Oil Companies Have To Invest Trillions For Supply
The IEA has put out a major report focused on oil supply. The authors point out that demand is often discussed, and supply is left on the back burner. Based on what will be a surge in demand, largely because of AI data centers, the IEA asks what the plan is to ramp up production.
“Nearly 90% of annual upstream oil and gas investment since 2019 has been dedicated to offsetting production declines rather than to meet demand growth,” the report says. The current investment in production is approximately $570 billion per year. If demand were falling, this level of investment would work. But demand is not falling.
The report adds that most production comes from oil fields that have “higher decline rates and complex operating environments.” That means adding to the supply is relatively costly.
Who Drills For Oil?
What the analysis does not show is that the massive increase in demand may not be met by the supply. AC, AI, and crypto could move electricity demand up by double digits for a decade. Renewable energy is not growing fast enough today to fill in the gap. This means electricity generation will need to fall back onto natural gas, oil, and coal. These dirty forms of energy generation were supposed to be phased out, but that won’t be an option if data center growth continues at current forecasts.
Oil companies are likely to make money on new oil expiration. Unchecked, demand could move oil prices back toward $100.
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