Upstream oil and gas spending to cede more ground to renewables in 2021: IEA

Upstream oil and gas investment is expected to rise by about 10% in 2021 as companies recover from the financial shock of COVID-19, but spending will remain well below pre-crisis levels and is being outpaced by surging investment in renewable power, according to the International Energy Agency.

Total estimated upstream spending of $351 billion this year remains 26% lower than 2019 levels and will be behind the $367 billion earmarked for renewable power projects in 2021, the IEA said in its annual World Energy Investment report.

With oil and gas producers coming under increasing pressure to prioritize spending on cleaner energy, listed companies were expected to continue making up a shrinking share of global upstream investment, the IEA said.

Despite higher prices, the major oil companies are holding oil and gas spending flat in 2021, and their share of overall upstream spending at 25%, compared with nearly 40% in the mid-2010s, it said.

By contrast, upstream spending by Chinese, Russian and Middle Eastern NOCs was expected rise this year, closing the spending gap to integrated energy majors.

Despite severe revenue and spending constraints, some NOCs are stepping up counter-cyclical investments, the IEA said, with companies such as ADNOC, Saudi Aramco and China's CNOOC and PetroChina announcing either higher capital budgets or upstream expansion plans.

The IEA estimated the majority of fuel supply investment in 2020 went into fossil fuels -- around 84% to oil and gas and just over 14.5% to coal. For the fifth consecutive year, however, capital spending in the power sector in 2020 was higher than for oil and gas supply, it estimated. Around 1.3% was spent on low-carbon fuels, the IEA said.

Faster transition spend

Overall, global energy investment is set to rise to $1.9 trillion in 2021, almost 10% higher than 2020 and bringing total investment back towards pre-crisis levels, the IEA estimated. Led by large European players, the share of total capital investment by the oil and gas industry into clean energy, however, could rise to more than 4% in 2021, up from 1% in 2020.

"The rebound in energy investment is a welcome sign, but much greater resources have to be mobilized and directed to clean energy technologies to put the world on track to reach net-zero emissions by 2050," IEA Executive Director Fatih Birol said in a statement.

After flat-lining in 2020, global power sector investment is set to increase by around 5% in 2021 to more than $820 billion, the IEA estimated. Renewables such as solar and wind are dominating spending in new power generation, the IEA said, and expected to account for 70% of the total of $530 billion spent on all new generation capacity.

The IEA said, however, that the $750 billion expected to be spent on clean energy tech and efficiency in 2021 remained "far below" that needed to meet Paris Climate targets on global warming.