The risk of a delayed energy transition scenario brings the possibility of a much greater future demand for oil and gas supply. Meeting this demand would necessitate substantial upstream investment, driving higher hydrocarbon prices and significant shifts in corporate strategy, Wood Mackenzie’s latest Horizons report indicated.
The report said external pressures have weakened the resolve of governments and corporations to allocate the estimated US$3.5 trillion needed to restructure energy systems to curb hydrocarbon demand and mitigate global warming. A delayed transition would require 5 percent more oil and gas supply and 30 percent higher annual upstream capital investment. Liquids demand would average 6 million b/d (6 percent) higher, while gas demand would rise by 15 bcfd (3 percent) compared to the base case.
Meeting short-term demand in both delayed and base case scenarios is manageable due to the availability of supply. However, sustained stronger demand growth poses significant challenges. A five-year transition delay would necessitate incremental volumes comparable to a new US Permian basin for oil and a Haynesville Shale or Australia for gas.
Significant investment is essential to meet these demands, with upstream spending projected to rise by 30 percent. Annual development spend would increase to US$659 billion compared to US$507 billion in the base case, totaling US$17 trillion versus US$13 trillion by 2050 (in 2024 terms). Operational efficiency improvements could mitigate some inflationary pressures, though increasing spend faces challenges. Supply chain capacity is already strained, and heightened activity would inflate project costs.
Corporate strategies would need to adapt, with evolving definitions of capital discipline. Higher planning prices, supported by improved demand outlooks, would likely make increased development unit costs and breakevens more acceptable. This scenario also predicts price escalation, with Brent oil prices exceeding US$100/bbl during the 2030s before stabilizing around US$90/bbl by 2050 — averaging US$20/bbl higher than the base case.
Baburajan Kizhakedath