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Will the growth of offshore oil scupper COP28 pledges?

The recent surge in offshore oil projects raises concerns about the possibility of achieving numerous COP28 pledges. Let’s look at the stats.

‘Deepwater is back in vogue’.

Those remarks by Pablo Medina, Head of New Ventures at Welligence, highlight the oil and gas industry’s narrow focus. It is no secret that companies in the industry view potential new oil supplies purely in terms of profit, disregarding the environment.

The pandemic and the US shale boom introduced cheaper oil sources, reducing offshore activity. Lower oil prices intensified pressure on operators to cut costs and make new projects profitable. Previous cost overruns in offshore projects also temporarily pushed deepwater projects to the industry’s sidelines.

However, the recent uptick in oil prices, demand, and new reserve discoveries has led to a surge in offshore drilling projects. This growth prompts concerns about whether the commitments made at COP28 will be honored at all.

The growing investments

ExxonMobil’s Bluefin discovery in Guyana’s Stabroek block in March adds to over 30 finds since 2015 in the 6.6 million-acre area. The area is estimated to hold more than 11 billion barrels worth of recoverable oil and gas.

In the Gulf of Mexico, an oil hotspot, a Luxembourgish company has landed a contract worth up to $500 million from Woodside Energy Group to develop the $7.2 billion Trion oil project. This project aims for an oil production capacity of 100,000 barrels per day (bpd).

Over in Namibia, Shell and TotalEnergies’ discoveries are among the biggest in Sub-Saharan African history. If proven commercially viable, the find could yield significant revenue for both Big Oil and the Namibian government, establishing them as major players in the energy market.

Yet, these discoveries and contracts are just the tip of the iceberg.

Offshore oil project investments are set to surge in the coming years, with over $200 billion in greenfield capex expected annually until 2026. This marks the highest growth in a decade, with offshore activity accounting for 68% of all sanctioned conventional hydrocarbons in 2023 and 2024, up from just 40% between 2015-2018.

Saudi Arabia, the leading oil producer is embarking on massive offshore expansion projects to boost crude production. Norway, meanwhile, showed a 22% increase in North Sea spending to $21.4 billion in 2023, while UK offshore investments rose by $7 billion in the same year.

The surge in spending will greatly benefit the offshore services market, with supply chain outlay projected to grow by 16% during 2024. This marks a decade-high annual increase of $21 billion.

As global fossil fuel demand remains strong and countries look for carbon-friendly production sources, offshore is back in the spotlight.

Hike in oil productions

The recent decision by OPEC+ to extend voluntary oil output cuts aims to support the stability and balance of oil markets amidst concerns over global growth and rising output outside the group.

Since 2022, the total pledged cuts amount to 5.86 million bpd which is equivalent to more than 5% of the global demand.

Beyond OPEC+, global oil supply rose by nearly 340,000 bpd, reaching 101.9 million bpd in February. This uptick was driven by increased production in the US, Canada, and Libya.

The International Energy Agency (IEA) forecasts that non-OPEC+ countries, including nations like Brazil, and Guyana, will drive the oil supply wave for the remainer of 2024 with a global supply increase of 800,000 bpd to 102.9 million barrels per day.

This growth in oil production aligns with forecasts indicating a steady increase in global oil demand, with projections suggesting a rise of over 10% by 2028 and more than 16% by 2045 compared to 2022 levels.

Were the promises made in COP28 a sham?

The biggest outcome of the summit saw nearly 200 countries agree to transition away from fossil fuels. Yet, at the current rate of growth in the oil and gas industry, in 2040, 60% of energy is still projected to be provided by fossil fuels.

While a 25% decrease from today’s levels is significant, the question remains: will the advantages of green energy outweigh the harm caused by fossil fuels by that time?

Moreover, many oil and gas executives are pushing back against the energy transition agreed at COP28. Saudi Aramco CEO Amin Nasser labelled the plan a ‘fantasy’ and called for more investment in oil and gas at the CERAWeek conference.

Executives from Shell, ExxonMobil, Petrobras, and Woodside Energy echoed similar views, arguing the shift to clean energy cannot happen at an unrealistic pace.

Oil and gas companies currently invest less than 1% of their total capital expenditure in low-carbon businesses. The IEA suggests that to align with global climate targets, the industry should allocate 50% of its capital to clean energy. However, collectively, companies are only spending 2.5%.

Notably, profitability is the primary obstacle preventing the industry from making substantial investments in green energy. For two years, British Petroleum attempted to pivot to renewables from oil and gas resulting in a 10% drop in stock value. On the other hand, Chevron was up by 46% and ExxonMobil by 5%.

Although investment in clean energy has exceeded that in fossil fuels, reaching $1.7 trillion compared to $1.1 trillion for fossil fuels in 2023, markedly more is needed to fully transition away from the latter.

That being said, the oil and gas sector must be held accountable and assume greater responsibility through increased investments in clean energy and honoring commitments made in crisis talks.