Oil and Gas To Play Role In Global Economy through 2050
Some analysts and pundits who examine global investment trends claim
that oil and gas will soon be a sunset industry.
In this CEC Fact Sheet, we examine global investment trends over the next
three decades under the International Energy Agency’s (IEA) most probable
scenario, known as the Stated Policies Scenario (STEPS), using the IEA
World Energy Outlook (WEO), 2021 Extended Data Set. The IEA is one of
the few organizations that comprehensively tracks global investment trends
in the oil and gas industry.
Background on the IEA’s World Energy Outlook Stated Policies Scenario (STEPS)
In October 2021, the IEA released its WEO 2021 Extended Data Set and
updated it in January 2022. WEO 2021 makes use of a scenario approach to
examine future energy trends, including global oil and gas investment. In
WEO 2021, the IEA modelled four scenarios: the Net Zero Emissions by
2050 Scenario (NZE), the Announced Pledges Scenario (APS), the Stated
Policies Scenario (STEPS), and the Sustainable Development Scenario
(SDS) (IEA, 2021a).
Of the four scenarios, STEPS appears to be a more plausible and realistic
scenario than the other more aggressive scenarios set out in the WEO 2021.
According to the IEA:
STEPS provides a more conservative benchmark for the future because it
does not take for granted that governments will reach all announced goals.
Instead, it takes a more granular, sector-by-sector look at what has actually been put in place to reach these and other energy-related objectives, taking account not just of existing policies and measures but also of those that are actually under development (IEA, 2021a).
Cumulative investments of over $26 trillion needed to meet global crude oil and natural gas demand through 2050 indicate that global demand for oil and gas, and thus the necessary investment in it, will continue to remain robust over the next three decades.
Under STEPS, world demand for oil increases from 96.6 million barrels per
day (mb/d) in 2019 to 104 mb/d in 2035, before falling slightly to 103 mb/d
in 2050. Under STEPS, world demand for natural gas increases from 3,999 billion
cubic metres (bcm) in 2020 to 5,113 bcm in 2050
Taking into account projected global demand for oil and gas, between 2021
and 2050, global oil and gas investment under STEPs is expected to reach a
cumulative $26.1 trillion (in U.S. 2020 dollars), with global oil investments
estimated at nearly $14.9 trillion and natural gas at over $11.2 trillion.
Oil and gas investment in North America (Canada, the U.S., and Mexico)
over the period is estimated to lead the way at nearly $8.1 trillion, split
between oil at nearly $4.9 trillion and gas at nearly $3.2 trillion cumulative
Oil and gas investment in the Middle East over the period is estimated at
over $3.8 trillion, split between oil at over $2.4 trillion and gas at over $1.4
trillion cumulative. Oil and gas investment in the Asia-Pacific region over the period is
estimated at over $3.8 trillion, split between oil at over $1.3 trillion and gas
at nearly $2.5 trillion cumulative.
Looking at just upstream investment under STEPS, according to the IEA,
Annual upstream oil and gas spending averages around $650 billion
between 2021 and 2030, and $700 billion through to 2050, which is higher
than the average investment in the 2010s. Over 60% of total upstream
investment is spent on developing new oil and gas fields.
An opportunity for Canada to increase its market share of oil and gas investment
Global investment trends drawn from the IEA STEPS scenario illustrate that
the oil and gas industry will remain a strong performer over the next three
decades, despite claims by some analysts and pundits that the industry is in
decline.
With an estimated cumulative investment of over $26 trillion needed to
meet global oil and gas demand over the next three decades, Canada could
attract a significant slice of the investment pie. Unfortunately over the past decade, Canada’s share of global oil and gas investment has declined, while the share of global investment held by Russia/Asia, and the U.S. has remained strong.
According to the Canadian Association of Petroleum Producers (CAPP),
In 2014, Canada was viewed as a top tier international investment
jurisdiction for resource development and attracted $81 billion or more
than 10 per cent of total global upstream natural gas and oil investment.
International energy research firm Wood Mackenzie is forecasting global
spending on upstream natural gas and oil production will reach $525
billion in 2022. Based on that forecast Canada has fallen to just six per cent
of total market share, a four per centage point drop which represents over
$21 billion in potential investment (CAPP, 2022).
While there are numerous factors that explain oil and gas investment
decline in Canada, key reasons include increased regulatory burdens and
delays here in Canada, along with White House opposition to the Keystone
XL pipeline under the Democratic administrations of Barack Obama and
Joe Biden.
Sitting on some of the world’s largest reserves of oil and natural gas,
enjoying a reputation as a secure and reliable supplier, and maintaining
high environmental, social and governance (ESG) scores compared with
competitors such as Saudi Arabia, Iran, and Venezuela, Canada can and
should be part of the medium- to long-term solution to energy security,
especially considering the Russia-Ukraine conflict. The federal government
must remove some of the regulatory constraints they have imposed over the
past few years. Doing so will be critical to ensuring that Canada can increase
its share of global oil and gas investment and assist in efforts towards North
American and European energy security, with an emphasis on maintaining
high environmental standards.
