World needs $38 trillion energy investment

18 October 2011

Kwok W Wan, PARIS: The world must invest $38 trillion in oil, gas and electricity infrastructure over the next 25 years to stop prices from soaring, the International Energy Agency (IEA) said today. And about half of that will need to be spent in the power sector.

Referring to data from the IEA's upcoming World Energy Outlook 2011, to be published in November, the agency said $16.9 trillion is needed for electricity generation; $10 trillion in oil; $9.5 trillion in natural gas; $1.1 trillion in coal; and $300 billion on biofuels. "This means, more or less, that $1.5 trillion is needed every year [over the next 25 years]," chief economist Fatih Birol told reporters at the IEA ministerial meeting.

He highlighted that oil investment was vital in Middle East and North African (Mena) countries, because 90% of the required growth in crude production over the next few years would come from that region. "If the investment doesn't come through in those countries, it will have huge implications for international oil markets and prices," Birol said.

"We will see a lot of oil coming from Brazil and other regions, but in many producing countries, output is declining … we must compensate for declines [and increase production] to meet growth."

Earlier at the meeting, Jose Sergio Gabrielli, the chief executive of Petrobras, said Brazil would be producing 5 million barrels a day (b/d) by 2020.

Reluctance to invest

The countries of the Mena region are the world's largest oil and gas producers, but output could fall as fields deplete. There has already been some curtailment in new production investment, with Saudi Arabia recently scrapping plans to lift output capacity to 15 million b/d; while the Arab Spring and war in Libya have made investors wary of some countries in the region.

"We see some signs of reluctance to invest, which we think may end up with a much higher oil price than we have now today. In some countries, because of the unrest, the projects are not going forward as we would like to see." he added.

Last week, Opec secretary general Abdalla El-Badri claimed member countries will invest around $300 billion in 132 oil projects up to 2015, which would increase production capacity by 21 million b/d.

However, the IEA was more pessimistic than the new Libyan government about the swift resumption of the country's production to its pre-war level of 1.6 million b/d. "We are still looking at Libya, many projects and fields are not yet appraised. We don't know how much damage there is. But I would be positively surprised if we see pre-war levels reached before 2013," Birol said.

Power needed

In terms of electricity, Birol said the investment needed to connect the 1.3 billion people with no access to power must jump fivefold - to $45 billion - over the next five years, with the main focus required to alleviate energy poverty in Asia and Africa. For the time being, he added, the investment outlook appears to be adequate for the gas sector.

The IEA also claimed the world is failing to rein in rising global temperatures resulting from carbon emissions. "Our analysis of investments in clean energy to limit temperature increase to 2°C is becoming much more difficult. The door to reach 2°C may be closing unless we act very boldly," Birol said. He could not comment on specific numbers, but said an IEA report would be published on 9 November.



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If there are enough energetically and economically profitable hydrocarbon resources to matter.

The underlying assumption of the article seems to be that a significant amount of the Earth's remaining subterranean hydrocarbons can be extracted with a high enough energy return and a low enough price to generate investment - an interesting assumption. I'd love to see the math behind that, with reference to real known quantities, of course.

i | Oct 20, 2011