This year in global energy, look for less drilling, more oil, price uncertainty and political volatility. Also, new forms of carbon capture. And a scramble for critical resources. Plus, a big push on methane emissions and a big rush for AI.
Analysts, consultants and government agencies have issued their outlook for oil and gas and the rest of the energy industry for 2024. This time around their confidence level is lower than usual, with significant unknowns in supply, demand and price. Based on those varied forecasts, the coming year in global energy should be, to borrow a word from Mr. Spock …
Fascinating.
“The oil and gas industry remains poised for a strong start in 2024 owing to its strong financial position and relatively high energy prices, barring a macroeconomic downturn,” said Teresa Thomas, vice chair of consulting firm Deloitte LLP and recently named national sector leader for energy and chemicals.
Thomas cited a number of energy signposts to watch in 2024:
- “Economic conditions and their influence on overall demand and investments, as recession in any part of the global economy could suppress product demand, putting pressure on companies while reducing available capital … ”
- “The evolution in geopolitical and regulatory landscapes, notably in clean energy policies … ”
- “Advancements in mobility patterns and battery and engine technologies, with rising EV demand and more efficient engines, can further reduce hydrocarbon demand.”
- “Capital allocation, particularly as companies face the dual challenge of scaling clean energy technologies while maintaining high shareholder payouts ... ”
- In mergers and acquisitions and joint ventures, “the increasing role of M&As and JVs in helping companies share risks and resources for innovating and commercializing new technologies … ”
Here’s a review of some major near-term trends predicted for energy.
Energy Prices
The consensus view holds that Brent crude oil prices will mostly stay in the range of $65-$95/barrel in 2024, mirroring last year’s stability. Analysts also expect constrained world natural gas and LNG prices this year because of soft demand, abundant production and increased LNG supply.
In its most recent outlook, the U.S. Energy Information Agency predicted little overall change in oil prices, expecting a relative balance in petroleum-liquids supply and demand. It projected Brent crude to average $82 per barrel this year and $79 in 2025.
But, the EIA added, “our price forecast remains uncertain. We generally expect the Brent crude oil price is more likely to decline than rise because we expect global oil production will more likely exceed our forecast than fall short of our forecast.
“The potential for prices to exceed our current forecast is largely related to unplanned production disruptions, a risk highlighted by the recently escalating tensions in the Red Sea.”
It projected Henry Hub spot prices for natural gas to increase slightly but remain under $3 per million Btu in 2024-25. In the EIA outlook, U.S. gas prices will average $2.60-$2.70/MMBtu this year and rise to more than $2.90/MMBtu in 2025, as LNG exports increase.
Oil Production
Analysts project higher world crude output through 2025, but at a declining rate of growth. In January, the EIA predicted near-term oil production increases from both OPEC+ and the United States.
The EIA forecast that OPEC+ crude production will average 36.4 million barrels per day in 2024 and 37.2 million b/d in 2025. That’s still well below the 2015-19, pre-pandemic average of more than 40 million barrels per day. (Totals do not include Angola, which has left OPEC.)
U.S. oil production will reach 13.2 million barrels per day this year and more than 13.4 million in 2025, the EIA projected. Both of those levels would be new records.
A big word in drilling and development is “efficiency” with gains reducing the number of rigs needed. In the EIA’s view, “production growth continues over the next two years driven by increases in well efficiency. However, growth slows because of fewer active drilling rigs.”
Carbon Capture
Wood Mackenzie, an international energy consultancy and research firm, predicted “novel carbon capture technologies will finally enter commercial scale” in 2024.
Seeing innovative projects for carbon capture, utilization and storage is no longer remarkable, Woodmac noted. Out of the 100 or so commercial-scale CCUS projects it tracks, the company estimated that 50 have a decent chance of progressing.
What’s new today “is the much-awaited graduation of novel technologies from pilot to commercial scale. New techniques to capture carbon dioxide such as modularization, solid adsorption and bio-recycling will be fully deployed for the first time in 2024,” commented Mhairidh Evans, Woodmac head of CCUS research.
“These promise lower energy intensity and cost reductions of up to 50 percent compared to incumbent methods. If successful, barriers will be lowered for emitters in vital heavy industries such as cement and chemicals. And the technology companies can expect a rush of orders,” she noted.
In this case, modular CCUS refers to carbon removal systems using small, self-contained and easily deployed module units – a shift away from large-scale, custom plants.
AI and Technology
According to Deloitte’s 2024 Oil and Gas Industry Outlook, generative artificial intelligence is putting the energy industry “at the threshold of a new AI frontier.” Look for new energy industry applications of AI in both its generative and predictive forms.
“In recent years, artificial intelligence has emerged as a transformative force for the industry, with applications across the (oil and gas) value chain, from initial resource exploration to the intricacies of refining processes.
“Among applications, AI-driven predictive maintenance is instrumental in achieving a multitude of objectives, including cost reduction, heightened productivity and the assurance of operational reliability for the industry,” Deloitte observed.
Other benefits include addressing cybersecurity challenges, adapting to evolving regulations and ensuring data quality when integrating AI technology, it noted.
Deloitte’s AI Institute has defined generative AI as “a subset of artificial intelligence in which machines create new content in the form of text, code, voice, images, videos, processes – and even the 3-D structure of proteins.”
Methane Reduction
Reduction of methane emissions will be a major focus for oil and gas producers in 2024, forecasters predicted.
An assessment by energy research and intelligence firm Rystad Energy found that more than 100 individual oil and gas fields, primarily located in the Middle East, Africa and Asia, contributed less than 1 percent of global production while emitting significant amounts of methane.
Reducing methane “is generally a more low-hanging fruit than cutting emissions of carbon dioxide, and therefore has the most promising potential for the energy sector in the short and medium term--provided the emissions are detected,” said Magnus Kjemphol Lohne, Rystad senior vice president of global emissions research.
More than half of upstream oil and gas methane emissions come from large venting and leakage events, with the rest attributed to flaring, fugitive emissions from equipment and smaller venting occurrences, Rystad found.
It noted that the Middle East and North America account for nearly half of worldwide methane emissions from oil and gas activities, followed by Asia, Russia and Africa. Clean-up is proceeding on an international scale.
Rystad reported that “promising announcements have been made by the energy industry, such as the Oil and Gas Decarbonization Charter – an agreement signed by 50 operators which together account for around 40 percent of global oil production to reach near-zero methane emissions by 2030.
“Several companies have also joined the Oil and Gas Methane Partnership, while the Global Methane Pledge has welcomed new countries and secured new funding.”
Critical Minerals
Large energy companies are projected to increase their investment in critical minerals, a defensive move related to the growing importance of and investment in renewable energy.
Deloitte reported that “Indonesia dominates nickel mining and processing. China, on the other hand, dominates the market in graphite (100 percent), lithium and cobalt (65-75 percent), and rare earth elements (90 percent) processing.”
Oil and gas companies are looking to secure clean-energy manufacturing and critical-mineral rights, leveraging their expertise in subsurface and reservoir management and their regulatory knowledge, it observed.
“In addition, participating in the clean energy supply chain can allow companies to continue participating in commodity markets, instead of taking on additional risks in end markets.
“Furthermore, rising lithium demand, which is expected to double over the next two decades, is contributing to the interest of O&G companies in lithium extraction from brine, an oil field byproduct, which offers higher margins compared to conventional hard rock minerals,” Deloitte observed.
Occidental and ExxonMobil are already securing U.S. acreage for brine-based lithium extraction, possibly signaling potential for technologies such as direct lithium extraction, which offers lithium recovery rates up to 90 percent, it noted.
The China Factor
One other indicator to consider: What happens to the petrochemical industry in China? The surge in Chinese petrochemical activity has been a driver for higher world energy consumption in recent years. A downturn could significantly affect demand.
“The structural transformation of the (Chinese) petrochemical industry has been reshaping global patterns of oil consumption,” wrote Ciarán Healy, oil market analyst for the International Energy Agency.
“The speed and scale of the expansion of China’s petrochemical sector dwarfs any historical precedent, roughly doubling the pace of earlier capacity additions in the Middle East and United States,” Healy noted.
Moving toward the end of 2024, circle two dates: On Nov. 5, the United States holds its presidential election. The outcome will affect energy policy for years to come. And on Nov. 11, the next United Nations climate change conference, COP 29, convenes in Baku, Azerbaijan.
Finally, most observers expect world energy growth to advance hand-in-hand with the global energy transition in 2024. Based on the current outlook, there’s every reason to believe the energy industry, including its oil and gas sector, will live long. And prosper.