2024: A Defining year for upstream investments and energy security
This year kicked off with oil and gas companies reporting record-high profits amid inflated commodity prices in 2022, partly due to Russia’s invasion of Ukraine and the resultant knock-on effects on energy markets. A host of industry stalwarts have also unveiled amended strategies, with the likes of UK-headquartered majors BP and Shell scaling back some of their more aggressive energy transition strategies. The clearest example is BP, with the company now guiding for higher future upstream investments and increased oil and gas production compared to earlier guiding. This indicates that energy security is becoming more important to stakeholders in the wake of the protracted Russian-Ukraine war.
Read our special insight from Espen Erlingsen, Head of Upstream Research at Rystad Energy.
An international banking crisis and increased uncertainty in financial markets pushed oil prices down in March. Prices recovered slightly during the early part of the year, and by the middle of the year, both Brent and West Texas Intermediate (WTI) were back in the $70s per barrel. OPEC+ countries announced several voluntary production cuts in the second and third quarters. The combination of these production cuts and the still-strong market fundamentals has caused oil prices to once again reach the $90s per barrel.
A key market observation from this year is the slowdown in US tight oil activity. Despite high commodity prices and strong cash generation, US tight oil investments are not growing this year. This has led to more muted growth in tight oil production compared to what the oil price should indicate. As tight oil becomes less of a swing producer, this enables OPEC to regulate the oil market and could result in longer periods of higher oil prices.
Recent weeks have seen two significant acquisitions, with US major ExxonMobil acquiring Pioneer Natural Resources and peer Chevron acquiring Hess. These acquisitions are the results of improved balance sheets and record-high cash reserves among the majors, making it easier to invest in company acquisitions.
For 2024, we forecast oil prices to remain high, with an average Brent price of around $90 per barrel. After growing more than 10% this year, global oil and gas investments are expected to remain flat next year at around $550 billion. Offshore investment is the segment expected to see the strongest growth, at around 5% year-on-year.
This year, Rystad Energy has enhanced its upstream products across various dimensions. We improved our subsurface data by adding both in-place volume and recovery rates for all oil and gas fields globally, enabling our clients to study recovery rates globally and benchmark different regions. We also added the possibility to track the maturity of different basins globally by year, making it possible to track activity and benchmark exploration results between frontier and mature basins. In March, we also published the first in our series of basin reports, focusing on infrastructure-led exploration (ILX) activity and how different basins are performing. Yet to date, we have published four basin reports, and we are currently working on developing individual reports per basin.
In May, we released our Southeast Asia Oil and Gas Solution, which enables clients to observe key trends and conduct detailed research in this critical oil and gas region. The product includes both upstream, emissions and gas market data. Our Northwest Europe Solution also received a facelift in May by adding a new dashboard to the offering. This new tool makes it easier to analyze the upstream industry, and we have added more data related to hubs, emissions and electrification.
Our M&A Solution has also undergone several new enhancements in recent months, as we have included traded emissions and emissions intensity for every transaction globally. We have also added a financial adviser for each transaction.
Next year, we plan to introduce several large new product developments. We aim to launch a new tool that enables users to change all input parameters, such as resources, prices and dates, and to see the resulting impact on production, cash flows and valuation. This will enable users to perform even more customized analyses. We will also launch our new well-level database, allowing users to access well-level details such as well names, well lengths and drilling times. Users will also have the ability to examine well-level production.