As the oil and gas industry starts to close out the books in 2023, what to expect for next year continues to grow as a hot topic. With many sources offering insight, the future of oil and gas might be uncertain, but most market prophets agree on what external factors will drive influence.
Key points presented find support through statistics, and all point to the same path. Attempting to define a success strategy for 2024, numerous companies are continuing to embrace the energy transition and its multiple aspects that appear profitable.
Trade and Tension
According to Deloitte’s “2024 Oil and Gas Industry Outlook” article, global energy trade is typically influenced by supply and demand, and transportation and storage infrastructure availability. The blueprint has changed moving into 2024 with the heightened international tensions. A snapshot of the Russia-Ukraine war shows it has significantly impacted trade flows. As countermeasures have been enacted, price differentials and market competition have shifted. Added to the potential threat, current and future irregularities within the energy market could heighten if tensions in the Middle East move to the next level.
Subscribing to similar considerations, Water Tower Research released its industry report, “Five Trends to Watch in 2024.” Here, the conflict between Israel and Hamas is spotlighted and could levy a similar disastrous influence on crude oil prices. The overall uncertainty plaguing the world promises to pressure market pricing.
According to Jeff Robertson, Managing Director at Water Tower Research and the author of the industry report, prices have descended since the conflict between Israel and Hamas began. He forecasts they should remain unaffected unless the conflict disrupts a more significant impact.
That theory shows a blatant truth, considering the markets have embraced a nice balance between supply and demand. In the November 2023 FY23, OPEC estimated the global oil demand to be 102.11 MB/d. Its FY24 outlook projects an increase to 104.36 MMB/d, revealing a 2.2 percent gain. The EIA FY23 oil production outlook for the United States is 12.9 MM/d, one MMB/d higher than the previous year. Growth is expected in FY24, with the EIA’s crude oil production averaging 13.15 MMb/d, with Permian Basin producers playing a significant role in domestic production growth.
“It is the increase in uncertainty that has more of an impact on supply and demand,” says Robertson.
Technology and Consolidation
The state of the market and predictions of its state drive survival strategies; the fluctuations impact costs, which catalyze efforts to manage profits. Specific measures must be taken, as well as the adaptation of technology and the financial ability to consolidate, streamline business practices, and strengthen portfolios.
The industry has long relied on technology to improve how oil and gas are produced and delivered to the markets. The Deloitte report points to the emergence of artificial intelligence (AI) and its influence on the value chain, spanning exploration to refining. AI technology can be found in predictive maintenance programs to reduce maintenance and repair costs. In addition to reducing costs and enhancing efficiency, AI provides an opportunity to expand revenue possibilities and innovation.
While AI serves as a methodology that can enable success in multiple areas, a company’s balance sheet must be able to purchase AI software, provide training, and then afford an implementation process. Consolidation allows for adopting AI potential from each side of the table. Smaller companies might need more funds to embrace the technology but still position themselves as being an attractive interest in the mergers and acquisitions world.
At the other end of the spectrum, a giant corporation buying or consolidating with a smaller companion can provide the expansion of assets to support the use of AI. Additionally, consolidation allows the newly acquired asset to be utilized as a test source to determine the potential impact of AI.
Consolidation allows for more benefits than just an outlet for technological use. In his report, Robertson utilizes ExxonMobil’s purchase of Pioneer Natural Resources and the Chevron/Hess consolidation as examples of reducing costs and increasing efficiency in operating. He sees this trend as one that will continue well into 2024 and result in additional assets being released into the market.
Embracing technology and consolidation strategies provides an additional benefit when concentrating on capital returns. Reducing costs and streamlining processes allow for the return of capital to shareholders. According to Robertson’s report, “E&P operators are currently weighing 2024 capital plans against a backdrop of retaining financial flexibility to cope with commodity market volatility, return capital to shareholders, and reinvest for growth.”
Natural Gas Wild Card
According to Robertson’s natural gas assessment found in his report, the domestic natural gas sector carried a minor drilling campaign for the majority of 2023. The EIA estimated dry gas production for FY23 to be 103.68 Bcf/d. As it is forecasted to surpass 2022, the theme will carry into 2024. Dry gas production for FY24 is expected to yield 105.29 Bcf/d.
LNG is expected to experience significant growth in its own right. A jump from FY2023’s 11.80 Bcf/d to 12.29 Bcf/d should come to fruition in 2024. Still, approximately 9 Bcf/d of expected LNG export capacity remains under construction spanning the Gulf Coast but should go online by 2027. With the potential to export natural gas globally, pricing could increase. This market expansion would certainly yield positive returns for the Haynesville and Marcellus Shales and the Permian Basin.
“If you can move more gas to the global market, the price would go up,” says Robertson.
Energy Transition
As the energy market attempts to meet the world’s power demands, a changing focus has influenced a pivot in the forward movement. According to Deloitte, the refining sector is cultivating new products to offset a theory that the demand for fossil fuels will decline in the long term. Attention is being directed toward alternative fuels that are more carbon emitting friendly. This includes fuel mixtures, biofuels and hydrogen production.
While the focus additionally seeks solutions in low carbon alternatives to current chemical refining and the production of ammonia, carbon capture, usage and storage (CCUS) projects have mainly become popular and are expected to gain momentum. Deloitte’s report points to the potential of leveraging carbon capture for decreasing emissions from steam methane reformers, catalytic crackers, and a combination of power and heat equipment. Huge benefits are currently underway with Air Liquide, Air Products, ExxonMobil and Shell attempting to capture 2.5 million tons annually at Porthos CCUS located in Rotterdam in the Netherlands.
Robertson processes similar evaluations in his report and identifies enhanced attention made by investors analyzing the potential commercial gains relating to CCUS. These projects populate the domestic market and are not exclusive globally. Utilizing its subsidiary, 1PointFive, Occidental Petroleum is managing the construction of the Stratos Direct Air Capture facility in Texas’ Ector County and is expected to capture 500,000 tons of atmospheric CO2 annually. Additional players like ExxonMobil, Chevron, Talos Energy and others see the potential in the Gulf Coast region as a mecca for carbon capture and sequestration projects
The New Year
With the multiple external forces impacting the energy sector, industry professionals will watch how it progresses and where it will finish. As the industry approaches the first quarter of 2024, analysts adhere to the same script to finish strong. Mergers and acquisitions will likely continue while companies look to strengthen financial and asset portfolios. New growth will be facilitated in demand markets like natural gas, and the LNG potential will be harnessed in the Gulf Coast region.
Companies will take advantage of possible opportunities while the demand grows for alternative energy sources. With the Inflation Reduction Act (IRA) igniting interest in this market with incentives and subsidies, alternative energy should continue to offer profitability to diverse portfolios. The diversity in projects, ranging from refining alternatives to carbon capture, should continue to be attractive in terms of profits and carbon emission reduction potential.
These different facets considered for successful market growth depend largely on pricing stability and growth. Uncertainty and geopolitical tension will steer that pricing. Major upsets can be avoided if tensions are managed with new conflicts being defused before they combust into significant global upsets. For now, markets remain stable, but as 2024 approaches, the future captures interest, and the industry will continue to monitor its direction.
Nick Vaccaro is a freelance writer and photographer. In addition to providing technical writing services, he is an HSE consultant in the oil and gas industry with twelve years of experience. Vaccaro also contributes to SHALE Oil and Gas Business Magazine, American Oil and Gas Investor, Oil and Gas Investor, Energies Magazine and Louisiana Sportsman Magazine. He has a BA in photojournalism from Loyola University and resides in the New Orleans area. Vaccaro can be reached at 985-966-0957 or nav@vaccarogroupllc.com.
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Nick Vaccarohttps://oilmanmagazine.com/author/nick-vaccaro/
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Nick Vaccarohttps://oilmanmagazine.com/author/nick-vaccaro/
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Nick Vaccarohttps://oilmanmagazine.com/author/nick-vaccaro/
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Nick Vaccarohttps://oilmanmagazine.com/author/nick-vaccaro/
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Nick Vaccarohttps://oilmanmagazine.com/author/nick-vaccaro/
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Nick Vaccarohttps://oilmanmagazine.com/author/nick-vaccaro/
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Nick Vaccarohttps://oilmanmagazine.com/author/nick-vaccaro/
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Nick Vaccarohttps://oilmanmagazine.com/author/nick-vaccaro/
Oil and gas operations are commonly found in remote locations far from company headquarters. Now, it's possible to monitor pump operations, collate and analyze seismic data, and track employees around the world from almost anywhere. Whether employees are in the office or in the field, the internet and related applications enable a greater multidirectional flow of information – and control – than ever before.
