HOUSTON—The leaders of OPEC and the International Energy Agency (IEA) issued warnings during a joint discussion at CERAWeek by IHS Markit on March 5 that the ongoing lack in upstream spending could result in a future energy crisis.

Faced with lower for longer oil prices, more and more producers turned to short-cycle projects, i.e. U.S. light-tight oil, in order to survive. The oil industry has yet to recover from the unprecedented two-year drop in investment, falling by about 25% a year in 2015-2016.

Further, the IEA sees little-to-no increase in upstream spending outside of the U.S. in 2018, said Fatih Birol, the agency’s executive director.

“This year, while many hope to see a strong rebound, we only see a small increase, about 6%. So we are far, far lower than what we have seen before we hit crisis,” Birol said citing the IEA’s Oil 2018 report, a five-year market analysis and forecast released on March 5.

Oil industry needs to replace one North Sea each year

The weak global investment picture remains a source of concern. “We lose each year one North Sea” or about 3 million barrels per day (MMbbl/d) from declining oil fields, he said.

More investments will be needed to offset these declines while also meet the IEA’s forecast for robust demand growth, more than 50% of which will come from China and India.

Boosted by economic growth in Asia and a resurgent petrochemicals industry in the U.S., the IEA predicts global oil demand will increase by 6.9 MMbbl/d to 104.7 MMbbl/d by 2023.

In fact, Birol said he sees, “No sign of peak oil at all.” And unless there is a change to the fundamentals, the effective global spare capacity cushion will fall to only 2.2% of demand by 2023, the lowest number since 2007, according to the IEA.

Mohammad Barkindo, OPEC Secretary General, echoed Birol’s concerns for future supply during the discussion, “We have seen a very sharp reduction in investment, particularly in long-cycle projects both onshore and offshore for almost two consecutive right into three consecutive years. And as Fatih has said, 2018 is not looking positive on the moment.”

Barkindo, who helped coordinate a landmark deal between OPEC and 24 non-OPEC countries to “literally rescue our industry from collapse,” issued a call for further cooperation among the world’s oil producers.

Only limited uptick in global upstream spending

“The global industry needs to focus on this emerging threat because we are sowing the seeds for a possible… future energy crisis that is not in the interest of this global economy,” he said.

Barkindo said the historic alliance between OPEC and non-OPEC producing countries, including Russia, is “all-inclusive and it is broad and it is open to all producers.”

“The issue of contraction of investments and some of the policy instruments that have been proposed to crowd out projects in the hydrocarbon sector is not in the interest of the industry, producers or consumers. And we see this alliance… as an assurance against future volatility, future price cycles,” he said.

OPEC was scheduled to hold a dinner on March 5 in Houston with U.S. shale firms, two industry sources said, Reuters reported last week.

Barkindo plus other OPEC officials were scheduled to attend the dinner, one of the sources said. A second source said the CEOs of U.S. shale companies of various sizes were invited, according to the Reuters report.

Emily Patsy can be reached at epatsy@hartenergy.com.