Overview and key findings – World Energy Investment 2022 – Analysis - IEA (2024)

Investment in fossil fuels is on a rising trend, but is still almost 30% below where it was when the Paris Agreement was signed. The cyclical incentive to invest in times of high prices is being reinforced in some areas by policy drive to diversify away from Russian Federation supply and address near-term market tensions, but there are constraints on this price responsiveness. Policy uncertainty is high, financing can be difficult to secure and companies are generally shying away from large commitments of capital that may take many years to pay back.

Investment in coal supply is much less capital-intensive than oil and gas, and has been less subject to large year-on-year variations. Around USD 105 billion was invested in the coal supply chain in 2021, an increase of 10% year-on-year, and a further 10% rise is expected in 2022 as tight supply continues to attract new projects. This is a long way from the market situation implied by international climate goals and the Glasgow commitment to “phase down” coal.

This increase is being led by China and India, the dominant players in global coal markets. Coal shortages and power rationing in China in 2021 made energy security the main priority in near-term Chinese policy, and more than 350Mt per year of new coal mining capacity was brought on stream in the second half of the year. Although China has pledged to stop building coal-fired plants abroad, there is still significant new capacity coming onto the domestic market, with more than 20GW approved for development in both 2020 and 2021, and more than 15 GW approved so far in the first half of 2022.

India is also looking to increase domestic coal supply in the face of a squeeze in 2022 that increased the use of more expensive imported coal. Other markets, including in Europe, are using more coal (at least temporarily) without necessarily pushing up investment in coal supply, which is constrained in many cases by an increasingly restrictive financial and regulatory environment.

The oil and gas sector is showing a similar variability in the response to high prices. Spending by Middle East National Oil Companies (NOCs) is now well above pre-crisis levels, as major resource holders look to bolster dwindling spare capacity. Saudi Aramco and ADNOC have announced plans to increase investment spending by about 15-30% in 2022. Russian companies, led by Rosneft, had also announced significant investment hikes for 2022, but are now reviewing their investment programmes in the light of sanctions, increasing restrictions on access to Western markets, and the announced exit of international players and service companies that have supported Russian production growth in the past.

Among the Western and international companies, some of the largest increases in upstream investment in 2022 are expected to come from the US majors, which are planning to increase spending by more than 30% in 2022. Meanwhile, planned upstream capex is essentially flat for the European majors in 2022, underscoring that their investment plans are driven more by long-term strategy commitments than by short-term prices.

In a situation where commodity prices are high and supplies are scarce, the focus of investment is squarely on projects that can deliver new volumes in a hurry. Methane abatement and flaring reductions fall into this category. Increased output of US shale oil and gas would be another possibility because of its short investment cycle. However, investment in this area has been relatively slow to pick up, held back by tight supply chains as well as a continued focus among operators on profitability and capital discipline.

Europe’s move away from Russian gas is putting new demands on LNG markets, but the implications for new LNG investment are complicated by the fact that most projects face a three to fouryear construction period and payback periods for invested capital that go well beyond the immediate European scramble for alternative supply. The uptick in long-term LNG commitments is still being led by Asian buyers, and only two new LNG projects have so far reached FID since gas prices started rising in mid-2021 (the USD11billion Pluto expansion in Australia and the USD 13 billion Plaquemines project in Louisiana).

High prices also raise questions about the outlook for gas demand, especially in price-sensitive developing economies. The 45GW of new gas-fired capacity achieving FID in 2021 was the lowest in 15years. Moreover, most of the decisions to invest in new gas turbines were in gas-importing countries that are exposed to international price volatility.

The refining sector saw its first reduction in global refining capacity in 30 years in 2021, as the 1.8mb/d of retirements outpaced relatively modest additions in China and the Middle East. This presaged and contributed to the extraordinary rise in refining margins seen during the crisis in 2022. However, the strong financial performance and high utilisation rates seen in recent months may not necessarily translate into higher investment levels given lingering uncertainty around the long-term outlook for oil demand.

Some oil and gas companies are under pressure to adapt their investments to the demands of energy transitions. Reducing emissions from their own operations – notably methane leaks – is a first-order priority for all, but beyond this, strategic choices vary widely. Spending by oil and gas companies outside “traditional” areas of supply is set to reach 5% of total spending in 2022. But this average masks a wide range of approaches. The majors and Equinor accounted for about 90% of total clean energy investment by the oil and gas industry in 2021 and almost all of the investment tracked so far in 2022. Overall, European companies are out in front for diversified spending, with major roles as investors in offshore wind.