Rapidly growing economies of Southeast Asia represent over 4% of global energy investment
Total energy investment worldwide in 2016 was just over $1.7 trillion, accounting for 2.2 per cent of global GDP, according to the International Energy Agency(IEA).
Investment was down by 12 per cent compared to IEA’s revised 2015 energy investment estimate of $1.9 trillion.
Spending in energy efficiency rose by 9 per cent while spending in electricity networks rose by 6 per cent, yet these increases were more than offset by a continuing drop in investment in upstream oil and gas, which fell by over a quarter, and power generation, down 5 per cent.
Falling unit capital costs, especially in upstream oil and gas, and solar photovoltaics (PV), was a key reason for lower investment, though reduced drilling and less fossil fuel-based power capacity also contributed.
For the first time ever, the electricity sector edged ahead of the oil and gas sector in 2016 to become the largest recipient of energy investment.
However oil and gas still represent two-fifths of global energy supply investment, despite a fall of 38 per cent in capital spending in that sector between 2014 and 2016.
As a result, the share of low-carbon supply-side energy investments, including electricity networks, grew by six percentage points to 43 per cent over the same period.
A rebound in upstream investment
After a 44 per cent plunge between 2014 and 2016, it appears that upstream oil and gas investment will rebound modestly in 2017.
A 53 per cent upswing in US shale investment and resilient spending in large producing regions like the Middle East and Russia looks to drive upstream investment to bounce back by 3 per cent in 2017 (a 6 per cent increase in nominal terms).
Spending is also rising in Mexico following a very successful offshore bid round in 2017.
There are diverging trends for upstream capital costs: at a global level, costs are expected to decline for a third consecutive year in 2017, driven mainly by deflation in the offshore sector, although with only 3 per cent decline the pace of the plunge has slowed down significantly compared to 2015 and 2016.
The rapid ramp up of US shale activities triggers an increase of costs of 16 per cent in 2017 after having almost halved in 2015-16.
The oil and gas industry is undertaking a major transformation in the way it operates, with an increased focus on activities delivering paybacks in a shorter period of time and the sanctioning of simplified and streamlined projects.
The global cost curve has rebased, and the significant component of cost reduction experienced over the last two years is likely to persist in the foreseeable future.
Regional trends in investment
China remained the largest destination of energy investment, taking 21 per cent of the global total yet the makeup of investments in China has been changing.
2016 saw a 25 per cent decline in commissioning of new coal-fired power plants. Today, energy investment in China is increasingly driven by low-carbon electricity supply and networks, and energy efficiency.
Energy investment in India jumped 7 per cent, cementing its position as the third-largest country behind the United States, owing to a strong government push to modernise and expand India’s power system and enhance access to electricity supply.
The rapidly growing economies of Southeast Asia together represent over 4 per cent of global energy investment.
Despite a sharp decline in oil and gas investment, the share of the United States in global energy investment rose to 16 per cent – still higher than that of Europe, where investment declined 10 per cent – mainly as a result of renewables.
Financial health of oil and gas companies
The downturn in oil prices did not significantly affect the funding of investments by oil and gas companies, though most of them increased leverage significantly.
Despite investment cutbacks and better cost discipline, the oil majors increased debt by over $100 billion between late 2014 and early 2017.
Independent US oil companies, which have a more leveraged business model, initially saw debt costs soar, but the availability and cost of bond financing has improved with a rebound of oil prices since early 2016 and their financial health has improved with efficiency gains.
Increased interest in shale assets by large oil companies and financial pressures to reduce debt led to a series of asset sales by independents.