KUALA LUMPUR (June 8): Global upstream investments in the first two years of the downturn fell an estimated whopping US$285 billion (about RM1.17 trillion), and although spending will slowly start to rise from 2022, it will not reach pre-crisis levels in the coming period,

According to Norway-based independent energy research and business intelligence company Rystad Energy, the shale sector has been the most affected, with conventional exploration and investments in mature assets suffering the least thus far.

In a report recently, Rystad said that in February 2020, before Covid-19 started impacting the global energy system, the firm estimated that global upstream investments for the year would end up at around US$530 billion, almost at the same level as in 2019.

“Our forecast at the time suggested that 2021 investments would remain in line with the previous year’s level.

“However, as the Covid-19 pandemic triggered a collapse in oil prices during the early part of the second quarter last year, E&P (exploration and production) companies slashed investment budgets to protect their cash flow,” it said.

Rystad said this spending trend would not be reversed in 2021 when prices rise.

It said compared to pre-pandemic estimates for 2020 and 2021, spending fell by around US$145 billion last year and will end up losing US$140 billion by the end of this year.

This implies Covid-19 removed 27% of planned investments, it said.

Rystad said upstream spending was limited to US$382 billion in 2020 and is forecast to marginally grow to US$390 billion this year.

The firm expects the effect of the pandemic to be a lasting one as — even though spending will start growing from 2022 — it will not return to the pre-pandemic level of US$530 billion.

It said growth will be limited and investments will only inch up annually, rising to just over US$480 billion in 2025.

Rystad said over the two-year period between 2020 and 2021, shale/tight oil investments were the ones most affected in both absolute and percentage terms, losing US$96 billion of the previously expected spending or 39% for the sector.

It said exploration spending is expected to drop by US$19 billion, or 22%, compared to what was previously forecast.

Greenfield investment in new conventional projects will suffer a US$78 billion loss, or 28%, while brownfield investment in existing such projects will fall by US$92 billion or 20%.

Rystad head of upstream research Espen Erlingsen said since shale/tight oil is both the segment with the highest decline in activity and the supply source in greatest need of continuous reinvestment to keep production growing, the immediate impact on output from this sector had been significant.