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The Edge

Six themes shaping the energy world in 2024

From elections and inflation to supply disruptions and sanctions

7 minute read

What opportunities, challenges and risks does the world of energy and natural resources face in 2024? Our experts share their thoughts.

1. Global economic recovery, elections and geopolitics

A potential turning point for the global economy, but a year of modest growth – we expect 2.6% GDP growth, flat on 2023. Retreating interest rates will trigger rotation from a consumption-led recovery after the pandemic to investment-led growth across the wider economy. But persistent inflation will mean that interest rates won’t fall to the lows of the last decade. Despite a more favourable monetary environment, investment in commodity sectors faces specific challenges.

November’s US presidential election looms as the most significant for energy and mining commodities. A Republican administration would reject many of President Joe Biden’s policies for tackling climate change, and push for the repeal of incentives for low-carbon energy in the Inflation Reduction Act. Less easy to call are any implications for global trade after the recent easing of tensions between the US and China. India, France, Germany and the UK are among others facing elections – half the world’s population will choose a new government this year.

Risks? Geopolitical ruptions. Foremost are any wavering in the West’s support for Ukraine and the regional spread of the war in Gaza. Either could affect the flow of energy and mining commodities.

2. The impact of COP28

The UAE’s COP in December set a goal of “transitioning away from fossil fuels”, and affirmed the collaborative approach to tackling climate change that’s essential to keep global warming below 2 °C. But like all COPs, the immediate impact may be limited. Besides the ongoing push to triple renewables capacity by 2030, we expect to see progress this year on methane reduction and project roll-out for emerging low-carbon technologies, notably (blue) hydrogen, CCS and SMR nuclear projects.

COP29 in Baku, Azerbaijan will focus on agreeing a new, longer-term quantified goal on finance. Azerbaijan’s environment minister, an oil and gas veteran, will preside over the November conference.

Risks? Election anxiety temporarily limits government progress on low-carbon commitments.

3. Oil and gas – ample supply, but risk of disruption

Crude oil: The testing market-balancing act of the post-pandemic era won’t get any easier for OPEC+ in 2024. Demand isn’t the problem. A fourth successive year of strong growth, just under 2 million b/d on our forecasts, will lift global oil demand to an all-time high of almost 104 million b/d. Much of that growth is demand from the petrochemicals sector.

Non-OPEC supply growth continues to frustrate the ambitions of OPEC+ to increase volumes and market share. We forecast non-OPEC liquids production to rise by almost 1 million b/d in 2024 – below the 2 million b/d achieved in 2023, but a third successive year of robust growth. As we have argued, the widely touted ‘under-investment’ thesis has yet to lead to faltering non-OPEC volumes.

With our forecast for strong demand growth, the upshot is that OPEC+ will be able to increase overall production this year. But perhaps no more than 0.5 million b/d of the 3 million b/d currently held from the market on an annualised basis. And most of that will come in the second half of the year as the global economy perks up.

Defending price remains central to the OPEC+ strategy. We expect the group to pull out all the stops to deliver an average 2024 Brent price close to the US$83/bbl achieved in 2023.

Gas: Could the European gas market be the biggest non-story of 2024? The market has adapted well since the Ukraine war, and a spell of warm weather late in 2023 triggered a 40% slump in spot prices. The bearish mood may be a little overdone, but supply and demand fundamentals hold little fear for 2024.

Risks? In the oil market, demand fails to live up to expectations in a sluggish global economy, OPEC+ cohesion creaks post-Angola’s exit in December, and disruption to supply and shipping related to the war in Gaza, with Iran’s positioning critical. Gas markets remain highly vulnerable to supply disruption until sizeable new LNG volumes come onstream after 2026.

4. Growth in commodity sector investment slows

Global investment in energy and metals supply will increase by 2% to US$1.40 trillion in 2024, ending a three-year post-pandemic run that has lifted spend by 27% (in real terms) since 2020. Investment was up 7% in 2023 to US$1.38 trillion, much as we forecasted, and the highest since 2015.

We expect similar levels of investment this year across upstream oil and gas, power and renewables capacity and metals and mining, with 53% targeted at low-carbon supply (we include granular spend on CCUS and hydrogen for the first time). Stakeholder pressure, cost inflation and the higher cost of capital continue to subdue companies’ appetite to invest.

Renewables spend eclipsed oil and gas investment by a significant margin in 2023 for the first time. It’s a gap that’s unlikely ever to close with policy momentum and finance swinging in favour of wind and solar. Upstream oil and gas operators are holding the line on capital discipline; if prices remain stable, activity will only creep up. But if prices were to fall, companies can and will slash budgets quickly.

Risks? While spend on wind, onshore and offshore, grows apace, investment in renewable power overall slows. Solar developers are being frustrated by low project returns and permitting delays. Policymakers will need to act to support economics if the goal of COP28 to triple renewables capacity by 2030 is to be delivered. If the required sanctioning of mining projects and lead times isn’t shortened, renewables targets will be missed.

5. Markets wake up to the coming emergency in transition metals

Might 2024 be another ‘lost year’ for developing the supply of certain transition metals the world is going to need? Net zero by 2050 looks extremely implausible if the mining industry can’t deliver primary mine supply at the scale and speed required. While the policies supporting transition metals are evolving, they’re more focused on mid-stream processing and battery gigafactories than mining the raw materials to feed them.

Miners have plenty of reasons to stay risk-averse. Metals demand growth in 2024 is likely to be sluggish, rising costs continue to squeeze mining margins and the stock market is still rewarding capital discipline above growth.

Constraints on investment can only last so long – a massive acceleration in the development of greenfield mining of transition metals is needed now. Copper supply for transition uses – EVs, wind turbines, solar panels, grids and the rest – is currently around 3 mmtpa, or 10% of the global total. Volumes need to double, even triple, by 2030 to meet future demand.

Risks? Metals prices respond to underinvestment, sparking the anticipated transition-fuelled super-cycle.

6. More upstream M&A

The industry has entered a major new phase of consolidation that will last well into the transition. Takeover activity exploded in Q3 2023, led by ExxonMobil and Chevron, both in the advantaged position of funding the acquisitions of Pioneer and Hess, respectively, using their relatively highly rated equity. Announced deal value of over US$150 billion in this one quarter exceeded the annual total for any year since 2014.

Common deal themes include scale, highly valued by US investors, as well as cost reduction, improved portfolio quality and capital allocation optionality. Consolidation is also transition-driven: companies are looking to strengthen corporate resilience and sustainability.

We expect more upstream corporate deals in 2024, despite the shrinking pool of quality targets. Consolidation among the fragmented US independent sector is one battleground. Aspiring non-US buyers may include Euro Majors trading on lower-rated valuations than US peers. That will need innovative financing to make deals work.

Risks? Minimising risk to investors should be the priority in any large-scale sector consolidation. Deal prices for high-quality assets or companies rise due to scarcity premium.

Thanks to: Peter Martin (Economics); Prakash Sharma (Energy Transition); Ann-Louise Hittle and Alan Gelder (Macro Oils); Massimo Di-Odoardo and Giles Farrer (Gas and LNG); Fraser McKay (Upstream); Brian Gaylord (P&R); Nick Pickens (Metals and Mining); Tom Ellacott, Greig Aitken, Dave Clark (Corporate); and Ed Crooks (Vice Chair Americas), Gavin Thompson (Vice Chair AsiaPac/EMEA), Chris Seiple (Vice Chair P&R) and Julian Kettle (Vice Chair Metals).

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