Hot off the heels of another tumultuous and eventful year for the global energy landscape, 2024 is already continuing the trend of disruptions, headwinds, and opportunities, Rystad Energy stated in a release sent to Rigzone on Wednesday.“The coming year will be another rollercoaster ride for the industry, posing important questions about whether the net-zero targets outlined in the Paris Agreement can be achieved,” Rystad added, noting that “elections, supply chain issues, and the maturation of nascent industries are all on the cards”.
The release featured a list outlining what Rystad believes is in store for the energy sector in 2024, with contributions from several Rystad analysts. In that list, Jorge Leon, the company’s Senior Vice President of Oil Market Research, warned that geopolitics will shape the oil market more than ever.“This year, about 4.2 billion people will face political change with general elections in more than 70 countries,” Leon said in the release.“The outcome of these will have a significant impact on national politics and geopolitical developments and, inevitably, on the oil markets.
The future of the U.S.’ support for Ukraine, EU’s climate policy ambitions, tensions in the South China Sea, trade frictions between China and the West, and the ongoing conflicts in the Middle East all threaten to upset the market drastically,” he added.Xi Nan, Rystad’s Senior Vice President of Gas and LNG Market Research, noted in the release that gas will continue its effort to solve the energy trilemma – “security, affordability, and sustainability” – in 2024.
“Global gas production is expected to grow by three percent or 130 billion cubic meters (Bcm) in 2024. Investments in greenfield LNG projects are set to slow down this year compared to 2023 but remain at a robust level to support global LNG demand, reaching 500 million tons by 2027,” Nan added.“Gas will play an enabling role in the energy transition, especially in the power sector. It will be relied upon on a global scale for the foreseeable future, including in Europe,” Nan continued.
Also in the release, Espen Erlingsen, Rystad’s Head of Upstream Research, projected that muted U.S. shale growth helps OPEC this year.“Oil prices are expected to stay elevated in the near term, but evolving strategies in the U.S. shale sector mean output is not growing as quickly as in previous years,” Erlingsen said.“Investments in the shale patch are not expected to grow in 2024, keeping activity and output relatively flat, and enabling OPEC to effectively regulate the market. As a result, extended periods of high oil prices could be in store,” Erlingsen added.
Mukesh Sahdev, Rystad’s Head of Downstream, warned that the rise of a supply management framework in the refined products market, resembling OPEC+, could be an emerging trend to look out for in the year ahead and Artem Abramov, Rystad’s Head of Clean Tech Research, said hydrogen projects take off in 2024.“Activity in the clean hydrogen sector is surging globally, fueled by maturing policies in Europe and the U.S., in addition to early commercial-scale projects in the Middle East, Australia and Africa. However, 2024 promises more than just momentum – it’s a year of clarity,” Abramov said in the release.
Audun Martinsen, Rystad’s Head of Supply Chain Research, projected in the release that “the consolidation trend that has gripped the upstream oil and gas industry lately will cross over into the supply chain in 2024”.“As interest rates stabilize, or even fall, elevated cash flows will encourage suppliers to explore strategic acquisition opportunities to grow capacity inorganically,” Martinsen said.
“This will be true for the oilfield services and clean energy markets, where organic capacity expansion may not be the most efficient option, given the peak activity in O&G in 2024 and excess capacity within low-carbon sectors,” Martinsen added.Rystad’s Head of Renewables & Power Research, Carlos Torres Diaz, noted in the release that this year is expected to be another record breaker for the solar and wind markets, “adding more than 510 GW of solar PV and wind capacity globally”.
Key Things to Watch in Upstream in 2024
In a separate release sent to Rigzone earlier this month, Wood Mackenzie outlined “key things” to watch in upstream this year.“Geopolitical tensions, a record year for elections, and economic uncertainty will define the backdrop to the upstream industry in 2024,” Wood Mackenzie noted in that release.“Key themes to watch in global and corporate upstream include continued consolidation, increased activity from NOCs, reversing decarbonization gains, shifts in strategic playbooks, and an upstream investment plateau,” the company added.
In the release, Wood Mackenzie said sector consolidation will continue to be a key trend in 2024.“There’s no unifying theme across all these potential big deals. But the industry is maturing, and size matters,” the company added.“Higher market valuation multiples, easier access to finance for larger companies, lower costs and better execution are some of the incentives,” it said.
Fraser McKay, the Head of Upstream Analysis for Wood Mackenzie, noted in the release that “for deals to work, they need to demonstrate improved operational, financial and, for some deals, emissions performance”.“Some buyers may follow ExxonMobil’s playbook with Pioneer and look to bring unique data, technology, and processes to a basin. Others will be marriages of convenience,” he added.
“But not all deals will work, and it will remain hard for smaller international Independents to prove tangible synergies between disparate portfolios than their larger more diversified brethren,” he continued.Wood Mackenzie also highlighted in the release that COP28 placed greater emphasis on sustainability plans and said the effect for some NOCs will be bigger ambitions in low carbon and emissions abatement, “particularly for those signed up to the Oil and Gas Decarbonization Charter (OGDC)”.
“However, upstream growth will still be on the agenda for most NOCs in 2024,” Wood Mackenzie added.Neivan Boroujerdi, the Director of Corporate Research and NOC lead for Wood Mackenzie, said in the release, “most NOCs are still in the business of growing upstream capacity”.“It is a strategy that has been emboldened by the energy security concerns of the last 24 months,” Boroujerdi added.
In the release, Wood Mackenzie noted that, according to its analysis, “the Middle East champions will lead much of the growth, with ADNOC, Aramco and KPC increasing spend to meet domestic capacity targets”.“The Chinese NOCs could also step up, albeit from a low base: upstream equity, LNG offtake and strategic partnerships in the Middle East, Africa and Latin America are possibilities,” the company added, stating that mergers and acquisitions will increase as well.
“The NOCs have reset financial strength and will target M&As to plug strategic gaps in gas, LNG, short-cycle oil and international exploration,” Boroujerdi said in the release.“With this amount of growth and activity, there is a risk that transition strategies could slow, but most will continue to accelerate international transition themes,” Boroujerdi added.Wood Mackenzie stated in the release that some decarbonization gains will reverse in 2024, adding that production will rise by three percent this year and that decarbonization won’t keep up.
“Emissions intensity will keep falling through flaring reductions, more electrification, CCUS and greenfield projects, which will all help to reduce emissions per barrel, by at least two percent,” Adam Pollard, Wood Mackenzie’s Principal Analyst of Upstream Emissions Research, said in the release.“But the biggest driver is rising volumes of advantaged low-intensity oil and gas from the Middle East and United States. Incremental intensity improvements are good, but more work is required to reduce absolute emissions. Tougher new regulations are on the way, many of which will face political delays,” he added.
“But oil and gas remain low hanging fruit for some governments’ decarbonization efforts. The sector will get more ambitious with new initiatives announced and major projects sanctioned, but it will take several years to see the impact on global emissions reductions,” he continued.Wood Mackenzie also noted in the release that sustainability concerns, stakeholder pressures, and low valuation multiples will drive companies to adjust their strategic playbook.
“Investors want a reliable, growing base dividend as a reward for rising energy transition risks,” Tom Ellacott, the Senior Vice President of Corporate Research for Wood Mackenzie, said in the release.“But companies will have to grow cash flow if they want to grow dividends, re-balancing capital allocation towards investment to maintain sustainable cash-generating businesses,” he added.The company also stated in the release that upstream investment will plateau.
“Upstream operators will remain focused on resilience, sustainability, and efficiency. Most will exercise caution in the face of inflation, bottlenecks, and price uncertainty, with confidence undermined by widening OPEC+ production cuts,” Wood Mackenzie added.Global spend in 2024 will reach just over $500 billion in 2024, up just two percent from 2023 after a rise of 18 percent over the last three years, all in real terms, Wood Mackenzie noted. The company warned that the incremental rise “belies important underlying shifts”.
“Investment will rise in the Middle East, but fall in the U.S. Lower 48,” Ian Thom, the Director of Upstream Research at Wood Mackenzie, said in the release.“The new project pipeline remains healthy, with 45 projects vying to take final investment decision (FID) – a potential investment commitment of $170 billion to develop 25.5 billion barrels of oil equivalent,” he added.“Around 30 will proceed in 2024. Many of these will be deepwater discoveries, with the 10 biggest deepwater oil projects requiring $52 billion of investment for recoverable resources of five billion barrels of oil,” he continued.
Global economic weakness or a loss of unity in OPEC+ are key investment wildcards, Wood Mackenzie stated in the release.“A steep price downturn would precipitate the third investment collapse in a decade,” the company added. Thom highlighted in the release that “operators can and will slash budgets quickly if they need to”.
Source:https://www.rigzone.com