Major Oil Companies Increase Investment in Oil Development Despite Carbon Neutrality Goals

▲Russian state-owned oil company Rosneft

[Asia Economy Reporter Oh Hyung-gil] Despite the movement to reduce fossil fuels for carbon neutrality, total investment in the oil and gas upstream sector is expected to increase this year. Due to high oil prices, major oil companies are anticipated to make large-scale investments.

According to the 'World Energy Investment 2022' report recently released by the International Energy Agency on the 12th, total investment in the oil and gas upstream sector in 2022 is expected to increase by 10% compared to the previous year due to the high oil price situation.

The oil industry is classified into upstream, midstream, and downstream sectors in order, with the upstream sector including oil exploration, development, and production.

Major global oil companies have set common future investment strategies to respond to the decarbonization era, including ▲selling oil assets with poor cash flow ▲reducing production costs through digitalization and efficiency improvements in the production process ▲applying strict investment standards in the oil and gas upstream sector ▲expanding investments in future growth (natural gas development and LNG sales, renewable energy development and power generation, etc.).

In particular, upstream sector investments are expected to be mainly led by U.S.-based majors and companies from the Middle East region.

Saudi Arabia's state-owned oil company Aramco and China's state-owned oil company PetroChina made the largest upstream sector investments among global oil companies last year and this year, followed by U.S. majors ExxonMobil and Chevron, and the Dutch company Shell.

This year, most oil companies except Shell and BP have increased their investments in the upstream sector compared to 2021.

[Photo by Petrobras Official Blog]

Additionally, the oil companies with the highest growth rates in upstream sector investments are Brazil's state-owned oil company Petrobras (a 49% increase compared to 2021), and U.S. majors ExxonMobil (34%), ConocoPhillips (28%), and Chevron (24%).

U.S. oil majors, independent companies, and oil-producing countries' state-owned oil companies significantly increased upstream sector investments in 2022, whereas European majors maintained their 2021 levels. Notably, independent shale companies reduced investments by half in 2020 but have recently announced plans to increase investments.

Furthermore, shale gas, once considered a troublesome byproduct of shale oil production in the U.S., has recently gained attention due to rising natural gas prices.

Natural gas prices exceeded $10 per million BTU (British Thermal Units), the North American price benchmark Henry Hub, at the end of August, marking the highest level since 2008. As a result, shale companies can now earn enormous profits from shale gas production.

According to foreign media, ConocoPhillips, the largest independent oil producer in the U.S., announced in its recent quarterly earnings report that the average selling price of natural gas surged 143% compared to a year ago.

Shale gas production has also increased significantly. According to the U.S. Energy Information Administration (EIA), shale gas production in the U.S. is expected to reach about 2.66 billion cubic meters per day in September, approximately 14 times the same month last year (190 million cubic meters per day).

Jay Allison, CEO of shale company Comstock Resources, said, "Two to three years ago, the industry would not have touched natural gas," adding, "(Back then) natural gas was a headache, but not anymore."

Additionally, companies are engaging in offshore oil field development. Offshore oil fields can generate profits even at lower oil prices once established and operational, but construction costs are higher compared to onshore oil fields.

Major oil companies have focused on onshore oil field development rather than offshore over the past decade. However, with rising international oil prices and surging European energy demand due to the Russia-Ukraine war, this trend is reversing.

This content was produced with the assistance of AI translation services.