London — The world’s oil production capacity is expected to slow in the medium-term as the market digests the full impact of COVID-19 and the pivot toward cleaner energy, the International Energy Agency said on March 17.
The Paris-based agency warned in its Oil 2021 report that the industry’s spare capacity supply cushion will slowly erode in the absence of fresh upstream investments.
“By 2026, global effective spare production capacity (excluding Iran) could fall to 2.4 million b/d, its lowest level since 2016,” the report said.
Global oil supply growth is set to slow down from 2021 to 2026 due to spending cuts, project delays, and demand uncertainty, caused by the oil price crash and the pandemic.
Only a marginal rise in global upstream investment is expected this year after they fell by a record 30% in 2020 compared to the previous year, the IEA noted.
Many in the industry have recently warned that oil and gas investment will need to see a huge boost to prevent a supply crunch that could send prices skyrocketing and tip the global economy back into crisis.
Impact on upstream
2020 was a cataclysmic year for the oil industry, as capital expenditure and upstream spending fell dramatically.
The deferral of upstream projects has wiped out over 2 million b/d of potential supplies by 2026, according to the IEA. But spending is likely to stay around 15% below 2019 levels in the medium term.
“While spending looks set to remain constrained this year, a modest return to growth has been flagged further ahead,” the report said.
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