Goldman Sachs: Oil Shortage in the 2020s

The International Energy Agency (IEA) and Wood Mackenzie have both warned that the 2020s might see dramatic oil shortages due to a lack of investments in exploration. Now it is Goldman Sachs' turn to raise the alarm.

The general argument was that oil majors simply weren't investing enough money in oil exploration. Wood Mackenzie argued that there is plenty of free cash flow out there, $160 bn p.a. They argued that the money is instead being returned to investors.



Goldman Sachs' has a different spin on this lack of investments:

Global oil majors are increasingly looking to invest in lower-carbon areas of the energy sector, as they react to pressure for cleaner energy, both from government policy and investors . . . Della Vigna [Head of EMEA Natural Resources Research at Goldman Sachs] said until a transition to full renewables is made, the interim battle will be to own a greater market share of gas-based power. The analyst said with a huge capital cost of gas infrastructure, big state-backed companies looked best placed.

Wood Mackenzie noted that oil exploration spending dropped from $60 billion in 2014 to $25 billion in 2018.Wood Mackenzie is saying oil majors need to spend more money on oil exploration. Goldman Sachs is saying the oil majors can't, because they need to allocate funds to lower-carbon exploration due to government and investor pressure. It'll be interesting to take a look at how current oil majors spend their capital over the next few years. If spending starts to increase, but is spent on lower-carbon areas, the 2020s could be tough for the globe.