Climate change misconceptions are leading investors to turn away from the oil sector in what is a threat to energy security, according to a report released by King Abdullah Petroleum Studies and Research Center.
The report noted the oil industry has been facing investment issues since 2014, but it showed signs of recovery in 2017.
However, the 2020 COVID
-19 outbreak saw investment drop to its lowest in the last decade — with the recovery the following year still at around 25 percent below pre-pandemic levels.
According to the report, the four key challenges that are negatively impacting investments in the sector are price volatility, uncertainties due to significantly diverging long-term forecasts, increasing climate change concerns, and the lack of regulation on environmental, social, and governance.
“The oil and gas industry has suffered from external discreditation through climate and social misconceptions, generating stigmas that have affected its investment attractiveness,” said KAPSARC in the report.
The report estimates that global oil and gas investments, which include both midstream and downstream, will increase by just $26 billion this year, significantly down on the more than $140 billion increase needed by 2025.
“A commodity with high price volatility is not the first option among value investors looking for steady gains or short-term wins,” said the report.
The report, however, noted that interventions by the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, helped market predictability and have provided some comfort for investors.
The report points out that Environmental, Social and Governance strategies in the oil and gas industry have focussed mainly on environmental and not social issues.
It was also argued that while large firms such as Shell, BP, and Chevron are able to implement such policies, “the industry has many small independent companies with a limited number of workers who have no time to implement ESG in their companies.”
The report added: “Many of the net-zero assumptions are conditional on the extensive and successful implementation of climate policies.”
It further stated that companies with long-life conventional portfolios like Aramco have lower corporate upstream emission intensities than those with other production mechanisms.