Why is the upstream investment of international oil companies cautious?

Original Source: China Petroleum News

Reporter: Li Xiaosong

On April 30, Wood Mackenzie Chairman and Chief Analyst Simon Flowers wrote an article that oil and gas companies are still insisting on controlling capital expenditures.

Various factors restrict upstream oil and gas project investment decisions

Last year, the spread of the epidemic and the plunge in oil prices caused oil companies to drastically cut capital expenditures, and global investment in new oil and gas projects fell to the lowest point in 15 years, at US$350 billion.

Since April last year, oil prices have risen sharply, and Brent oil prices have recently approached 70 US dollars per barrel.

According to a report released by Wood Mackenzie, a total of 26 new conventional oil and gas projects may make a final investment decision (FID) this year.

If oil prices remain strong this year and beyond, it will bring a major test to the capital discipline of oil companies.

Carbon emissions become a key indicator of upstream investment decision-making

Achieving net zero emissions has almost become a global consensus.

　　According to Wood Mackenzie, the average carbon emission intensity of the 26 upstream projects is just over 40 kilograms of carbon dioxide equivalent per barrel of oil equivalent, which is about 1/3 higher than the average carbon emission intensity of the world's already producing oil fields.

　　For oil and gas investors and oil companies, the rate of return on investment and the payback period have become critical, which means that projects with high rates of return and short cycles are most likely to be approved.

　　But the average return masks the huge differences between different types of projects.

　　Low-carbon investment depends on oil and gas business income

　　Energy consulting company Argus analysis pointed out that any oil and gas investment plan must consider not only cost, but also carbon intensity.

　　It is not difficult to discover the dialectical relationship between oil and gas and carbon emissions.

　　Due to the sharp decline in exploration investment, in 2020, the proven reserves of large oil companies have decreased by 13 billion barrels of oil equivalent year-on-year, and this trend shows no signs of slowing down.

　　In the decades to come, the world will still need a lot of oil and gas.

　　In a letter to shareholders in the 2020 annual report, Jamie Dimon, Chairman and CEO of JPMorgan Chase, stated: “Of course we believe that it is necessary to greatly reduce the carbon emissions and carbon intensity of the energy system.