The Fuse

Key Takeaways from IEA’s Investment Report

by Matt Piotrowski | July 13, 2017

Consumers and industry should heed the IEA’s warning given the investment gap and demand still rising at a healthy clip with forecasts for it to continue to do so.

Ever since oil prices collapsed in 2014, the main consumer watchdog the International Energy Agency (IEA) has warned that limited investment in the upstream sector will lead to a price spike at some point. The agency has made the case once again in its “World Energy Investment 2017.” Electricity and renewable investments fell modestly last year, but the lower price environment over the past three years has taken a particular toll on upstream oil and gas outlays, a worrisome development. The global oil market is still well supplied, with the “rebalancing” continually pushed back, and the enthusiasm surrounding possible “peak demand” in the coming decade has grown, but consumers and industry should heed the IEA’s warning given the investment gap and demand still rising at a healthy clip with forecasts for it to continue to do so.

“An 18 percent decline in global energy investment since 2014 has not yet raised major concerns about the adequacy of energy supplies in the short-term, but falling investment points to a risk of market tightness and undercapacity at some point down the line.”

Here are some key takeaways from the IEA’s latest global report.

Investment falls

Last year, total energy investment declined by 12 percent, with the oil & gas sector seeing a 25 percent drop. From 2014-16, total capital spending in oil & gas was down by a massive 38 percent. With the sharp decline in oil and gas outlays, last year there was more investment in the electricity sector for the first time in history.

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China leads global investment

China kept its status as the top market for investment, reflecting its increased commitments to growing its economy, boosting energy security, remaining a regional leader, and improving the environment.

China kept its status as the top market for investment, reflecting its increased commitments to growing its economy, boosting energy security, remaining a regional leader, and improving the environment. “Energy investment in China is increasingly driven by low-carbon electricity supply and networks, and energy efficiency,” the IEA says. The Asian juggernaut made up more than 20 percent of energy investments at more than $350 billion, while the U.S. was at 16 percent of the global total.

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Shale to rebound in 2017

In the U.S. shale patch, investment is set to soar by 53 percent this year.

One piece of good news on the investment side is that U.S. shale will lead the oil and gas sector this year. In the U.S. shale patch, investment is set to soar by 53 percent this year, which compares to modest increases of 6 percent and 4 percent in Russia and the Middle East, respectively. Latin America and Africa, however, will see decreases. On the flip side, with the increased activity in U.S. shale, costs are expected to rise by a hefty 16 percent after falling in half throughout 2015-16. One other major trend is lower labor intensity in U.S. shale. On the one hand, this is positive—companies can produce more with less labor. On the other, the number of upstream jobs have declined. While production declined relatively modestly from 2014 through 2016, the number of people employed in the upstream sector fell by as much as 30 percent. Efficiency gains mean some of those jobs are lost for good.

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