CERAWeek by IHS Markit

Oil industry heading for next crisis if things don't change, experts warn

BAT tax has divided energy industry: Dan Yergin

Steadier oil prices have helped U.S. and global energy companies get back into the investing game, but experts warn there's not enough money going into longer-term projects — and if things don't change, oil prices could spike and supply could be short.

"We have about $450 billion of investment in upstream (this year). This is about 25 percent below where it needs to be to meet demand growth and compensate declines in existing fields," said Fatih Birol, executive director of the International Energy Agency. Birol, speaking at CERAWeek by IHS Markit, said a sharp spike in oil prices is possible, starting in 2020, if new investment is not increased.

OPEC Secretary General Mohammad Sanusi Barkindo described three years of lowered investment as "unprecedented." Barkindo said the industry needs to invest even more than it would have now.

Saudi Arabia Energy Minister Khalid Al-Falih also mentioned the lag in long-cycle investment as a global concern, but said Saudi Aramco continues to invest at a high rate.

Companies have been restarting short-term shale operations and putting money into capital and exploration there, but the longer-term projects, slower to return cash flow, have been languishing.

"While the spotlights have been on shale, the lights are off on offshore," said Hess CEO John Hess. He noted that shale is just 5 percent of global oil output. "We need to spend in excess of $600 billion just to keep oil and gas recovery flat," he said. In 2016 companies spent $380 billion, he said, adding, "That's going to start to show itself in three to five years from now."

Russian Energy Minister Alexander Novak mentioned the industry's lack of investment as one reason Russia and OPEC ended their strategy to let the market set prices. He said the market would have stabilized anyway, but the "chaos" would have been more problematic with low investment impacting supply.

Novak said the world will need 30 percent more hydrocarbons by 2040.

(Story updated to include comments on investment from OPEC Secretary General and Saudi Energy Minister.)