SINGAPORE, September 28 (Reuters) – A lack of investment in new oil and gas supplies, amid a shift towards cleaner fuels, is likely to lead to price volatility over the next decade as demand for traditional energy sources increases, senior industry executives have said.

Global energy investment saw its steepest decline on record in 2020 as the COVID-19 pandemic hammered demand, while pressure for the energy transition to meet greener goals attracted more funds in renewable resources.

The International Energy Agency (IEA) has also called on investors to stop funding new fossil fuel projects to reach net zero emissions by mid-century, even as industry participants remain divided on peak oil demand forecasts. Read more

Underinvestment in the global oil and gas sector could cause supplies to tighten at a time when demand is expected to pick up, said senior executives at Vitol (VITOLV.UL), Trafigura (TRAFGF.UL), Hess Corp (HES.N) and Equinor (EQNR.OL) warned.

“It seems likely that instead of falling, global demand for oil is expected to continue to rise as new markets and consumers emerge,” said Ben Luckock, co-head of oil trading at Trafigura at the annual conference of APPEC 2021.

“This opens up the prospect of potential higher price cycles for traditional forms of energy.

“While this can be beneficial for oil producers in the short term, it also means significant costs to the global economy, which is not in anyone’s best interests in the long term,” Luckock added.

PRICE POINTS

A strong rebound in global demand for energy, electricity and metals has already led to tight supply and soaring prices.

Gas prices in Europe and Asia are at or near record highs, while those in the United States are at seven-year highs. Coal prices are at record highs and Brent has topped $ 80 per barrel, its highest level since 2018.

The Organization of the Petroleum Exporting Countries (OPEC) and its allies still have a cap on oil production, while a lack of investment has limited the output of the group’s two main African producers. Read more

But the unused capacity could be called into question next year “if we do not see an accelerated pace of investment in the American sector and (…) a rapid rapprochement between the United States and Iran”, a said Mike Mueller, CEO of Vitol for Asia.

He was referring to global talks to relaunch a nuclear deal with Tehran that could lead to more Iranian supplies.

Several executives said investment in fossil fuel sources was needed to avoid shortages and price fluctuations.

“We are in a time where we are investing too little coming back from COVID,” said Eirik Waerness, senior vice president and chief economist at Equinor.

“This is probably exacerbated by a lot of uncertainties about what the energy transition will be, so there will be a wait-and-see attitude here in terms of investing in new types of investments in the energy transition.”

But it will be a long time before new energy sources can meet global demand, he added.

DEMAND OUTLOOK

Conference leaders said they expect global demand for oil to reach pre-pandemic levels by early next year, in line with OPEC’s bullish forecast.

BP (BP.L) and TotalEnergies forecast a peak in oil demand over the next decade. Read more[[[[

“Depending on where the climate-to-energy transition is taking place, there is likely a peak in demand somewhere,” said Greg Hill, president and COO of Hess Corp.

“I think it’s a lot more distant than what a lot of experts think right now,” he added.

He noted that even under the IEA’s sustainable development scenario, oil and gas accounts for 46% of the global energy mix in 2040.

“The world needs cheap, affordable energy. We want to be in this space,” Hill said.

Reporting by Roslan Khasawneh and Florence Tan in Singapore and Sonali Paul in Melbourne; Editing by Himani Sarkar

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