The new International Energy Agency (IEA) World Energy Investment Report 2024 provides many elements of reflections and puts spotlight on the extraordinary acceleration of spending in clean #energy. There are many elements for a reasonable optimism, firstly for the unstoppable boom in solar pv, but also for rising spending in similarly important technologies like networks and batteries.

Beside the emerging part of the energy system – that factually remains so far the minority part – the traditional component did not stay stationary.  Actually, the transformation of the global oil and gas industry in the last decade has been simply remarkable.

It is not only a story of US #shale – which has been a truly revolution with massive implications well beyond the United States – but the entire sector has gone through large upheavals and deep crisis that have reinvented the way to do things.

The changes embraced all aspects of the oil and gas industry

• When we look at oil production – United States is today where it could not even imagine a decade ago – having expanded its oil and gas production by about 50% (!) becoming the world’s leader for output…
• When we look at investment by type of company, the last has been the decade of the National Oil Companies that – especially in Middle East – has taken the baton of leadership and significantly expanded their investment while majors and independents scaled back
• When we look at type of assets, the new frontiers, like shale and offshore have made the most impressive progress.

And more…

Here it comes into picture the efficiencies… because while cost reductions and improvements are the first metrics monitored for clean energy #technology, the ‘black gold’ did not sit down waiting for its destiny.

On the contrary, multiple periods of price collapse shocks have forced the industry to  - once again – reinvent itself, squeeze out efficiency, enhancing productivity and deploying innovation.

The result? The #competitiveness of the sector has dramatically improved. The two ‘frontiers’ of oil industry are quite clear examples:

• US shale has lowered its cost breakeven significantly and has become the epicentre of a new wave of consolidation with multiple takeover. ExxonMobil for example expects a cost of supply of less than $35 per barrel from Pioneer assets…
• On the other side the deep and ultra deep offshore. Prospects for Guyana – a key element in the takeover of Hess from Chevron – place breakeven costs in the range of $25 to $35 dollars per barrel. A level also targeted by Brazil for its massive and prolific pre-salt fields.

Not a case, both countries are expected to be among the key leaders in terms of oil supply growth of coming years…

The overall outcome line is that the industry keeps surprising for its ability to adapt and innovate. While the world changes fast, some basic rules still apply and multiple periods of oil price collapse are always painful but trigger also reactions into the sector and drive important changes.

Today the world produces much more oil and gas than a decade ago – yet the overall amount of #investment going into the sector is significantly lower than a decade ago. The famous ‘doing more with less’…

What has instead changed significantly is the amount of free cash flow that companies generate. High oil price on one side; lower investment on the other side and a good dose of efficiency and capital discipline can give only one result: a mountain of money. The ‘problem’ is how to use those and here the choices have raised some concerns.

Because if the evidence of accelerating clean energy transition and related demand concerns have encouraged a lower level of investment in the sector, on the other side, the amount of spending coming from the oil and gas industry for the new technologies – although rising – has remained quite marginal and on average a single-digit of annual capex.

So what to do with all those money? The typical choice has been giving those back to investors or to use (part of) it for merger and acquisition in the sector. If in 2015, for every dollar spent for dividends and buybacks there were 3 dollars for capital expenditure, last year this ratio has dramatically changed with more money going into dividends and stock re-purchases than in capex.

The bottom line of the story is something I was discussing with colleagues at the time of the very 1st edition of IEA’s World Energy Investment Report...It was 2016; the oil price had plunged from almost $140 dollar per barrel to less than $50 in just few months and the industry was in turmoil. Some in the energy sector were ‘celebrating’ the difficulties experienced by the industry as a way to encourage the transition.

My ‘concern’ or better – expectation – was that the industry would have come back stronger than before…

It was not far from the reality.