Is the IEA now telling us that we need more oil for longer? – Does Watt agree with that?

By Neil Atkinson

In his recent report “The implications of oil and gas field decline rates” The International Energy Agency reminded us that hundreds of billions of dollars must be spent each year to keep global oil and gas production stable. This is the latest in a series of pivots by the IEA to once again recognize the importance of oil and gas in the long-term energy balance.

It is notable that in its historic 2021 report “Net Zero by 2050: a roadmap for the global energy sector“The Agency suggested that there would be no need for investment in new oil and gas projects. The Agency was widely criticized, including by the National Center for Energy Analysis, for abandoning its Current Policy Scenario which more closely reflected current reality versus the aspirations of policymakers. In its next report World energy outlook 2025, The IEA is likely to reinstate a CPS, and a reasonable assumption is that it will show oil demand will be higher for longer, with important implications for future supply. Exxon Mobil and BP recently released outlooks showing oil demand will remain near 100 million barrels per day into the 2040s.

In recent years, there has been a lot of attention paid to investing in clean energy. In his report “Global Energy Investment 2025, The IEA reflected this: it showed a 78% increase in spending, from $1.2 trillion in 2015 to $2.2 trillion in 2025, and the share of clean energy in total energy investment increased from 45% in 2015 to 65% today. In the same period, oil and gas investment fell 35%, from $869 billion in 2015 to just $567 billion in 2025.

All this spending on clean energy doesn’t mean we’ve seen a big energy transition. In 2024, oil, coal and gas accounted for almost 82% of the world’s total energy supply, only slightly below the 85% level seen in 1974. The reality is that we live in an “all of the above” energy world and we should be concerned about a drop in oil and gas investment at a time when demand is at record levels and rising.

The challenges to greater investment in upstream oil and gas are several: most importantly, field decline rates are accelerating. Annual decline rates observed around the world show post-peak production decline rates averaging nearly 6%. Natural decline rates – defined by the IEA as what could happen if all upstream investment stopped today – show that global oil production is falling by 8% annually on average and this rate has increased in recent years. This is equivalent to losing around 5.6 million barrels per day each year, roughly the current combined production of Brazil and Norway. That investment stops completely is, of course, an extreme and unlikely scenario. However, it would not take a large decline from current levels of upstream investment for production levels to potentially fall significantly as decline rates seen in the field accelerate.

Another important point that the IEA points out is that the period between the issuance of an exploration license and the first commercial production is lengthening and is now 20 years on average; although there was a notable exception in Guyana, where the Liza oil and gas field took only five years between the start of exploration and first production. If we want to ensure that more oil is produced in a timely manner, there are many countries where this process needs to be accelerated.

For oil production to remain at current levels in 2050, the IEA believes that 45 million barrels per day of new conventional oil fields are needed. There will also be continued investment in unconventional resources such as shale oil. Still, in the words of the IEA: “Still, this leaves a big void that should be filled with new conventional oil and gas projects…” Unfortunately, the wisdom of this statement is clouded by the following clause which says that “The quantities needed could be reduced if demand for oil and gas fell.” It’s true, but it’s an illusion!

As sentiment gradually shifts towards recognition of the need for oil to play a larger role in the global energy balance, this report reminds us that a rapid rebound in investment is needed to regain ground lost in recent years. Unfortunately, many oil and gas companies lost sight of energy reality and, partly under ESG pressures, moved away from their core business into sectors they knew little about. This report is also a reminder to oil and gas companies that theirs is far from a declining industry and that they have a great future ahead of them. The IEA tells us we need more oil!

Neil Atkinson is an independent energy analyst, former director of the IEA’s Petroleum Department.

industry and markets division and visiting member of the National Energy Center Analytics.

To go deeper into this topic, read NCEA Thematic Report on Decline Rates.

This article was originally published by RealClearEnergy and available through RealClearWire.