Preparing for ADIPEC 2024: 3 crucial questions answered

ADIPEC will take place from 4-7 November in Abu Dhabi. The event will focus on the role of energy in driving a comprehensive transformation that benefits people, the planet, and our collective prosperity.  

More than 160,000 energy professionals from over 160 countries will convene in Abu Dhabi for this significant event. Wood Mackenzie will bring its industry expertise and unique perspective to the ADIPEC conference, where the future of oil, gas, and LNG will be the main topics of discussion.  

Leading up to and during the event, our experts will address key questions in these areas. You can read on to find answers to these critical questions, or fill in the form to schedule a meeting with our experts at this prestigious event. 

What are the key risks and uncertainties in the outlook for oil price in the next few years? 

The fundamentals of the oil market for the next few years are clear – they remain loosely balanced with limited price upside although risks are abundant.  The driver of this sluggish outlook is not demand as that shows growth for the next few years. Pre-covid, annual oil demand growth was 1.3 million b/d (2000 to 2019). Oil demand growth in 2024 is projected to be a healthy 1.4 million b/d, but this figure has been revised downwards as the year has progressed (and the oil demand for 2023 revised upwards). For 2025, we project stronger economic growth and a re-balancing of the economy to include stronger industrial production growth, which is projected to deliver growth of 1.4 million b/d. The challenge for the oil market is, however, supply, particularly from non-OPEC. For both 2024 and 2025, non-OPEC supply growth broadly matches demand growth, so the ability of OPEC+ to return its volumes to the global market will be constrained. Also keeping a cap on price gains is the significant amount of OPEC spare productive capacity.  

The current risks to the oil price are primarily geopolitical. On the upside to price, the Israel/Hamas and Israel/Hezbollah conflict continues, keeping tensions high, with the risk of regional conflagration between Israel and Iran remaining a key market concern. Loss of Iranian supply can be replaced by the current ample spare capacity held by others, but a regional conflagration could impact the supply from Iran’s near neighbours and ultimately threaten the supplies through the Straits of Hormuz, through which one fifth of global crude exports flow. Closure of the Straits of Hormuz would likely be temporary, but the price shock could be extreme. On the downside to price, the imposition of trade tariffs in support of nationalist/protectionist policies by major economies such as the US, risks slower global economic growth, which would challenge OPEC’s ability to balance the market and could potentially prolong its loss of market share. Such policies are also a risk to the global refining sector, which could suffer a dramatic loss in profitability.  

Is now the right time for buyers to commit to long-term gas contracts? 

With global LNG markets having somehow rebalanced in the past two years, buyers have had the upper hand in contract negotiation. Brent-linked prices have now fallen into the 12-12.5% range, marking a substantial decline from the more than 14% at the peak of the market. And with 200 mmtpa of LNG currently under construction, many have expected oil-indexed contract prices to continue to fall. 

But whether prices will effectively fall further, is becoming increasingly uncertain. Delays in LNG projects under construction and sanctions on Russian LNG are eroding the magnitude of the anticipated wave of LNG. Meanwhile, the US pause of non-FTA approval is providing uncertainty on the timing of additional US LNG developments. There is a risk that the much-awaited rebalancing of the global LNG market will be less pronounced than previously anticipated. 

Ultimately, whether it’s the right time for buyers to commit to long-term contracts depends on their demand requirements and the composition of their portfolio. Prices have now come down to a relatively low level, including when compared to Henry Hub-linked prices. Spot LNG prices are set to soften from 2026, but with plenty of risks in the market, there are no guarantees that long-term oil-indexed prices will fall further. For buyers in need of LNG this decade, committing now to long-term contracts could prove the safest bet. 

How can the Middle East refining sector adapt to the energy transition? 

The Middle East refining sector continues to expand, with several projects scheduled for completion in 2025. There are three global refining mega-trends for the energy transition: declining demand for road transport fuels (from fuel efficiency improvements and electrification); growth in petrochemical feedstock demand; and liquid renewables/petrochemical circularity.  

New refineries in the Middle East are large and sophisticated, aligned with the export markets they sell into. Declining global demand for transport fuels in end-user markets will, over time, impact the refining profitability. What’s not clear is when, with global oil demand likely to be resilient well into next decade. Even when demand starts to ebb, refineries will remain a key means of monetising crude oil production.  

Refineries need to be competitive on both margins and emissions, so Middle East refineries must have a decarbonisation plan for operation to avoid incurring carbon border taxes for their exports.  

For Middle East refiners to remain competitive they need to consider alternative sources of value creation. Petrochemical integration is one, sustainability/circularity focussing on sustainable aviation fuels and the chemical recycling of petrochemical waste streams another. Policy will be central to support the commercial viability of sustainability and circularity projects. 

Don't forget you can request a meeting with our experts during ADIPEC by filling out the form above.