Twists and turns of global energy
Energy is seamlessly woven into the fabric of our existence. From lighting up our homes to powering up our cars and smartphones, it is very much the heartbeat of modern society. Yet, in a world of escalating demand 2023 left an indelible mark on the energy sector, setting records and inducing market jitters.
The International Energy Agency projects that oil demand stood at 102 million-barrels-a-day in 2023 – enough to power Malta for 60.4 years. Solar and wind deployment surged by 55 per cent in three years. Despite advanced economies and China investing €1 in fossil fuels for every €1.81 in clean energy, 2023 set records in coal, gas and oil consumption. The plot for 2024? It’s shaping up to be even more sizzling.
Decarbonisation funding flows annually, not without challenges or occasional setbacks. Costs for climate resilience and disaster restoration are rising, making the path ahead financially intensive. COP28 resolved in an optimistic rhetoric of a non-binding agreement celebrated as a significant step towards moving away from fossil fuels… eventually.
Oil and natural gas companies acknowledge that cutting emissions from production equates to sustaining operations. Albeit the actual shift might not occur in the soonest. Particularly since the new energy security landscape emphasises coexistence of various energy sources rather than a sudden and complete overhaul, envisaging a complex process with differing energy transitioning timelines.
What surely remains a significant COP achievement was securing an agreement to decrease and, ultimately, eliminate methane emissions from production.
The upcoming 2024 elections will hold considerable significance worldwide. Spanning over 60 countries, from presidential to local levels, they will see nearly four billion people go to the polls. Energy policy and security, be it directly or otherwise, will undeniably weigh heavily.
US oil and gas production surged by five to six per cent last year and is set to lead in liquefied natural gas exports, raising emission concerns. The new market, together with strong oil production in non-OPEC countries such as Canada, Brazil and Norway, has aided in stabilising supply security, as power balance shifted away from OPEC+ (extended Organisation of the Petroleum Exporting Countries) countries. The US now rivals Saudi Arabia and Russia in oil exports.
The 2024 US presidential race poses challenges for the Biden administration. Joe Biden’s climate-focused agenda may face opposition from potential Republican candidate Donald Trump, who could advocate for repealing acts like the Inflation Reduction Act.
Additionally, the industry is closely monitoring Congress’s pace in enacting climate legislation, including methane emission regulation and anticipated reforms enabling faster drilling permits. Despite record production, Republican concerns about restrictions on drilling, high interest rates and capital costs are expected to echo.
European LNG importers will also be faced by stricter EU mandatory standards and penalties on supply contracts. The regulations also mandate stricter monitoring and mitigation of methane emissions for the oil, gas and coal sectors, applicable even to fossil fuel importers by 2027.
The mergers and acquisitions trend is expected to progress through 2024, exemplified by Exxon-Mobil’s purchase of Pioneer and Chevron’s acquisition of Hess. Focused regional operations aim at boosting capital investments and production efficiency. Additionally, the Gulf of Mexico lease auction signals a strategic move in controlling productive basins.
Delayed oil and gas production in late 2022, aimed at enhancing supply security and affordability, finally materialised in Q3 and Q4 of 2023. This ensured that, despite the ongoing Israel-Hamas and Ukraine-Russia wars as well as threats to maritime trade in the Red Sea, the price of oil remained remarkably stable.
An escalation of the Israel-Hamas armed conflict into a regional war, possibly including Iran, might limit supplies, endangering LNG from Qatar and disrupting Suez Canal traffic, potentially causing a surge in oil prices. OPEC’s production cuts failed to counter the new market and Gabon’s departure signalled dissatisfaction among members.
Europe’s piped gas intake plummeted by 56 per cent in 2023, no longer a primary market for Russia. Unfortunately, global LNG supply plans will only be operational in 2025. Consequently, producers will need to await market readiness to accommodate, causing shortages and potential doubling of European natural gas prices in 2024.
Despite record storage and an unexpectedly warm winter, supply security concerns persist due to the Israel-Hamas conflict and Baltic pipe damage. Despite these challenges, there is still an anticipated 10 per cent decrease in the average gas price for 2024.
Following a record-high in 2023, the global demand for coal is projected to decrease by 2.3 per cent by 2026. Demand remained robust, with an eight per cent and five per cent increase in India and China, respectively while roughly declining by 20 per cent in both the EU and the US.
Persistent US-China tensions heighten global supply chain vulnerabilities. China dominates in solar manufacturing and renewable technologies, surpassing Japan, and Germany. At the same time, it remains the largest emitter, actively building and supporting new coal-fired power plants. Its alliance with Russia remains steadfast.
Efforts to cap Russian oil prices have limited impact as China, Turkey and India continue purchasing discounted oil. Sanctions may affect revenues but Russian oil production remains consistent with pre-February 2022 invasion levels.
As the world gears up for the 2024 elections, energy policies will, undoubtedly, be a crucial narrative. The global focus on decarbonisation, highlighted by COP28, sets a positive but cautiously optimistic tone. Geopolitical tensions will continue to influence supply chain vulnerabilities. Surely, 2024 is poised to be a year of twists and turns as the global energy stage awaits the next act.
“Sanctions may affect revenues but Russian oil production remains consistent with pre-February 2022 invasion levels
Noel Bezzina is a warranted advocate. He is currently reading for a Master’s in International Corporate and Commercial Law with King’s College University London. Rachel Powell is a warranted advocate. She is currently reading for a Master’s in Energy and Environmental Law with the University of Birmingham.