(MENAFN- The Peninsula)
Doha: Oil and Gas (O & G) companies worldwide, in 2020, collectively reduced their capex by 34 percent, slightly more than the initial 28 percent reduction following the price decline that started in 2014. Moreover, this year has already seen O & G capex stumble to levels not seen since 2004 due to cuts approved by operators and suppliers unable to lower prices, said Dr. Juan Vazquez, Managing Director & Partner at Boston Consulting Group (BCG).
“Despite the turbulent low-CAPEX environment, the Qatari government has, however, demonstrated a degree of resilience that has failed to materialize in almost all geographies, with major O & G projects given the go-ahead. A true testament of this is Qatar is moving forward with a $29bn project to drive Liquefied Natural Gas (LNG) exports above 50 percent,” said Dr. Juan Vazquez.
“Qatar’s resilience is undoubtedly a shining light amidst unclear global terrain, yet the new reality is far more complex than the challenging period of the early 2000s. Looking at the growth of demand, the anticipation of an emerging demand source that will exacerbate demand growth is non-existent,” he added.
A recent report from the International Energy Agency (IEA) shows the path to reach a net-zero energy system is narrow but achievable by 2050, and this implies a significant reduction of hydrocarbon demand, including natural gas. Should oil and gas demands experience a widespread decline in oil demand, a scenario would transpire where Qatar would have to make significant investments to compensate for production declines and preserve its competitive cost supply chain status, Dr. Juan Vazquez added.
To avoid such a crisis, the analysis we conducted at BCG with the International Energy Forum (IEF) indicates that O & G investment will have to increase by a minimum of 25 percent annually through 2024, with a substantially greater amount essential by the decade’s end to ensure sufficient production and market stability. Should demand experience a climax followed by a decline in the near term, peak demand would still require investment greater than 2020 levels. In this instance, the analysis revealed that the production gap would still be more than 90% the gap should demand experience incremental growth. Moreover, the lack of incentives for producers to increase investment following this cycle will hinder the market balance restoration required to facilitate worldwide economic stability and support sustainability agendas.
Qatar has made significant investments even after capex cuts, expanding its LNG capabilities. While the example previously referenced substantiate this statement – and as the country continues to ensure future preparedness – it is equally important to acknowledge that success hinges on all stakeholders being on board. In a risk environment, stakeholders can help the industry overcome investment predicaments while repelling peak investment concerns.
O & G companies and investment partners in producer and consumer countries have worked together for decades. All concerned parties should use these relations to their advantage and further enhance robust collaboration. In 2020, Qatar’s LNG shipments to Taiwan, India, South Korea, and mainland China increased, providing an opportunity to strengthen bonds with the Far East.
As stakeholders broaden investment horizons, they should boost transparency by promoting inclusiveness, highlighting data reliability, and increasing the scope of technology trends and energy policy insights.
For instance, 2019 saw Qatar shortlist International Oil Companies (IOCs) for North Field megaproject involvement, in line with its partnership model. Climate change, energy access and security, and environmental health come with exacerbating risks in the evolving energy market. Therefore, stakeholders should consider this recommendation as paramount.
Qatar has already done so, facilitating long-term contracts as an LNG supplier to provide secure energy access. Magnified interaction and cooperation involving O & G producers and consumers represent an essential pillar for introducing and sustaining government policies and industry frameworks.
“As Qatar continues pursuing proactive action to overcome future adversity, the country is well-positioned to scale related activities and enhance its role as the world’s largest LNG supplier."
"Mitigating investment obstacles is crucial for unlocking trillions of dollars vital not only for companies and the energy sector as a whole but also for securing an accessible market that drives the global economy,” said Dr. Juan Vazquez.
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