Investment in the energy industry is one of the most followed parameter in making decisions about future evolution of supplies and how secure they are to meet requirements. Energy investment is also important for its size, as it takes up an appreciable amount of the gross domestic product (GDP).

Needless to say, one of the most important factors to decide on new investments is the price of crude oil. This is because almost all other sources of energy are priced in one way or another relative to crude prices, except perhaps renewable energy. And even that has to compete with oil and gas.

When crude oil prices go down, producers worry if they can carry on with their projects to maintain and increase their production capacity and consumers worry about availability of future supplies and the level of prices then. When crude oil prices are high producers tend to invest more, but this may lead to excess capacity and a price fall later.

This has been proven time and again and the latest severe decline in crude oil prices since the second-half of 2014 is a vivid example.

The report “World Energy Investment 2017” issued by the International Energy Agency in July tells us that “Total energy investment worldwide was around $1.7 trillion in 2016, 12 per cent lower than 2015 in real terms and accounting for 2.2 per cent of global GDP.”

The price of oil is indeed behind this as companies either cancelled projects or shifted them for better times to come. This has also caused a shift in priorities, and the report tells us that increased expenditure on energy efficiency and electricity networks “were more than offset by a continuing drop in investment in upstream oil and gas which fell by over a quarter, and power generation, down 5 per cent.”

It is no surprise that total energy investment fell by 44 per cent between 2014 and 2016 and in the same time, oil and gas investment fell 38 per cent. And the trend would have carried into 2017 except for the relative improvement in crude oil prices, which are today still half what they were in the first-half of 2014. Still the report tells us that 40 per cent, or $680 billion, of global energy investment were in the oil and gas sector.

As for 2017, the report says: “A 53 per cent upswing in US shale investment and resilient spending in large producing regions like the Middle East and Russia has driven nominal upstream investment to bounce back by 6 per cent in 2017.”

The US is driven by supply security issues, while Russia and major producers in the Middle East have to invest to maintain capacity and modernise their industry as oil and gas revenues are most important for them. This has been helped by the relatively declining project costs since 2014 except for “the rapid ramp up of US shale activities has triggered an increase of US shale costs of 16 per cent in 2017 after having almost halved from 2014-16.”

Global electricity investment was about $718 billion, which is higher than that of oil and gas for the first time in memory. Renewables’ power capacity investment is increasing rapidly and in 2016 was at $297 billion. Decline in the prices of renewables’ systems will add more capacity than it did in previous years.

Coal is losing its competitiveness on concerns about its environmental qualities with respect to air pollution and the commitments of major countries to reduce their carbon emissions. In addition, there is oversupply, which may persist.

Because of the intermittent nature of renewable energy, investment in electricity networks and storage continue to rise, “reaching an all-time high of $277 billion in 2016”.

Oil and gas producers should be careful about “the 750 000 electric vehicles sold in 2016 [which] are expected to reduce transport oil demand by around 0.02 per cent.”

There is no need to panic, but as we say in Arabic, “a grain over a grain makes a heap”.

In our region, the main investor is governments, though in some recent projects debt and project financing are also contributing. The report says that, ‘National oil companies are playing a larger role in upstream oil and gas spending, with their share rising to 44 per cent in 2016 from below 40 per cent before the recent downturn in oil prices.’

There is just too much in this report to be covered here. But let us be careful about its conclusion when it says that “investment decisions today leave their mark on energy infrastructure for decades to come”. In our region, a balance is needed between being bearish and bullish.