Investment momentum across several gas verticals is picking up as the energy transition takes hold.
According to estimates by energy consultancy Rystad, investment into upstream gas and liquefied natural gas (LNG) is expected to rise to roughly $149bn in 2022, up by 14% from the previous year. Investment into upstream oil operations is also on the rise and expected to hit $287bn in 2022 — up by 7% from 2021. On the other hand, Rystad expects midstream and downstream oil investments to drop to $172bn in 2022, down by 6.7% year-on-year.
Altogether, the net global investments into oil and gas is expected to reach $628bn in 2022, up from $602bn in 2021.
Audun Martinsen, head of energy service research at Rystad Energy, tells fDi that “the steep growth in gas and LNG” is “surprising”.
Confidence in gas
“With the expected growth from renewables, companies understand that basepower load is needed and gas can be the solution, as well as creating blue hydrogen,” he says. The green transition, power needs, intermittency challenges and increased gas prices “build confidence” for gas investments through to next year, he adds.
Global LNG and gas investments will return to 2019 levels by 2024, according to Rystad figures.
As for oil, Mr Martinsen says that while upstream oil investments are growing in anticipation of oil demand returning to 100 million barrels per day by this summer, the fact that there is enough infrastructure, such as pipelines and refining capacity, means that midstream and downstream investments will likely fall.
“To be frank, we’re not expecting oil demand to go much beyond 104 million barrels per day, and with a potential capacity increase with low-investment needs in the Middle East, Saudi Arabia and the UAE, we won’t see oil investments return to 2019 levels,” he says.
The analysis spotlights the regional winners of this year’s fossil fuel rise. It estimates that Australia will see a 33% rise in investments thanks to greenfield gas developments in the northwest of the country. Meanwhile, in the Middle East, investments will rise by an anticipated 22% this year, with Saudi Arabia boosting its oil export capacity and Qatar expanding production and export capacity of LNG.
Some six LNG projects are expected to receive the green light in North America, it says, five in the US and one in Canada. Rystad says that this year’s investment growth is underpinned by an estimated $150bn worth of greenfield projects sanctioned in 2021, up from $80bn in 2020. It projects 2022 will match 2021 sanctioning levels.
But Mr Martinsen adds that despite the incremental gains, fossil fuel investments are ultimately set to flatline, driven by the fact that faced with peak oil demand this decade, oil and gas companies are not going to prioritise a lot of exploration activity.
“Now, companies whose exploration budgets used to stand at $100bn don’t want to invest in exploration, but rather invest in greenfield or developing the resources they already have and direct investments into renewables,” he says.
Other headwinds for fossil fuel companies include government policies, tax changes, carbon pricing, supply chain problems and the current inflationary pressures on commodities such as steel.
The number of foreign greenfield project announcements in the coal, oil and gas sector dropped to 54 this year, down from 89 over the same period in 2020, according to fDi Markets. Estimated capital expenditure in coal, oil and gas projects has fallen by 88.2% from full-year 2019 to January–November 2021.