Petroleum: Investment
Petroleum: Reserves and Resources
The International Energy Agency estimates that over the period of 2005 2030 $4.3 trillion in new investments will be needed in the global oil sector tomeet rising world demand for oil. The largest investment projections are in the Middle East and developing Asia, where most of the upstream (exploration and production) and downstream (refineries, pipelines, tankers) investments will be needed. The upstreamsector accounts for the bulk of this investment requirement, with required investments averaging $125 billion per year. Almost three-quarters of the upstream investments will be required to maintain existing production capacity in the face of declining capacity of existing oilwells as reserves are depleted. Downstream investment requirements are projected to be about $700 billion from 2005 to 2030. This projection includes the addition of new refineries to meet the rising demand and additional investments on existing refineries.
There is no guarantee that the projected levels of investmentwill actually occur, as several barriers exist to upstream and downstream investments. First, most privately owned IOCs have large cash reserves and are able to borrow at reasonable rates from capital markets when necessary for new projects. Because of restrictions on access to oil reserves in many resource-rich countries, however, many IOCs may not be able to invest in upstream development. A large portion of oil reserves are found in countries where there are restrictions on foreign investment. Kuwait, Mexico, and Saudi Arabia, for example, remain totally closed to upstream oil investment by foreign companies. Other major oil-producing countries, such as Venezuela, Russia, Iran, Algeria, and Qatar, have effectively restricted foreign investment as well. Second, even in those caseswhere IOCs are willing to invest, other barriers such as licensing and fiscal terms, or the investment climate, may discourage them from doing so. Stability of the political regime, war or civil conflict, or other geopolitical tensions act to dissuade inward investment in the development of countries’ resources.