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Oil demand growth still strong, despite regional conflicts

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The crude oil price is now over $82/bl due to tight supply, the Middle East conflict and Houthi attacks on vessels in the Red Sea.

The attacks are rippling through oil markets, as the flow of oil from the Middle East to Europe has already dropped by close to 50%.

As many as 100 tankers carrying some 56 million barrels of crude oil and fuels have been diverted from the Red Sea.

Oil demand growth continues to be very strong. OPEC sees the demand for crude oil rising by 1.8 million bl/d to 106.2 million bl/d next year, with the OECD region expecting to see only 0.1 million bl/d and non-OECD realizing the lion’s share at 1.7 million bl/d growth.

With oil demand continuing to ascend, OPEC secretary general, Al Ghais, said that calls to stop investing in fossil fuels jeopardize global energy security.

But in response to the market situation and transition, Saudi Arabia ditched its plan to raise oil production to 13million bl/d by 2027.

Oil traders anticipate a significant shortfall in crude availability and depletion of inventories in 2024, sending prices up.

Diesel prices are primed to rise sharply in 2024, with diesel delivered in Northwest Europe in April 2024 is about $30/bl more expensive than crude oil.

Brazilian imports of diesel from Russia last year soared 4,600% while purchases of fuel oil rose by almost 400%.

Together, the US and Canada pump today a quarter of the world’s oil. That is about one-in-four barrels.

ExxonMobil, Chevron, Shell, TotalEnergies and BP paid out a record $114 billion from earnings in 2023.

According to the IEA, India will be the largest source of oil demand growth until 2040.

Gas-fired power sector booming

Gas-fired power sector is booming like there’s no tomorrow. There is 134GW of gas-fired power capacity under construction worldwide, similar in size to that constructed globally over the past five years.

For the first time since late 2022, the TTF gas price went below $8/MMBtu. With large amounts of LNG coming into the market from next year, low gas prices are for the longer term.

Europe’s LNG imports may reach record 175bcm in 2024 – a 15% rise.

Global LNG demand in 2024 will reach 423million tonnes, a 5% rise from 2023, but capacity growth will remain limited.

Germany announced expansion of gas fired power as renewables reach 59% of electricity generation, but also to replace nuclear generation – and in order to cope with renewables intermittency.

As a result, for the first time ever, Germany signed a deal to import natural gas from Algeria. This s a recognition of the strategic role of Italy as a key EU energy hub.

In Cyprus, energy regulator CERA is in favor of taxation of excess profits in renewable electricity.

Cyprus energy minister confirmed that Eni discovered more gas at Cronos-2 in block 6, with partners Eni and Total announcing ‘exceptional’ discoveries this week.

But Cyprus’ LNG import project is in serious trouble. An action plan is needed urgently to recover the project, and to apportion responsibilities – the cost implications are huge.

Across the sea, Egypt’s LNG exports fell by 51,8% in 2023 – reaching 3,52 million tonnes compared to 7,3 million tonnes in 2022, due to rapidly falling gas production, increasing the country’s economic woes.

Norway is accelerating the exploration of gas resources in the Barents Sea. The government has just issued new licences to three major companies in the remote and mostly unexplored Arctic region.

According to a Rhodium Group report, fossil fuel demand, particularly for natural gas, could prove remarkably resilient despite efforts to increase the use of renewables throughout the global economy.

The IEA says that global natural gas demand is expected to rise 2.5% in 2024, well above last year’s modest 0.5% rise.

US braces for higher oil production

The Permian Basin deal wave heralds a new phase in the shale oil revolution. Six companies will each produce more than 700,000 boe/d — more than some Opec member countries. Exxon, Occidental and Diamondback dominate oil and gas production in the basin.

The US is expected to surpass 2024 oil production as ExxonMobil and Chevron ramp up their Permian operations – Chevron is targeting 10% and ExxonMobil 7% growth this year.

The EIA says US solar generation will skyrocket by 43% in 2024, generate more electricity than hydro and, by 2026, more than coal.

In the US the government announced a pause in the approval of new LNG projects. Clearly this is driven by US elections and unfathomable US politics. But Donald Trump vowed to approve new projects “on my very first day back”.

In eight years, US LNG exports grew from essentially zero to over 130bcm/yr, to become the world’s largest.

Panama Canal congestion, as a result of a severe drought, is slowing down US–Asia LNG trade. This situation could be exacerbated in 2024 as LNG ships face security risks in the Middle East.

China rapidly increasing renewables capacity

China’s massive rollout of renewable energy is accelerating so fast that climate watchdogs now expect the country’s GHG emissions could peak as soon as this year. It installed 217GW solar power last year, more than the total US capacity.

Over the next five years it will add more renewable capacity than the rest of the world combined. The IEA says China is expected to increase renewable capacity by 2,060 GW in the forecast period, while the rest of the world will add 1,574 GW.

China is driving unprecedented growth in the production of petrochemicals, used to make countless everyday products like clothing, detergent and tyres. This is driving global oil demand growth.

China is the world’s biggest coal producer and importer and has more coal-fired capacity under construction than the rest of the world combined. It is building 136 GW of coal-fired generation, and has another 255.5 GW at pre-permit stage. This is 67% of the global coal-fired capacity currently under construction and 72% of the potential new capacity.

China already accounts for 53% of the world’s 2,095 GW of operating coal-fired generating capacity.

 

Dr Charles Ellinas is Senior Fellow at the Global Energy Center, Atlantic Council

X: @CharlesEllinas