Global Energy Investment Slumped 12% to $1.7trn in 2016

•    Drop attributed mainly to falling unit capital costs in oil, gas
•   Accounted for 2.2 % global GDP

Kunle Aderinokun

The world’s total energy investment was $1.7 trillion in 2016, having dropped by 12 per cent from 2015 in real terms and accounted for 2.2 per cent of global gross domestic product (GDP), World Energy Investment 2017 has revealed.

The WEI, a publication of International Energy Agency, which was released in July, noted that increase in spending on energy  by nine per cent with six per cent rise in electricity  networks were more than balance a continuing drop in investment in upstream oil and gas, which fell by over a quarter, and power generation, down  five per cent.

According to the report, “Falling unit capital costs, especially in upstream oil and gas, and solar photovoltaics (PV), was a key reason for lower investment, though reduced drilling and less fossil fuel-based power capacity also contributed.”

Pointing out that, “The electricity sector edged ahead of the fossil fuel supply sector to become the largest recipient of energy investment in 2016 for the first time ever,” WEI disclosed that, “Oil and gas represent two-fifths of global energy investment, despite a fall of 38 per cent in capital spending in that sector between 2014 and 2016.” 

“As a result, the low-carbon components, including electricity networks, grew their share of total supply-side investment by twelve percentage points to 43 per cent over the same period,” it added. 

The WEI reported that China remained the largest destination of energy investment, taking 21 per cent of the global total. “With a 25 per cent decline in commissioning of new coal-fired power plants, energy investment in China is increasingly driven by low-carbon electricity supply and networks, and energy efficiency. Energy investment in India jumped 7 per cent, cementing its position as the third-largest country behind the United States, owing to a strong government push to modernise and expand India’s power system and enhance access to electricity supply.” 

According to the report, “The rapidly growing economies of Southeast Asia together represent over 4 per cent of global energy investment. Despite a sharp decline in oil and gas investment, the share of the United States in global energy investment rose to 16 per cent – still higher than that of Europe, where investment declined 10 per cent – mainly as a result of renewables.”

On key trends in energy investment by sector, WEI  pointed out that, after a 44 per cent plunge between 2014 and 2016, upstream oil and gas investment has rebounded modestly in 2017. 

“A 53 per cent upswing in US shale investment and resilient spending in large producing regions like the Middle East and the Russia Federation (hereafter, “Russia”) has driven nominal upstream investment to bounce back by six per cent in 2017 (a three per cent increase in real terms). Spending is also rising in Mexico following a very successful offshore bid round in 2017. 

“There are diverging trends for upstream capital costs: at a global level, costs are expected to decline for a third consecutive year in 2017, driven mainly by deflation in the offshore sector, although with only three per cent decline, the pace of the plunge has slowed down significantly compared to 2015 and 2016. 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,” it stated. 

Similarly, WEI revealed that global electricity investment fell just below  one per cent to  $718 billion, with an increase in spending on networks partially making up for a drop in power generation. “Investment in new renewables-based power capacity, at $297 billion, remained the largest area of electricity spending, despite falling back by three per cent. Renewables investment was three per cent lower than five years ago, but capacity additions were 50 per cent higher and expected output from this capacity about 35 per cent higher, thanks to declines in unit costs and technology improvements in solar PV and wind. Investment in coal-fired plants fell sharply, with nearly 20 gigawatts (GW) less commissioned, reflecting concerns about local air pollution and the emergence of overcapacity in some markets, notably China, though investment grew in India. The investment decisions taken in 2016, totalling a mere 40 GW globally, signal a more dramatic slowdown ahead for coal power investment once the current wave of construction comes to an end. 

Nevertheless, the report further stated that, “Gas-fired power investment remained steady in 2016, but nearly half of it was in North America, the Middle East and North Africa where gas resources are abundant.”

According to the report, “In Europe, although 4 GW of new capacity came online based on investment decisions made years ago, retirements of gas-power plants exceeded the amount of new capacity that was given the green light for construction. The 10 GW of nuclear power capacity that came on line in 2016 was the highest in over 15 years, but only 3 GW started construction, situated mostly in China, which was 60 per cent lower than the average of the previous decade.” 

“Spending on electricity networks and storage continued its steady rise of the past five years, reaching an all-time high of $277 billion in 2016, with 30 per cent of the expansion driven by China’s spending in the distribution system. China accounted for 30 per cent of total networks spending. Another 15 per cent went to India and South-east Asia, where the grid is expanding briskly to accommodate growing demand. In the United States (17 per cent of the total) and Europe (13 per cent), a growing share is going to the replacement of ageing transmission and distribution assets,” the report said.