Upstream investment in the oil and gas sector stalled at $341 billion in 2021 down by 23% from the pre-pandemic level of $525 billion, according to the latest data from IHS Markit and the International Energy Forum, as demand returns to pre-pandemic levels.
Among the factors contributing to underinvestment are record price volatility, changing government regulations, divergent long-term demand scenarios and non-standardized ESG criteria which according to the report are creating obstacles for investment and driving up capital costs.
Furthermore pressures for a green recovery are making long-term investment decisions increasingly complex.
“While the energy transition proceeds, underinvesting in oil and gas before renewables and other low-carbon technologies are ready to scale up to meet energy demand could create recurrent energy crises of the kind we saw in Asia and Europe over the last few months, resulting in elevated prices and adverse economic consequences,” said IHS Markit vice-chairman, Daniel Yergin.
According to the report the next two years will be crucial if sufficient oil and gas supplies are to come online with the next 5-6 years. This news comes as the US struggles with record gasoline prices up almost 60% year-over-year in October.