So far this year, oil prices have increased by 29 percent, and the oil industry is expanding.
According to Goldman Sachs analysts, "we will encounter a changing point in the oil and gas capital expenditure cycle," as seven years of decline have reduced spare capacity in most sectors of the industry, and the Russia-Ukraine conflict brings a fresh sense of urgency as the supply security concerns.
Five above all-time important questions are cited by the analysts.
1) "Shrinking reserves: oil reserve life fell to 25 years in 2022, a 52 percent decrease from 2014, as the industry continued to search for new resources. Investment delays since 2014 will cost 10 million barrels per day of oil production equivalent to Saudi production by 2024." However, "we do not anticipate material liquefied natural gas (LNG) growth to materialize until 2025.
2) "Steepening cost curve: the top projects cost curve has become smaller and steeper, with incentive pricing at $90 per barrel at the current capital cost."
3) Investment growth: we expect oil and gas production to grow at 11% per year (100% for LNG and shale) by 2024, resulting in a decrease of 7% [per year] since 2014.
Analysts said they expect 'a series of investment decisions from the trough.'
4) "We estimate that 2019 saw a record amount of non-OPEC production. "Not-OPEC, excluding shale and Russia, is beginning a phase of structural decline," said the analysts.
The price of the megaprojects will decrease by 300,000 barrels per day, according to authorities, with a depleted pipeline of small projects that are accelerating decrease rates and deteriorating project delivery.
5) "Spare capacity no longer: we anticipate a call for a large-scale OPEC production from pre-Covid levels by 2025," analysts said.
That will "deplete OPEC spare capacity by 2023, with limited capacity expansion until 2024."
Goldman Sachs has created a list of top oil stocks, including preparing for expected production growth in 2021-24, cash flow growth from top projects in the coming five years, quality of the growth portfolio, opportunities set, country and technical risk.
Hess () -, Pioneer Natural Resources () -, Conoco Phillips () -, Kosmos Energy () -, EOG Resources () -, Exxon Mobil () - and Continental Resources () -.
Exxon Mobil is owned by the author of this book.