Predictions and Possible Scenarios for 2024 - Africa’s premier report on the oil, gas and energy landscape.

Predictions and Possible Scenarios for 2024

By Gerard Kreeft

2024 is upon us. Below four possible scenarios of what we may anticipate:

A tightening rig market which could delay or postpone exploration drilling;

Moving eastward: the important Middle East-Asian(China) axis also involving Africa;

New energy: in search of its soul?

Angola: symbol of Africa and its involvement with exploration, the Chinese effect in Africa, and new energy.

Have a blessed 2024!

Deepwater Offshore: Post- COP28 the oil majors have seen an upward bump in their stock prices but is this a pyrrhic victory? What lies ahead for the oil majors? A key concern for the operators is the potentially reduced number of global offshore areas available for drilling and the scarcity of offshore rigs. It is estimated that $100Billion will be spent on deepwater exploration in 2024, increasing to $123Billion in 2026.

Oil and gas consumption will be 100Million barrels per day (MBPD) in 2024, according to Rystad Energy. Much of the deepwater exploration will take place within the Golden Triangle: Latin America (Brazil, Guyana and Suriname), North America (US Gulf of Mexico, and Mexico) and Africa (Atlantic Margin and East Africa. These three regions plus the eastern Mediterranean area account for 75% of the global deepwater rig demand.

A key concern for the operators is the tight rig market. Deepwater rig demand has never been higher with 6th and 7th generation drillships pulling in day rates of $500,000 or more.

Benign environmental floater supply has declined to 159 from a peak of 281 in late 2014. Four drilling contractors–Transocean (38), Valaris (53), Noble (32) and Seadrill (21) manage or own 144 units—virtually creating a monopoly position on the deepwater market.

In 2024, we anticipate a tightening of the rig market, higher day rates and operators proposing new strategies for developing their offshore assets. Will the scarcity of rigs delay or postpone the exploration plans of the operators?

Looking Eastward: While Europe’s march to low carbon energy is ongoing, little attention has been paid to the shifting eastwards of the oil axis —creating new alliances between the Gulf states and Asia, in particular India and China.

Dr. Adam Hanieh, Professor of Political Economy and Global Development at IAIS (Independent Social Research Foundation), University of Exeter, and Joint Chair at the Institute of International and Area Studies (IIAS) at Tsinghua University, Beijing, China recently published an in-depth study on how the Middle-East and Asia are emerging as a new integrated oil market (A Transition to Where? Transnational Institute).  Now 70% of all crude originating in the Middle East is destined for Asia. While western countries are seeing a decline in oil consumption, China is now consuming 17MMBOPD, second only to the USA.

Perhaps the most salient evidence of this shift, according to Hanieh, was the announcement by Saudi Aramco’s profit announcement for 2022… “coming in at just over $161Billion, Aramco’s 2022 profit not only exceeded the combined results of Shell, BP, ExxonMobil, and Chevron, it was the largest profit recorded by any company in the world, in any business, ever. Aramco’s results powerfully underscored a major shift that has taken place in the control of world oil over recent decades: the seemingly unstoppable rise of national oil companies (NOCs) run by governments in the Middle East, China, Russia and other large oil-producing states in the Global South. Collectively, these firms have now developed into huge, diversified corporations that have overtaken the Western supermajors in key metrics, including oil production, reserves, market capitalisation and export quantities.”

According to Hanieh it is not simply a matter of the Gulf states exporting their oil to China. Rather it is much more an integration of various aspects of the energy value chain by both China and the Gulf states. Take refining, which was traditionally the domain of the western majors. In 1999, 15 companies including Shell, ExxonMobil, and BP occupied three of the four top positions.

Today this has eroded and around half of the top tier companies are NOCs: with the first, second and fourth positions being held by Saudi and Chinese companies. In the early 1990s nearly half of the world’s refining capacity was located in North America and Europe. Asia’s refining capacity has tripled between 1992-2020. Two-thirds of all oil refineries that have been built over the last five years and currently over 80% now being built are in the Middle East and China.

Finally, Hanieh warns that the Saudis and the Gulf states have a sobering message that “every molecule of hydrocarbons will come out”. By 2027 the Saudis plan to increase oil production by more than 8% reaching 13MMBPD and vow to be the last major standing.

A shift to renewables is seen as a triple win: greater oil for export, cheaper domestic renewable fuel and the prestige of meeting emission standards.

Have COP meetings given more legitimacy to producing more fossil fuels?

New Energy: renewables have since 2021 taken a sharp nose dive–dropping some 45% based on the S&P Global Clean Energy Index (from 1994 in February 2021 to 902 in November 2023). Yet what goes down will ultimately come up. Will green energy find a narrative to bolster their stock price and the waiting investor?

Will the oil and gas world ever fully understand the DNA of New Energy? RRR (Reserve Replacement Ratio) vs GWs (Gigawatts), seismic vs electrolysis, drilling and completions vs wind parks and solar installations. Two parallel worlds, for at least now, seeming to co-exist. Oil and gas have seen its apex but is still a force to reckon with; New Energy is now starting to explain its vision but the pace of implementation is strongly lagging behind.

First an explanation of the vision, based on what is happening in the Netherlands.

With the hydrogen network in the Netherlands, Gasunie (The National Gas Company) is building a national network that will link up the carbon-free hydrogen supply and demand. Five industrial clusters will be linked to each other, to international countries and to hydrogen storage facilities. This will be done mainly with existing infrastructure and partly with new infrastructure that has yet to be built. This national network will be ready by 2025.

A key element is the building of a hydrogen supply chain. Industry in the Netherlands is responsible for about 25% of national carbon emissions, and electrification makes sustainability possible only to a limited extent. Carbon-free gases are a must when it comes to making industry more sustainable. Using carbon-free hydrogen as a feedstock and as a fuel makes it possible to reduce emissions from industry, and to make a major contribution to the energy transition.

While the vision is in place there is a visible lack direction outlining target dates of how and when this green era will become a reality.  In the coming months a better implementation strategy must be sought by the green lobby.

Has green lost its sense of direction? Will it re-focus its narrative in the coming months?

Angola: the competing duality. A message for Africa? Angola has announced that it is withdrawing from OPEC, having refused to lower its oil export quota. In a period of some 15 years daily oil and gas production has dropped drastically: from a high of 1.8Million barrels of oil equivalent per day (MMBOEPD) to approximately 1.1MMBOEPD. With a decline in oil and gas production the country has seen a drastic change in the geo-political landscape.

Now power is more diffused: the oil and gas majors are free to explore and develop and market their oil and gas assets. Sonangol has become a shadow of what it once was. According to the IMF Sonangol is expected to have cumulative borrowings of $9.2 billion from 20212-2025.

Paying the price

At its height Sonangol was a state within a state having two key roles: that of concessionaire, a highly judicious role that gave it power and legitimacy; and being a state oil company responsibilities for exploration and development of hydrocarbons. The oil majors were reduced to the role of contractor. Later Sonangol was stripped of its concessionaire role which was given to the newly created National Agency of Petroleum, Gas and Biofuels.

With the assistance of the IMF, the World Bank, the African Development Bank and others, Angola has managed to juggle its year-to-year obligations of refinanced or forgiven debt. In 2020 Angola entered the G-20 Debt Services Suspension Initiative, designed to assist financially distressed countries.

At present 60% of Angolan oil is exported to China as payment for its outstanding $25Billion loan. Rescheduling of debt from China as well as Angola’s participation in the Debt Servicing Initiative allowed the government to postpone combined debt services payments of $8.6 billion in 2021 and 2022.

The story of oil politics in Angola is not encouraging: corruption, greed, mismanagement and a lack of long-term planning has pushed the country to the brink. On the socio-economic level Angola has become a one-dimensional society totally dependent on its depleting oil and gas resources.

A Ray of Hope

While the OPEC withdrawal has captured media attention little has been published about the Laúca hydroelectric power station which is now being fully operational. The Laúca hydroelectric power station is “the backbone of modern grid regulation in Angola, providing enough electricity to meet the demand of around 8 million Angolan households.”

Ushering in electricity is a big deal …perhaps not in the media but this could be transformational at the village level. Together with massive investments in agriculture and tourism attention must be paid to Angola’s social infrastructure—drinking water and proper sanitation, housing and continuing education. Social progress may require a generation but is the key to building a civil society.

Some Final Conclusions

2024 is upon us and predictions can indeed prove to be futile. Yet there is enough evidence to suggest that the four themes discussed above will happen in some shape or fashion:

A tightening rig market could delay or postpone exploration drilling;

The east-east axis: the important Middle East-Asian (China) axis which also involves linkages to Africa;

New energy: in search of its soul?

Angola: symbol of Africa. 

Gerard Kreeft, BA (Calvin University, Grand Rapids, USA) and MA (Carleton University, Ottawa, Canada), Energy Transition Adviser, was founder and owner of EnergyWise.  He has managed and implemented energy conferences, seminars and university master classes in Alaska, Angola, Brazil, Canada, India, Libya, Kazakhstan, Russia and throughout Europe.  Kreeft has Dutch and Canadian citizenship and resides in the Netherlands.  He writes on a regular basis for Africa Oil + Gas Report, and guest contributor to IEEFA (Institute for Energy Economics and Financial Analysis). His book ‘The 10 Commandments of the Energy Transition ‘is on sale at https://books.friesenpress.com/store/title/119734000211674846/Gerard-Kreeft-The-10-Commandments-of-the-Energy-Transition

 

 

 

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