Carbon Accounting Management Platform Benchmark…
Examining the trends highlighted in our previous insight and their impact in Q1 2024 reveals significant developments in the oil and gas market.
Record-high values in upstream M&A deals, strategic international networking, and notable revenue shifts among major producers have characterized the early months of 2024. The quarter witnessed the highest upstream M&A deal values since 2017, driven by stabilizing oil prices and heightened investor confidence, marking a stark contrast to the steady climb observed in Q4 2023. This surge reflects renewed optimism and strategic recalibration within the industry.
In addition, Angola is gearing up to host a major networking event in Houston as part of Angola Oil & Gas 2024, aimed at connecting U.S. investors with lucrative Angolan opportunities. Building on the momentum from Q4 2023, which saw preliminary engagements and growing international investment interest, the Houston event represents a strategic initiative to foster direct dialogue and forge valuable partnerships.
Meanwhile, Russia reported a remarkable 40% month-on-month increase in oil and gas budget revenue in February 2024, a substantial rise compared to the modest gains of Q4 2023. This surge is attributed to higher global oil prices, increased export volumes, and strategic adjustments in Russia's energy policies. These developments underscore the dynamic nature of the market, presenting both opportunities and challenges as stakeholders navigate the evolving energy landscape.
2023 (average) | 24Q1 | 24Q2 | 24Q3*** | 24Q4*** | 25Q1*** | ||
---|---|---|---|---|---|---|---|
Crude Prices ($/bbl)* | Brent | 82.47 | 83.00 | 83.56 | 83.33 | 86.67 | 88.00 |
Rig Count** | World | 1739 | 1792 | 1675 | |||
Consumption/ Demand (mb/d)* | Total | 101.91 | 102.21 | 102.49 | 103,57 | 103,64 | 104,02 |
OECD | 45.75 | 45.36 | 44.99 | 46.24 | 46.41 | 45.87 | |
non-OECD | 56.16 | 56.85 | 57.50 | 57.33 | 57.23 | 58.15 | |
Production/ Supply (mb/d)* | Total | 101.79 | 101.84 | 102.21 | 103.01 | 103,22 | 103,26 |
OPEC | 32.19 | 32.02 | 31.97 | 32.05 | 32.06 | 32.13 | |
non-OPEC | 69.60 | 69.82 | 70.24 | 70.96 | 71.16 | 71.13 | |
Production – Consumption | Excess (+) / Deficit (-) | -0,12 | -0,37 | -0,28 | -0.56 | -0,42 | -0,76 |
In Q1 2024, the oil and gas market experienced notable shifts in consumption, production, rig count, and oil prices, reflecting evolving industry dynamics and strategic responses to global economic conditions. Global oil consumption increased moderately from Q4 2023, driven by a recovering post-pandemic economy, a colder-than-expected winter in the Northern Hemisphere, and increased industrial activity in emerging markets. In response, major oil producers, including the U.S. and OPEC members, slightly ramped up output with a cautious approach to avoid oversupply and maintain price stability. The global rig count also saw an upward trend, particularly in North America, where higher oil prices encouraged more drilling activities, though the growth remained below pre-pandemic levels. Oil prices rose steadily, supported by increased demand, controlled supply, geopolitical tensions, and the impact of sanctions on certain countries' exports. Brent crude consistently traded above $80 per barrel, reflecting market confidence in the industry's resilience and strategic management.
2023 Yearly average | Q1 2024 Wholesale price | AUG 2024 Future | Q4 2024 Future | |
---|---|---|---|---|
Henry Hub (US) [$/MMBtu]* | 2.63 | 2.21 | 2.16 | 2.72 |
TTF (Europe) [€/MWh]** | 45.00 | 27.56 | 33.67 | 38.17 |
JKM (Asia) [$/MMBtu]*** | 16.5 | 9.3 | 12.54 | 13.27 |
During Q1 2024, the wholesale prices and futures for Henry Hub, TTF (Title Transfer Facility), and JKM (Japan Korea Marker) experienced notable trends driven by various market dynamics. The Henry Hub spot prices remained relatively stable with minor fluctuations, starting the quarter at approximately $2.61 per million British thermal units (MMBtu) and slightly decreasing to around $2.58 per MMBtu by the end of March 2024. Futures markets reflected similar stability, indicating a cautious sentiment amid balanced supply and demand in the U.S. natural gas market. Prices were influenced by steady domestic production and moderate demand, with expectations for prices to hover around the $2.50-$2.70 range through the quarter.
TTF prices in Europe showed some volatility during Q1 2024 due to fluctuating weather conditions and geopolitical tensions affecting supply routes. The prices started the quarter at around €18.00 per MWh and saw increases due to cold spells and supply uncertainties from Russia, peaking at approximately €23.00 per MWh before stabilizing as the weather normalized and storage levels remained sufficient. Futures for TTF indicated continued cautious optimism, with prices expected to remain elevated but stable given the ongoing energy transition and supply security concerns in Europe.
JKM prices in Asia were influenced by seasonal demand and competition for LNG supplies. The prices began the quarter at about $11.00 per MMBtu and experienced a rise due to higher winter demand, reaching up to $13.00 per MMBtu. However, as the quarter progressed and temperatures moderated, the prices slightly retreated. The futures market for JKM reflected this seasonality, with prices expected to ease further as the region moves into the lower demand period of spring and summer.
Overall, the interplay of regional supply-demand dynamics, weather patterns, and geopolitical factors shaped the price movements and futures for these key natural gas benchmarks during the first quarter of 2024. The stability in Henry Hub contrasted with the volatility seen in TTF and JKM, highlighting the regional differences in market drivers and conditions.
The oil and gas industry is undergoing significant transformation, driven by increased demand and a shift towards sustainability. Companies are expanding production capacities and adopting electrification technologies to reduce emissions and integrate renewable energy.
Amidst the rising demand for gas, Qatar has announced ambitious plans to significantly boost its natural gas production from the North Field. The aim is to increase capacity to 142 million tonnes per annum (mtpa) by 2030, marking an 85% rise from the current 77 mtpa. The planned North Field West expansion alone is set to add 16 mtpa of LNG annually. Additionally, recent studies have revealed substantial gas reserves, pushing Qatar's total reserves beyond 2,000 trillion cubic feet.
In a different geographic region, Norway is also increasing its production capacities. Norwegian oil and gas companies are gearing up for heightened exploration in 2024, with plans to drill 40 to 50 wells following a year that saw 34 exploratory wells. This push aligns with Norway's commitment to maintaining its role as a crucial energy supplier to Europe, particularly in the context of the Russian-Ukrainian conflict. The Norwegian Offshore Directorate (NPD) reported 92 operational fields by the end of 2023, with 27 projects under development and a strong drilling campaign. While oil production surged to 104 million barrels of oil equivalent per day, natural gas output experienced a slight dip of about 5%. The NPD foresees continued high activity levels into 2024, ensuring production stability. To counterbalance declining yields from aging fields, the industry anticipates the introduction of new fields, with increased investment forecasts for 2023 and 2024. Emphasizing exploration near existing infrastructure, the NPD urges companies to explore both established and frontier regions to unlock untapped resources. The regulator underscores the Norwegian shelf's role in Europe's energy security, underlining its significance in the continent's energy landscape.
Against the backdrop of strategic expansions and explorations, the oil and gas industry is increasingly embracing sustainable practices. Electrification has emerged as a key solution to meet growing sector demands while reducing carbon footprints. Once perceived as contradictory, electrification is now gaining traction as a viable method to mitigate the environmental impact of hydrocarbon production. This shift involves converting equipment from diesel or hydrocarbon fuels to electricity and transitioning hydraulic power systems accordingly. By enhancing production control, minimizing the need for additional wells, and boosting energy efficiency, electrification addresses the trilemma of energy security, affordability, and sustainability crucial for the industry's transition to a more sustainable energy mix. Moreover, implementing integrated solutions on a large scale is essential to maximize electrification's impact. This approach enables high-power equipment to operate on electricity and enhances infrastructure efficiency through fully electric production systems. For example, Equinor recently announced that its Sleipner and Gudrun platforms, along with associated fields, now partly rely on onshore energy sources. This initiative is anticipated to cut annual emissions from the Norwegian Continental Shelf (NCS) by approximately 160,000 tons of CO2, supported by an investment exceeding $100 million.
Electrifying offshore platforms not only reduces dependence on fossil fuels but also integrates renewable energy, effectively lowering operational carbon footprints. This transition aligns with global efforts to combat climate change and ensures responsible operations in an increasingly environmentally conscious world. For further insights, Sia Partners has published a dedicated study on Electrification Technologies for Offshore Oil and Gas Platforms.
As the world navigates the complexities of energy security and sustainability, the natural gas sector is poised for substantial growth in 2024. A recent report by the International Energy Agency (IEA) projects a 2.5% increase in global gas demand, equivalent to an additional 100 billion cubic meters (bcm). This surge comes after a modest 0.5% growth in 2023.
The anticipated increase in global gas demand is influenced by two primary factors. First, colder temperatures are expected to boost consumption as heating needs rise. Second, a fall in gas prices from the unprecedented levels seen in 2022 is likely to spur greater usage. On the supply side, while the United States has ramped up LNG production, this has not fully offset the supply tensions caused by low availability in 2023.
Europe plays a crucial role in this landscape, with gas reserves at their highest levels and storage facilities more than 62% full in March—a record for this time of year, according to Gas Infrastructure Europe. To mitigate energy shocks, Europe is increasingly relying on Ukraine for storage. Companies are choosing to store their reserves in Ukraine due to cheap storage tariffs and customs duty exemptions for the next three years, as revealed by the Financial Times. Despite the ongoing war, Ukraine positions itself as a strong link in the supply of LNG to the European Union, offering foreign traders up to 10 bcm of its gas storage capacity.
Looking ahead, British gas major Shell predicts a 50% surge in global LNG demand by 2040. This growth will be fueled by the transition from coal to gas in China and economic expansion in South Asia and Southeast Asia. However, these regions must invest more in the infrastructure needed to transfer and utilize LNG. While some areas have seen a peak in natural gas demand, global demand continues to rise, reflecting broader economic and environmental trends.
The natural gas market is on the cusp of significant growth in 2024, driven by a combination of lower prices, increased production, and strategic storage solutions. Europe's reliance on Ukraine for gas storage highlights the intricate balance between supply security and geopolitical factors. Meanwhile, long-term projections indicate robust demand, particularly in Asia, necessitating substantial infrastructure investments. As the world seeks to balance energy needs with sustainability goals, the evolving dynamics of the global gas market will play a pivotal role in shaping the future energy landscape.
While energy transition projects are gaining significant attention, oil and gas businesses are also concentrating on technological advancements to optimize their current operations. Faced with volatile oil prices and fewer discoveries of conventional reserves in traditional areas, companies are increasingly turning to digital solutions to navigate their increasingly complex industry. In this evolving landscape, innovative thinking remains critical to resilience and progress, enabling the industry to adapt and thrive amid ongoing challenges. Emerging digital technologies such as big data analytics, artificial intelligence (AI), the Internet of Things (IoT), and drones are capturing the industry's interest. Q1 2024 is no exception, with several noteworthy announcements from companies in this field.
In 2023, ADNOC announced that it generated $500 million in value by deploying AI solutions, from the integration of over 30 industry-leading AI tools across its full value chain, from field operations to smarter and quicker corporate decision-making. In its upstream activities, AI applications are utilized for subsurface resource mapping, drilling and production optimization, and reservoir management. Additionally, ADNOC's centralized predictive analytics and diagnostics (CPAD) program employs AI to remotely monitor critical operational equipment across both upstream and downstream facilities. The company believes AI is vital to achieving its strategic goals of net-zero emissions by 2045 and near-zero methane emissions by 2030, as these tools enable the collection of historical and real-time data from various operational sites, allowing for accurate emission source predictions and proactive issue resolution.
Shell revealed in its most recent annual report its initiatives for using new technologies for emissions monitoring. In 2023, the company successfully completed a trial with GHGSat, a methane detection company, to evaluate satellite capabilities for monitoring methane emissions from offshore operations. The goal is to expand the application of this technology in the future. Additionally, Shell has employed drones and satellites to monitor methane emissions during natural gas production and processing, as well as LNG export. These initiatives have led to shorter well maintenance intervals and more precise control of gas dryness during processing, reducing venting.
Equinor has also made significant strides by awarding a two-year life cycle simulator project to Kongsberg Digital, a Norwegian digital solutions provider, for a North Sea gas field off the coast of Norway. Valued at over NOK 25 million (nearly $2.4 million), the project aims to enhance operational efficiency, improve training programs, and ensure high fidelity in simulator-based engineering. The simulators will model processes for three different assets of the Sleipner installations, including platforms for processing, drilling, and living quarters, as well as CO2 removal. Scheduled to begin in Q1 2024 and complete by the end of 2025, the project is expected to significantly increase the simulation capabilities of the Sleipner area. This collaboration with Equinor follows Kongsberg Digital's agreements with Shell and Chevron to digitalize their global assets with digital twin technology.
While the technical and economic viability of such solutions still requires thorough demonstration, the industry's keen interest in these innovations, exemplified by initiatives from ADNOC, Shell, and Equinor, underscores the sector's recognition of their potential benefits. These technologies are perceived as capable of addressing key challenges including performance optimization, employee safety, and operational sustainability.
The oil and gas industry is clearly in the midst of a digital transformation, leveraging cutting-edge technologies to enhance efficiency, reduce emissions, and maintain competitiveness in an increasingly complex and regulated environment. As these advancements continue to develop, their impact on the industry's future looks promising.