While the past year has been one of highs and lows, the next twelve months look set to offer more of the same.
Energy prices look set to remain softer in 2024, as the global demand outlook looks weak.
On the positive side, shoots of recovery are showing from China and the US which will help to drive demand up, although the impact of the latest round of OPEC+ cuts look unlikely to make any material difference to prices given the voluntary nature of the deal, and the vague measurement of these cuts.
Gas prices are set to remain fairly stable as LNG supply remains strong, and storage levels across Europe are high which should prevent the price spikes of recent years.
The wildcard for energy costs is the impact of the change to the EU Emissions Trading Scheme, which will capture the shipping sector from 2024 – this will mean shipping companies will have to pay for the CO2 emissions generated from shipping into the EU, and this will increase shipping costs for all goods meaning transport costs will be higher which will impact domestic gas and fuel costs directly. In turn this will lead to higher inflation.
In the UK, the biggest challenge for the oil and gas industry comes in the form of the (likely) change in Government with the Labour party sending mixed signals over what it intends to do in terms of the fiscal and regulatory regime for oil and gas.
The current policy appears to be around blocking new oil and gas developments, although the policy is light on whether that means yet-to-be-approved developments or includes all pre-production projects.
The ‘clean power plan’ promises to support 50,000 jobs in Scotland by 2030, but as recent years have shown, the renewables industry can only support a fraction of the jobs that oil and gas currently does, thus making this pledge risible.
As with any new Government, Labour would want to tinker with the policies of the prior administration, so there will be some changes – probably for the worse, if current promises are delivered.
However, the changes may not be as brutal as feared given that Equinor felt comfortable enough to sanction Rosebank after meeting with Kier Starmer, and we can only hope that reality (ie energy security) prevails over (green) ideology.
Either way, the uncertainty is likely to cause companies to pause and defer investment and M&A activity in the near term.
The outlook for the UK oil and gas sector continues to look challenging, and we can all but hope that next year delivers more stability, growth and support from Governments that have been lacking in recent years.
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