While global demand for oil may experience a long-term decline, the world’s need for natural gas is expected to grow. According to a new study from Goldman & Sachs Research, investments in natural gas are expected to increase by more than 50% by 2029 while investments in the oil industry are plateauing in non-OPEC countries.
According to Top Projects from Goldman & Sachs Research, in 2023, no less than 73 major projects were in development around the world, which represents 30% more than at the start of the decade (32% less than in 2014). “We are seeing a complete realignment of capital, despite a favorable oil and gas price environment and very high yields.
The sector’s capital spending increased by around 11% per year between 2020 and 2023,” says Michelle Della Vigna, head of natural resources research in the EMA region, at Goldman Sachs Research.
The analyst notes that the growth of oil investments has reached its peak in non-OPEC countries, while the current trend is to move towards short-cycle and short-life projects, in order to reduce decline rates, and shortening the lifespan of reserves by 55% over the past decade, to 21 years.
The use of short-cycle projects, she says, has repercussions on long-term oil supplies. “The reserve life of major projects has declined significantly due to the focus on short-cycle projects, such as US shale and some deepwater projects which, although profitable in the short term, are not capable of maintain long-term supply” indicates the head of GS Research.
Thus, thanks to these new project rhythms, the sector is improving project execution and focusing on higher returns. “Some 80% of unexploited resources are now profitable with Brent prices below $70 per barrel, compared to only 25% in 2014.” In the event that oil prices remain between 80 and 90 dollars, the oil industry will continue to make profits and obtain attractive returns with good growth for the companies’ shares.
The Goldman & Sachs Research report expects a consolidation of sector activity through mergers and acquisitions despite the decline in global oil demand.
OPEC, according to the same study, will benefit, after two or three years of stagnation, from good opportunities to gain market share towards the end of the decade. “We believe non-OPEC production will peak this year, and then OPEC may eventually begin to increase its market share as decline rates increase and project prices normalize,” says Della Vigna, noting that the $80-$90 price range will continue to generate attractive returns for shareholders. “We maintain a positive view, particularly for large oil and gas companies.
We are more neutral with regard to oil services, although we expect growth in demand from producers in the years to come,” she further specifies. Concerning liquefied natural gas, the G&S Research analysis forecasts an 80% increase in global LNG supply by 2030, thanks to new future projects in North America in particular and in Qatar.
