Energy outlook: Is gas and LNG growth freeze on the cards in 2024?

After the COP28 climate talks put the transitioning away from all fossil fuels card on the table, Wood Mackenzie, an energy intelligence group, has come up with ten predictions for the energy industry in 2024, which hint at a downturn in gas, LNG, and solar projects while spotlighting the rise in blue hydrogen, nuclear, and new developments in carbon capture technologies, along with some other forecasts for the year ahead.

While looking into the forces shaping the global energy landscape, Ed Crooks, Vice-Chair, Americas, has collected ten Wood Mackenzie analysts’ predictions for developments, which are anticipated to occur in 2024. Crooks points out that the outcome of COP28 sets a change of course for the global energy system. While the consumption of fossil fuels has been growing and hit new record highs in 2023, renewable energy has also been booming, with production from wind and solar power worldwide being about 55% higher in 2023 than in 2020.  

Last year, when Wood Mackenzie analysts provided ten predictions for 2023, some key features of the fast-evolving landscape were thrust into the limelight, showcasing the strength of global oil demand, North American oil and gas companies renewed enthusiasm for production growth, and the rebound in U.S. solar installations, among others. 

While some of those trends are bound to keep their momentum this year, there are also new issues that are emerging, however, unexpected events can inevitably forestall some of the predictions that currently seem likely. Bearing this in mind, Wood Mackenzie has outlined ten of its analysts’ top predictions for 2024:

1. Slackening of global solar growth in sight 

While the total global solar capacity is expected to keep growing rapidly over the coming decade, Michelle Davis, Wood Mackenzie’s Head of Global Solar, is convinced that the pace of growth in annual installations will start to slow in 2024 compared to the rates seen in recent years. Based on WoodMac’s forecast for 2023, the average annual growth in capacity installations over 2019-23 was 28%, including 56% growth in 2023.

Davis underlines that the annual average growth from 2024-28 will be about zero, including a few years with contractions. Even though growth has climbed rapidly up the steepest part of the S-curve over the last few years, the industry is anticipated to be past the inflection point, starting in 2024, characterized by a slower growth pattern.

Wood Mackenzie’s Head of Global Solar further emphasizes that every region is not currently in the same place along the S-curve, as Africa and the Middle East, for example, have a long way to go before they hit their growth inflection points. Currently, two major markets are driving the global growth pattern: Asia Pacific, dominated by China, and Europe. 

2. Nuclear set to grow in prominence

While explaining that nuclear power will continue to rise on the policy agenda as a climate solution, Julian Kettle, Wood Mackenzie’s Vice Chair, Metals and Mining, underscores that this source is set to win widespread support as a key solution to the world’s energy crisis for the first time in over half a century.

Nuclear power is still being bombarded with challenges of public acceptability and economic competitiveness against renewables and fossil fuel generation. Despite this, Kettle is adamant that this energy source is “the only reliable, dispatchable, small physical-and-material footprint, plug-and-play zero-carbon solution” for power generation. 

3. Putting the brakes on gas and LNG projects

Following the Ukraine crisis, the global gas and LNG industry reprioritized securing supply with more than 65 million tons per year of LNG sale and purchase agreements signed by end-users in 2022 and 2023. While the investments in new LNG supply were always anticipated to slow in 2024 given the scale of investments already made and the expected market rebalancing, Kristy Kramer, Wood Mackenzie’s Head of Gas and LNG Consulting, highlighted that COP28 had added new uncertainty to the outlook for gas.

As a fossil fuel, it is one of the energy sources the governments of the world aim to transition away from, but as the most widely accepted “transitional fuel,” it will still have a role to play in providing energy security for some time, according to Kramer. On the other hand, she predicts that the evolving balance between decarbonization and the security of supply will act as a brake on final investment decisions (FIDs) for gas and LNG projects.

Kramer further notes that companies and governments will need to reconsider investments against this evolving backdrop, possibly slowing some of them further, thus, industry participants will need to realign their portfolios and strategies to navigate the contradictions and the range of possible outcomes for gas demand. 

4. Relief for OPEC+ comes into view

Ann-Louise Hittle, Wood Mackenzie’s Head of Macro Oils, confirms that there has been a large increase in non-OPEC oil production of about 2 million barrels per day in 2023, piling the pressure on the OPEC+ group to cut its output to prevent a slump in prices. Things are expected to change in 2024, as non-OPEC growth is likely to slow to just 0.8 million b/d. This slowdown in non-OPEC oil production growth will ease the pressure on the OPEC+ countries, says Hittle.

Furthermore, she goes on to elaborate that the largest factor in the projected slowdown is the expectation of a sharp deceleration in U.S. oil production growth in 2024, but other countries including Brazil will also contribute.

5. Oil & gas producers doing more with less in U.S.

Robert Clarke, Wood Mackenzie’s Vice-President of Upstream Research, claims that the biggest macro story from the U.S. oil and gas industry may be that efficiency gains refuse to plateau in 2024, as total upstream capital spending in the Lower 48 states is expected to fall in 2024, for the second successive year.

At the same time, total Lower 48 production of both oil and gas is anticipated to continue inching higher, setting new records for each. Clarke underlines that muted movement in the rig count will be more than offset by continued improvement in drilling speeds and pad cycle times, completion efficiencies, and improved project execution. He is under the impression that all this serves as a reminder of just how “lean and mean” U.S. shale has become. 

6. Internationalization as next step

Greig Aitken, Wood Mackenzie’s Director of Corporate Research, outlines that the pure-play model of geographically focused exploration and production companies has lost its luster since investors began rejecting production growth in favor of cash distributions.

Therefore, the large-scale M&A is increasingly targeting diversification, as companies look to build resilient financial platforms. For Aitken, internationalization is the next logical step in this strategy, thus, a large U.S. E&P could merge with a large international E&P, since U.S. buyers’ strong equity currency is expected to be a lure for overseas targets, helping to make deals happen. 

7. Blue hydrogen boost on the horizon

While the ambitions for low-carbon hydrogen around the world and a 108-mtpa global project pipeline that skews 80% to green hydrogen – made from electrolyzing water – are a sight to behold, Melany Vargas, Wood Mackenzie’s Head of Hydrogen Consulting, claims that the rate of project maturation for electrolyzer hydrogen will remain slow as developers struggle to overcome key obstacles. This will ensure that hydrogen project FIDs will continue to skew blue.

Moreover, Vargas indicates that two of the most important challenges green hydrogen projects will face are achieving competitive costs and securing firm commitments from off-takers while projects with credible counterparties and those targeting hydrogen as a feedstock in existing applications are most likely to move ahead.

Wood Mackenzie’s Head of Hydrogen Consulting states that those targeting new applications will struggle to achieve costs that compete with traditional fossil fuels. Although blue hydrogen projects will also move slowly through the project development cycle, Vargas is certain that more will achieve FID as they benefit from competitive economics and scaling more quickly.  

8. Carbon offsets to make inroads

Elena Belletti, Wood Mackenzie’s Global Head of Carbon Research, noted that the voluntary carbon market was at a crossroads in 2023, with market activities bogged down by a loss of confidence, and buyers craving clarity. As COP28 was unable to reach an agreement on Article 6 market sentiment suffered frustration again, she is convinced that there are reasons to believe this could be the dark before the dawn.

Belletti claims that buyers are wising up and weeding out low-quality offsets from the market, thus, in the absence of centralized oversight from the UN, independent governance bodies are setting guidelines and offering clarity. With offsetting programs working hard to evolve, Wood Mackenzie’s Global Head of Carbon Research expects to see the results of these efforts in 2024, with carbon offsets regaining momentum, against all the odds.

9. Doors opening for new carbon capture technologies to enter commercial scale 

Mhairidh Evans, Wood Mackenzie’s Head of CCUS Research, explains that new CCUS projects are no longer noteworthy in and of themselves in 2024, tracking up to 100 commercial-scale projects, with 50 having a decent chance of progressing. The much-awaited graduation of novel technologies from pilot to commercial scale will be a new development. Evans believes that new techniques to capture carbon dioxide such as modularization, solid adsorption, and bio-recycling will be fully deployed for the first time in 2024.

Wood Mackenzie’s Head of CCUS Research underlines that these promise lower energy intensity and cost reductions of up to 50% compared to incumbent methods. If successful, Evans thinks that barriers will be lowered for emitters in vital heavy industries such as cement and chemicals, thus, the technology companies can expect a rush of orders.

10. Turning geoengineering into a hot topic 

As countries acknowledged that the remaining global carbon budget was shrinking rapidly, with a risk of overshooting the 1.5 °C goal, in the conclusions of the first Global Stocktake at COP28, Prakash Sharma, Wood Mackenzie’s Vice President, Scenarios and Technologies, outlined that hundreds of billion tons of carbon dioxide would need to be removed or captured, and stored to get the world back on course for no more than 1.5 °C of warming by 2100. 

With this in mind, Sharma points out that geoengineering techniques can be used to enhance the carbon absorption capacity of the planet, and to reflect sunlight into space, helping to keep the earth cool. To illustrate this, he mentions aerosols or other chemicals that can be released a few kilometers up into the atmosphere, reflecting more sunlight away from the planet’s surface.

Sharma believes that governments and scientific institutions will come together to study this subject more deeply in 2024 and discuss the pros and cons of pursuing it.