The Implications of a Delayed Energy Transition on Oil and Gas Supply

As the world grapples with the challenges of transitioning to a more sustainable energy future, the possibility of a delayed energy transition scenario looms large. A recent report by Wood Mackenzie sheds light on the potential consequences of such a scenario, particularly on the oil and gas supply industry.

Meeting Increased Demand

The report, titled “Taking the strain: how upstream could meet the demands of a delayed energy transition,” highlights the need for a significant increase in upstream investment to meet the higher demand for oil and gas in a delayed transition scenario. According to the report, the world would require 5% more oil and gas supply and a 30% higher annual upstream capital investment under such circumstances.

Angus Rodger, head of upstream analysis for Asia-Pacific and the Middle East, notes that meeting this increased demand would require resources equivalent to establishing new oil and gas basins like the US Permian basin or the Haynesville Shale.

Challenges and Consequences

While it is theoretically possible for the global oil and gas sector to ramp up production to meet higher demand, significant challenges lie ahead. The report estimates that upstream spending would need to increase by 30%, resulting in a substantial rise in development costs.

However, increasing investment won’t be without its hurdles. The supply chain is already under strain, and project costs are likely to escalate. Corporate planning prices would need to adjust to reflect the improved market outlook, leading to higher oil and gas prices.

Price Forecast

Wood Mackenzie’s Oil Supply Model projects a rise in Brent oil prices to over $100 per barrel during the 2030s in a delayed transition scenario. By 2050, the price is expected to fall towards $90 per barrel, averaging around $20 per barrel higher than the base case.

In conclusion, a delayed energy transition scenario poses significant challenges for the oil and gas industry. While meeting increased demand is technically feasible, it would require substantial investment, leading to higher prices and potential supply chain constraints. As the world navigates the complexities of the energy transition, careful planning and strategic decision-making will be crucial to ensure a smooth and sustainable transition.