Familiar, surprising, disruptive and resilient.
For the global energy industry, the past 12 months seemed almost like a rerun, with increased shale output, continued LNG development, OPEC production curtailments, industry mega-mergers and geopolitical upheaval.
Amy Chronis, partner in consulting firm Deloitte LLP, said “2023 reaffirmed the resilience, ingenuity and adaptability inherent in the oil and gas sector.
“The sustained capital discipline of companies amidst global turmoil, alongside the enduring significance of U.S. shales and LNG exports, speaks volumes about the industry’s ongoing pursuit to provide clean energies,” Chronis observed.
Deloitte identified four major “disruptors” that affected the world energy picture last year: geopolitics, macroeconomic shifts including high interest rates and material costs, evolving government policies/regulations and the emergence of new technologies.
The resiliency came from an industry that continued to meet the world’s energy needs while realizing a cleaner and more robust energy supply.
Major Trends
Here are six significant energy trends from the past year, according to Deloitte:
- Oil prices stayed in a narrow range. OPEC production guidelines, geopolitics and macroeconomic pressures counterbalanced each other in 2023, Deloitte reported.
As a result, Brent oil prices remained range-bound between $70-$97/barrel last year, the tightest range since 2019, according to the U.S. Energy Information Agency.
Concerns over supply disruptions – mostly stemming from geopolitical events – pushed oil prices up in October. Then, higher U.S. production and inventory levels led to lower prices later in the year. However, OPEC+ stayed committed to supply cuts, Deloitte noted.
- Oil consumption and electric vehicle sales rose in parallel. Which of these prevailed in the energy demand competition: renewables, EVs or hydrocarbons? The answer is, “All three.”
World oil demand was on pace to reach a record 102 million barrels per day in 2023, driven mainly by Chinese demand, according to the International Energy Agency. Deloitte reported the growth came despite EV sales reaching 41 million globally, up from just 10 million in 2020.
Going forward, new policies in the United States could further increase the pace of EV sales. But global oil consumption likely will continue to grow in 2024, led by higher demand in several non-OECD countries, Deloitte noted.
- Solar investments in 2023 were set to outpace oil investments for the first time. Despite financing challenges and rising capital costs, green energy spending was supported by fossil fuel prices, policy support such as the Inflation Reduction Act in the U.S. and energy security goals in several regions, including Europe.
Renewables investment faced headwinds from the rising cost of capital, as interest rates increased through much of 2023 and the previous year, Deloitte observed. But expedited permitting processes and swift implementation of clean energy policies could hasten future renewables build-out, it noted.
“As nations and companies reinforced their low-carbon ambitions, the year 2023 became a pivotal moment in our journey towards a sustainable energy future,” Chronis said.
- U.S. shale remained at the epicenter of global upstream activity. Plenty of experts predicted a downturn in U.S. production during 2023. That didn’t happen. Led by growth in the Permian Basin, U.S. oil production reached an all-time high of 13.2 million barrels per day in September despite less domestic drilling, according to the IEA. Deloitte found that activity in U.S. renewables was driven by disciplined capital, shareholder focus, shale operators’ operational excellence and industry mega-mergers.
Producers began sidelining rigs during the year in response to lower oil prices and softer demand, but improvements in drilling efficiency and technology improvements resulted in net growth.
U.S. shale mergers and acquisitions soared to $180 billion, surpassing the combined shale M&A total from the previous three years, according to Deloitte. Two of 2023’s biggest deals were initiated by ExxonMobil and Chevron.
In October, Exxon announced it had agreed to acquire Pioneer Natural Resources for approximately $59.5 billion. The merger combined Pioneer’s more than 850,000 net acres in the Midland Basin with Exxon’s 570,000 net acres in the Delaware and Midland Basins, creating an estimated 16 billion barrels of oil-equivalent resource in the Permian Basin area.
Also in October, Chevron announced it had agreed to acquire the outstanding shares of Hess Corp. in an all-stock transaction valued at about $53 billion.
Chevron got 465,000 net acres of high-quality inventory in the Bakken Shale and a 30-percent ownership in more than 11 billion barrels of oil-equivalent recoverable resource in Guyana, with exploration upside. It also gained Gulf of Mexico assets and steady free cash flow from Southeast Asia natural gas operations.
- Momentum for emissions reductions was the strongest ever in 2023. Most of the talk in 2023 was about climate change and fossil fuels, but the action was all about methane.
In December, the EPA issued its final rule for oil and gas operations, estimated to avoid 58 million tons of methane emissions between 2024 and 2038. The rule requires equipment upgrades and regular inspections, but also allows a two-year phase-in period for eliminating routine flaring.
In addition, Deloitte noted, more than 150 countries have signed the Global Methane Pledge, which commits signers to reduce emissions from methane by 30 percent (from 2020 levels) by 2030. Several countries jointly announced more than $1 billion in new grant funding to reduce methane emissions.
A surprising trend: According to Deloitte’s research, based on self-reported data from companies, scope 1 and 2 emissions of large oil and gas companies has fallen by about 28 percent over the past few years.
- U.S. LNG projects continued to attract investment. LNG development hasn’t gotten a lot of public attention, even though it could help to reshape the future of the energy industry.
Following Russia’s invasion of Ukraine in 2022, more than 50 million tonnes per annum (MTPA) of long-term agreements were signed with U.S. LNG developers, Deloitte reported. By the first half of 2023, the U.S. had become the world’s largest LNG exporter, it noted.
Three more LNG export projects reached final investment decision stage in 2023, representing more than 37 MTPA, or nearly 5 billion cubic feet day. Several other LNG projects are expected to hit trigger stage in 2024.
Factors that Will Shape f2024
Beyond these major trends and events, 2023 included a number of wildcards for the energy industry. Seeing how they turn out, and how much they ultimately affect the world’s energy picture, will take time:
- Israel-Hamas war: Israel’s incursion into Gaza had minimal direct impact on global energy supply and distribution. However, the indirect effects could include a significant disruption to the world’s geopolitical and energy balance.
- Return of oil and gas exploration: It took eight years, but exploration finally edged back toward pre-2015 oil boom levels. Reserves piled up, but major discoveries, not so much. Will 2024 bring bigger and better successes?
- Venezuela/Guyana territorial dispute: The Maduro government in Venezuela introduced a referendum on a long-standing claim to the Essequibo region, which happens to include most of Guyana. And Guyana happens to include an offshore exploration area rich in oil discoveries.
- OPEC+ curtailments and expansion: OPEC stuck to its guns on oil production curtailments, extending its voluntary cutbacks and targeting a 2.2 million barrels-per-day overall reduction going into 2024. Meanwhile, Brazil agreed to join OPEC+ as a cooperating member, without taking part in the announced output caps.
- COP28 climate meeting: For the first time ever, at COP28 in Dubai, the concept of shifting away from fossil fuels made its way into formal language at a Conference of the Parties climate meeting. Presumably, the follow-up will come at COP29, convening in Azerbaijan next November.
One narrative in the energy transition has been a “winners-losers” scenario. If renewables expand, hydrocarbon demand supposedly declines. If fossil fuels use continues, climate action supposedly suffers.
But somehow, oil and gas demand, activity in renewables and unconventionals, climate action and energy development all managed to thrive at the same time during the past 12 months.
The year “2023 showed resilience amid disruption, but also contrasts such as a simultaneous uptick in oil demand and electric vehicle sales, the whirlwind of M&A activities in shales and an accelerated push towards investment in clean energy,” observed Kate Hardin, executive director of Deloitte Center for Energy and Industrials.
“These trends exemplify the multifaceted transformation toward a more balanced and sustainable energy landscape,” Hardin said.