Claims of chronic underinvestment in the global oil and gas industry are exaggerated, according to research and analysis conducted by Rystad Energy. While investments in the upstream sector have decreased since reaching a peak of $887 billion in 2014, with an estimated $580 billion expected for this year, Rystad Energy argues that the industry has become more efficient, leading to cost savings and increased productivity. Despite the decline in investments, activity and production levels have remained robust and comparable to the period between 2010 and 2014.

Espen Erlingsen, the head of upstream research at Rystad Energy, states that contrary to popular opinion, the world is investing adequate amounts of money in fossil fuel production to meet demand. The cost savings achieved by operators allow them to produce the same amount of oil at a lower cost, leading Rystad Energy to conclude that there is no immediate threat of an oil supply crisis due to underinvestment.

Global upstream investments reached nearly $900 billion in 2014 but dropped to around $500 billion by 2016 after the oil price collapse. The Covid-19 pandemic and subsequent oil price crash caused another decline in investments in 2020, with spending falling to $400 billion. However, there was a recovery last year, bringing investments back to approximately $500 billion. Although this rebound falls short of the 2014 levels, Rystad Energy argues that falling unit prices and efficiency gains should be taken into account when assessing the overall picture.

Examining unit prices for different supply segments since 2014 reveals a significant reduction in costs, ranging from 20% to 30%. Consequently, each dollar spent now results in more activity. Therefore, focusing solely on the declining investment trend can be misleading.

The number of completed wells per year is another essential metric to consider. The peak activity was observed around 2014, with approximately 88,000 new wells drilled. Although the number of wells declined from 2014 to 2016, it increased until 2019 before dropping due to the pandemic. Last year, around 55,000 new wells were completed, representing a 35% decrease compared to 2014. This metric aligns with the overall lower activity levels.

To provide a more accurate assessment of upstream activity, Rystad Energy evaluates the expected resources from wells over their 30-year lifespan. This metric accounts for efficiency gains, portfolio changes, and excludes the impact of cost inflation or deflation. When considering this perspective, the total oil production potential of wells completed in 2014 is approximately 37 billion barrels. Despite a decrease in developed resources between 2014 and 2016, the drop was less pronounced than the decline in investments and well counts. This indicates that the most productive wells were still drilled during that period.

For the wells completed in 2022, the estimated oil resource potential is nearly 32 billion barrels, only 15% lower than in 2014. Rystad Energy expects this value to increase further in 2023, reaching almost 35 billion barrels. The growth in developed resources is mainly driven by US tight oil and deepwater fields.

Comparing the total resources by completion year to annual production demonstrates the trajectory and sentiment of the market. In a growing oil market with increasing demand, newly developed resources should surpass total production annually, as the volumes from new wells will be produced over a 30-year period. Rystad Energy's analysis indicates that new resources will continue to exceed total production at least until 2025, affirming the positive trajectory of the global oil industry and supporting the conclusion that a supply shortage triggered by underinvestment is unlikely in the short term.