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A recent study from the International Energy Agency (IEA) states that decline rates of oil and gas fields are central to its modeling and analysis.
The IEA report notes: “Nearly 90% of annual upstream oil and gas investment since 2019 has been dedicated to offsetting production declines rather than to meet demand growth. Investment in 2025 is set to be around $570 billion, and if this persists, modest production growth could continue in the future. But a relatively small drop in upstream investment can mean the difference between oil and gas supply growth and static production. At the same time, less investment is required in a scenario in which demand contracts.”
That paragraph provides ammunition for climate activists who criticize the continued use of oil and gas to power the global economy. But it also acknowledges that the oil and gas industry has been doing a yeoman’s job satisfying global energy demand while maintaining financial discipline. After the 2015 oil market crash, investors demanded companies reduce debt, reinvest to sustain output and modestly grow production, and return surplus capital to shareholders.
Last year, major oil companies returned a record $130 billion to shareholders while reinvesting 90% of cash flow to sustain and grow production, meeting shareholder expectations.
Climate activists pounced on the IEA quote’s final sentence, claiming it suggests no investment should be made if the world is to remain below the Intergovernmental Panel on Climate Change’s 1.5°C target. They claim the report aligns with the IEA’s view that reaching net zero is essential to saving the planet.
A draft of the upcoming World Energy Outlook notes the IEA is reintroducing the Current Policies Scenario, reflecting the reality of global climate actions in forecasting 2050 oil consumption. The IEA now projects the world will need about 18 million barrels per day more in 2050 than it previously forecast, having once targeted a peak in oil use by 2030.
Notably, the report says that to sustain global oil supply and meet future demand, the industry must annually discover 10 billion barrels of oil and 1,000 billion cubic meters of natural gas, slightly more than in recent years. The IEA notes this is achievable within a financially disciplined plan. The task is likely to be welcomed, as it comes with higher oil prices as an incentive. It’s also consistent with the IEA’s return to its original mandate: focusing on energy security over climate policy — a welcome shift.
