser when asked about the possible impact of wind money. taxes, climate change policies and decarbonization efforts on investment in the oil sector.

Policymakers in several countries are calling for windfall taxes on major oil and gas companies, many of which saw record profits in the past year, as a supply shock and years of underinvestment in the region pushing prices to multi-year highs.

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The oil industry debate has been dominated by tensions between the desire for cleaner energy sources to combat climate change and the need for energy security.

According to the UN Intergovernmental Panel on Climate Change, approximately 90% of global CO2 emissions come from fossil fuels and heavy industry. But demand for fossil fuels remains high, as an adequate energy supply and a balanced oil market are critical to economic growth, contained inflation, and national security.

For Nasser, there is a continuing threat to them due to lower investment in oil production.

“There is definitely a strong underinvestment. Maturity [means that] also over time, you need more investment,” said the CEO, referring to the fact that as oil fields improve and become cheaper, drilling costs increase.

More investment in production is needed to manage the rate of decline of oil fields worldwide, which has an average rate of decline of about 6%, Nasser said. That means in a system that is expected to produce 100 million barrels per year, “you need 6 million barrels just to offset the decline,” he explained.

“So there is a need for investment. And policymakers and regulators and investors must ensure that adequate investment is available in the sector,” he said. “Otherwise, it’s going to affect supply in the medium to long term.”

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