OPEC estimates of Capital Requirement’s
A revised estimate of capital expenditures necessary to meet global oil & gas demand for the next 25 years has been debated recently.
The world needs $18.2 trillion ($14.9 allocated to upstream) in new oil and gas investments in the period until 2050 in order to secure a sufficient supply. This is what OPEC warned in the 2025 edition of its World Oil Outlook. Yet the International Energy Agency continues to believe oil demand growth is going to peak before 2030, suggesting there is no such need for investments. Are both talking up their respective book?
In this instance I’ll be taking the optimistic OPEC forecast for demand and base this discussion on that assumption. They also projecting demand to increase in that period of time to:
According to OPEC, global oil demand will reach 123 million barrels daily in 2050. That would be up from a projected 105 million barrels daily this year, per OPEC, or 104.4 million barrels daily per the International Energy Agency. p. 61
One of the reasons for going with the optimistic demand projections is. Energy is the source of economic growth and the means in which we gain our standard of living. The most powerful economy will always be the largest consumer of energy in all its forms. With hundreds of millions more Chinese joining the middle class, this ensures 123 million barrels of oil / day is the better estimate of the two.
In absolute terms, the global economy is expected to more than double in size, increasing from $171 trillion in 2024 to $358 trillion in 2050 (in 2021 PPP). p. 35
Efficient use of energy will be the means in which most of the incremental economic growth is achieved. This efficiency will need to contrast the decline curve that is ever present in the industry. A decline curve that becomes material in its consequences over the course of 25 years. And a steep decline curve North American producers have subjected North Americans to. Leaving one with the feeling the numbers accuracy at this point may be relatively close.
To reliably supply markets, against the backdrop of rising demand, as well as to offset natural decline in mature fields, global cumulative investments of $18.2 trillion are required over the 2025–2050 period (all in US$2025).
The bulk of the required investment, $14.9 trillion, or $574 billion per annum (p.a.) on average, is for the upstream sector. The downstream and midstream sectors require another $2 trillion and $1.3 trillion, respectively. The challenge of meeting these investment requirements is huge, and any shortfall in meeting these needs risks market stability and energy security. p. 161
It appears in the following graph North America is approximately 40% of the total capital expenditures. Making it necessary for producers to raise $6.3 trillion of those funds. And there are other considerations here. Over the course of the next 25 years is a projection of what’s required in an ideal situation. Producers are not making money and are in jeopardy of diminished deliverability due to shale’s dependence coming into play. The service industry's role in meeting the market demand here is nowhere close to meeting expectations. They too have lost all faith, trust and belief in the producer officers and directors.
This reality presents a critical two-fold question, beginning with the state of the service industry. How much additional capital is needed to rehabilitate it? During the COVID-19 pandemic, investors in drilling and service equipment watched as operators cut their assets into scrap metal simply to pay the bills. Producers compounded the damage by extending payment terms to 18 months, leading to a catastrophic loss of capacity. In essence, the producers broke the service industry. They showed no respect for their partners' efforts then and continue to operate with the same mindset today.
Consequently, the prevailing attitude in the service sector is: "They broke it, they can fix it." The sentiment is that producers must have more "skin in the game" before they will show any respect. This leads to our first question: What is the amount of incremental capital needed to rebuild the oil and gas service industry? And if the producers won't provide it, then who will?
The second part of the question is even more challenging: Where does this money come from? It is reasonable to frame this future rebuilding cost as an unrecognized and long-overdue debt that producers owe the service sector. This liability must be added to the significant losses producers are expected to incur in the coming years. Yet, they have no money, and no one is willing to invest in or lend to them. They have consistently failed to generate profit and have ignored their investors' demands for financial discipline for over a decade. It is difficult to decide which is worse: that your investors walked out on you, or that you did nothing about it for ten years.
While it is true that only People, Ideas & Objects have been consistently offering a solution throughout this period, the fundamental issue remains. The source for the trillions of dollars needed appears to be mythical and magical.
In other words, there is a financial hole in this industry as wide and as deep as one can imagine. It can only be filled with money, none of which will be productive in the sense that an investor in either oil and gas or the service industry would be entitled to earn a return. Who, then, will pay the freight on filling this hole, and what is its true size?
Consider that since 2007, the North American natural gas sector has lost $4.6 trillion in potential revenue. The officers and directors of producer firms allowed natural gas prices to collapse from their traditional 6:1 heating-value equivalency with oil to ratios as low as 50:1 in 2024. On what planet is such value destruction acceptable? Is this staggering loss part of the financial hole we just discussed, or is it merely the icing on the cake? I believe it is the icing, the ice cream, and the cake itself.
Given this context, perhaps we should double OPEC's capital requirement estimate for North American oil and gas. To meet the challenges of the next 25 years, it is more likely that $12.6 trillion will be needed, not $6.3 trillion. Someone should ask the industry's officers and directors what they think the number should be. And as a follow-up, ask them precisely where they plan to get that money. After ignoring everyone's advice for the better part of a decade, it is only fair to assume they must have a brilliant plan in place.