The oil industry runs the risk of not being able to cope with the growth of demand, especially if it drastically reduces its investments because of low prices. Are the oil companies “belts” too tight? Noting that certain discontinuities had shaped the oil industry in recent years, the latter actually faced rising competition from renewable energies. Experts specializing in hydrocarbons felt that reducing their investment was not necessarily the best way to drive the market to a new reality. While acknowledging that climate change is a problem that needs to be tackled immediately, it must also be handled delicately as the demand for energy continues to grow.
There was a 20% drop in oil and energy investment in 2016. Citing the decision from the Organization of Petroleum Producers (OPEC) not to reduce production, the high level of American supply and the unexpected resistance of U.S. producers of shale oil, experts stressed that declining prices are making the industry react by reducing costs and decreasing projects experiencing higher costs until times are better. The overall effect is that upstream investment spending has been reduced to dangerous levels. In fact, people should read what she said here.
By 2015, investments have fallen by 20% and this year they are expected to drop even more to about $450 billion. According to the International Energy Agency (IEA), about $600 billion of annual investment was needed to offset the decline in world production, estimated at five percent per year. In other words, it may come a time where the energy sector may not be able to produce enough energy. Some experts argued that the decline in investments could be justified by the fact that demand is lower, but it has increased since 2015 and is at its highest level since 2010. If this situation persists, the world will have a serious problem trying to produce energy. If the oil industry cannot control volatility in the short term, it could at least survive a major imbalance, namely the lack of alignment of prices and costs. If folks consider that oil prices have fallen by about 70% (since mid-2014), costs have dropped only 15% -20%, keeping in line with oil barrels being sold around $120 dollars per barrel.