Turning point for oil & gas!?29 Apr 2022 22:55
Europe is yet to come up with a proper plan to disengage itself from Russian energy markets, with recent claims by the EU that it's working on a sixth sanctions package which will include some form of an oil embargo merely papering over the cracks. Europe consumes about 14mb/d of oil, of which about 30-40% (5mb/d) is met by imports from Russia.
Two weeks ago, OPEC+ told Europe bluntly that it's not in a position to help it solve its energy woes. OPEC says that current and future sanctions on Russia could create one of the worst ever oil supply shocks, and that it would be impossible to replace those volumes. OPEC itself is woefully incapable of rising up to the challenge: last month, OPEC posted the biggest output gain in seven months, but still fell 764,000 b/d short of its target. This has become an ongoing theme, with the cartel nearly always failing to meet targets, in large part due to years of underinvestment by its members.
One Wall Street punter thinks U.S. Shale is ready to rise to the occasion.
In a note to clients, Goldman says it sees "a turning point in the oil and gas capital expenditure cycle, as seven years of declining activity have depleted spare capacity in most parts of the industry, and the Russia-Ukraine conflict provides a renewed sense of urgency around security of supply."
Goldman cites five robust factors that could fuel a tripling of oil and gas capex from recent lows.
Shrinking reserves: oil reserve life posted a 52% reduction from 2014 to 2022, as the industry stopped exploring for new resources. Investment delays since 2014 will cost 10 million barrels per day of oil production--equivalent to Saudi production--by 2024.
Steepening cost curve: the top projects cost curve has become smaller and steeper, with incentive pricing at $90 per barrel at the current cost of capital.
Investment growth: we expect oil and gas activity to compound at 11% [per year] growth (20% for LNG and shale) by 2024, from a decline of 7% [per year] since 2014.
End of non-OPEC growth: we estimate that 2019 saw peak non-OPEC production. Non-OPEC, excluding shale and Russia, is starting a phase of structural decline.
These are sentiments shared by BlackRock's Larry Fink, who recently said that elevated energy prices "will spur a huge amount of investing."
Article From oilprice. com
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