In 2024, the upstream oil and gas industry is expected to experience notable changes influenced by developments in 2023. From the ongoing wave of consolidation and the maturation of the U.S. shale sector to pivotal shifts in Latin America, Africa, and Asia, the industry is adapting to new dynamics. Technological advancements, particularly in digitalization and sustainability, promise to reshape upstream operations. Anticipated developments for 2024 include:
- Consolidation is reshaping the landscape as the pursuit of premium acreage, cost reduction through scale, and sustainable growth will fuel mergers and acquisitions. Exxon’s $64.5 billion acquisition of Pioneer and Chevron’s $60 billion purchase of Hess exemplify this trend. We anticipate that public companies will continue expanding through acquisitions, particularly targeting premium acreage need predominantly by private equity firms. Such transactions will allow public operators to add to production that is declining actively at a cheaper price than via the drill bit.
- The U.S. shale industry is maturing, necessitating a greater emphasis on maintaining and increasing production from existing wells. Notably, the percentage of wells producing less than 50 barrels of oil equivalent per day (boepd) in Eagle Ford and Bakken surpasses 50%. Shale continues to pursue capital discipline to achieve sustainable growth, giving precedence to an engineered approach aimed at maximizing recovery. As the industry contends with declining well productivity and a slower pace of new well development, larger E&Ps companies are outperforming private operators by focusing attention on production management.
- Significant transformations are expected in the Latin American upstream sector, especially in Guyana, Brazil, Colombia, Mexico, and Argentina. Particularly, the Vaca Muerta play in Argentina, identified as the most promising shale prospect outside the U.S., is poised to enhance profitability for Argentina and is expected to generate a substantial surplus of oil for export for the country. Robust licensing initiatives led by Brazil and Mexico have attracted diverse players exploring fresh opportunities. Guyana’s oil and gas industry is set for extensive growth marked by new block allocations, progress across existing development efforts, and a pivot towards gas development.
- African oil and gas is reshaping in multiple ways. The acquisition of African oil and gas assets by Russian companies is set to reshape the continent’s oil policies. Angola’s withdrawal from OPEC, driven by disagreements over production quotas and domestic policies, presents both challenges and opportunities. In alignment with global alliances and geopolitical interests, Angola’s departure has implications for OPEC’s membership and crude oil production. Regarding natural gas, Africa’s substantial potential positions it to capitalize on an undersupplied LNG market and growing European demand. LNG exports, particularly from Nigeria, Algeria, Egypt, Equatorial Guinea, Mozambique, Senegal, and Mauritania, are gaining prominence. Even so, growing renewable power capacity additions globally and energy transition concerns will rely on new investments in Africa.
- OPEC faces challenges as its membership declines, notably emphasized by Angola’s exit. Angola’s departure will leave the group with 12 members, reducing its production to below 27 million barrels per day (bpd), accounting for less than 27% of the global supply. The surge in non-OPEC oil production in 2023, coupled with internal challenges and increasing output from non-OPEC countries, poses a threat to OPEC’s effectiveness in overseeing oil markets in the upcoming year. We expect increased efforts from OPEC members to deploy various production tactics as they seek to maintain control over global energy markets. The alliance’s response to robust non-OPEC+ supply growth and slow oil demand has involved output cuts to support prices.
- The ongoing conflict between Israel and Hamas, along with the potential involvement of other regional players like Iran, the Houthis in Yemen, and Hezbollah, poses a significant risk to oil prices in the Middle East. Recent events, such as the Houthi Rebels’ attacks on merchant ships in the Red Sea, have already contributed to a moderate increase in oil prices. If tensions continue to escalate in the Middle East, there’s a genuine possibility of a more substantial and short-term impact on oil prices. Despite the importance of geopolitical dynamics, the immediate direction of oil prices will be influenced by the delicate balance between supply and demand. The U.S. and China are expected to play crucial roles in adjusting supply levels to mitigate potential price fluctuations. Even so, the impact of geopolitical conflicts on oil have waved in their impact with the rise of U.S. shale oil output.
- Asia is set to play a crucial role in surging global oil demand. Although short-term economic challenges may limit China’s growth in the use of fossil fuels, India, driven by urbanization, industrialization, and a wealthier middle-class keen on mobility and tourism, is anticipated to become a key player in shaping future oil demand.
- The upstream oil and gas sector in 2024 will be characterized by continued investment in digital technology. Advanced software, hardware, and generative AI conceptually hold promise for real-time data collection, innovation, cost reduction, process optimization, and overall operational efficiency improvements. Notably, AI is being utilized for oil drilling, seismic data analysis, and risk assessments. It also contributes to enhancing predictive maintenance of assets by analyzing data from machines on offshore drilling platforms. Leading industry players, including Chevron, Ecopetrol, Petrobras, Repsol, Rosneft, Saudi Aramco, Shell, and BP, are all actively investing in digitalization. Even so, the current level of interest in digitalization is lower than in the past reflecting its limited commercial impact for various reasons.
- The recent Oil and Gas Decarbonization Charter (OGDC), endorsed by over 50 major oil and gas companies responsible for more than 40% of global oil production, commits to reducing methane emissions by 2030 and achieving net-zero-methane operations by 2050. Simultaneously, the Biden administration has introduced final regulations aiming for a 30% reduction in methane emissions from the U.S. oil and gas industry by 2030. These regulations include bans on routine flaring, mandatory leak monitoring, and the establishment of a system for third-party companies to detect significant methane releases. Companies are also exploring to implement cogeneration, an innovative solution that utilizes excess heat from oil extraction to spin turbines, generating electricity and reducing emissions.
- The energy transition is also happening upstream, expertise in Enhanced Oil Recovery (EOR) is propelling upstream companies to actively pursue Carbon Capture, Utilization, and Storage (CCUS) services. ExxonMobil’s strategic acquisition of Denbury, leveraging its CO2 capabilities, and subsequent merger with Pioneer Natural Resources underscores the industry’s dedication to advancing CCUS initiatives, particularly in the Permian Basin. Another illustration is the joint venture benefiting from California Resources Corporation’s early mover advantage, securing access to available storage in California, and leveraging Brookfield’s knowledge in global clean energy markets. Such trends exemplify a broader industry shift where companies are enhancing financial flexibility and optimizing portfolio assets while accessing clean-energy markets.
Expected to be a year of dynamic shifts, the upstream oil and gas industry is poised for increased activity. Navigating through geopolitical challenges, market dynamics, and the imperative of decarbonization, it is evident that the industry’s landscape is undergoing rapid and transformative changes.
ADI Analytics is a prestigious, boutique consulting firm specializing in oil & gas, energy transition, and chemicals since 2009. We bring deep, first-rate expertise in a broad range of markets including upstream oil and gas, where we support Fortune 500, mid-sized and early-stage companies, and investors with consulting services, research reports, and data and analytics, with the goal of delivering actionable outcomes to help our clients achieve tangible results.
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– Maria Eduarda Lopes
