Even though the demand for oil and natural gas peaks and falls in nearly all the scenarios, the faster rate of decline in existing production means that significant amounts of new upstream investment in oil and natural gas production are required in all three scenarios.
The scenarios are based on the assumption that, if oil producers over the next 30 years invested only in maintaining existing (brownfield) sites, as well as completing projects that have already been sanctioned, this would imply an average decline rate of oil production of a little above 4% p.a., with global oil supplies falling to around 25 Mb/d in 2050. The corresponding decline rate for natural gas is assumed to be slightly higher (4.5%), reflecting the greater proportion of natural gas production that comes from short-cycle unconventional plays.
Closing the gap between these ‘no new greenfield investment’ supply profiles for oil and natural gas and the level of supply needed to meet the demand profiles in the three scenarios requires significant levels of new investment in upstream oil and gas production, totaling between $9 trillion and over $20 trillion over the next 30 years.
The profile of oil demand in Net Zero highlights the increasingly difficult judgments concerning future investments in oil and gas as the world transition to a lower-carbon energy system.
The relative resilience of oil demand during the first half of the Outlook in Net Zero implies that several trillions of US dollars of new oil investment is needed over the next 15 years or so to ensure adequate supplies. But the pace at which oil demand falls in the second half of Net Zero is faster than the natural decline rate of production, implying that some of these investments by 2050 may not be fully utilized and so may become uneconomic.
This risk may be able to be mitigated by investing in less capital-intensive, shorter-cycle, scalable projects, such as unconventional tight oil and gas, brownfield redevelopments, and subsea tiebacks.
The uncertainty about the speed and nature of the energy transition, as highlighted for example by Delayed and Disorderly, means the option value associated with these types of projects could increase in the coming years.