Investment in oil growth will decline over the next few years, while investment in liquefied natural gas will increase significantly, as producers look to increase funding for shorter-cycle projects.
That’s the view of Michele Della Vigna, head of EMEA natural resources research at Goldman Sachs Research, who wrote in a recent report on the firm’s website that the oil and gas industry is “undergoing a major transformation” due to a long-term decline in oil demand and rising global demand for natural gas.
Goldman Sachs Research predicts that the global gas market will grow by 50% over the next five years as LNG investment increases by more than 50% in 2029 and oil investment growth in non-OPEC countries peaks.
Della Vigna said the 11% growth in industry capital spending over the past four years will not continue, instead leveling off at about 4% per year from 2023 to 2026.
“Oil investment growth has peaked and the industry is shifting towards shorter cycle, shorter life projects. This has slowed the rate of decline, but reserve lives have fallen by 55 percent over the past decade to just 21 years,” Della Vina said, adding that the focus on short cycle projects such as US shale and some deepwater projects has led to a significant decline in reserve lives for major projects. “They are profitable in the short term but cannot sustain long term supply.”
“U.S. liquefied natural gas will undoubtedly represent a large portion of future supply. We believe that the expansion of LNG capacity will help end the energy crisis that began several years ago following European sanctions on Russian gas after the invasion of Ukraine, and will drive down natural gas prices in Europe and Asia,” Della Vigna continued.
The study’s director predicts that new projects in North America and Qatar could increase global LNG supplies by 80 percent by 2030.
“We’re forecasting a 54% increase through 2029, and that’s shale gas. Not only does this give the U.S. a clear cost advantage, but we think its costs will remain stable going forward. This provides an extraordinary driver for LNG exports, making the U.S. the largest energy exporter in the world and by far the largest LNG supplier to Europe,” Della Vigna said.
Meanwhile, when it comes to new shale gas projects in the U.S., Della Viña predicts production growth will slow through 2027.
Regarding OPEC, de la Vigna said, “There is a big opportunity for OPEC to gain market share 10 years from now,” but over the next two to three years, “there is very little opportunity for OPEC to increase production capacity without disrupting the market.”
“We expect non-OPEC production to peak this year, after which OPEC may start to gain market share as the rate of decline picks up and the project pipeline normalizes. However, this assumes that OPEC maintains its current production discipline for the next few years,” the study’s director said.
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