LNG

The International Energy Agency said that the “fraught situation in the Middle East comes 50 years after the oil shock” that led to the founding of the Paris-based IEA itself by the Organisation for Economic Cooperation and Development and the agency has just issued its mixed World Energy Outlook 2023.

The IEA said the instability facing Israel and its neighbours was creating further uncertainty for an “unsettled global economy that is feeling the effects of stubborn inflation and high borrowing costs” in 2023.

The WEO of 2023 highlights include one area of global energy markets, natural gas, that was hit particularly hard by the global energy crisis.

“Natural gas markets have been dominated by fears about security and price spikes after Russia cut supplies to Europe and market balances have remained precarious,” said the IEA.

“But an unprecedented surge in new LNG projects coming online from 2025 is set to add more than 250 billion cubic metres per year of new capacity by 2030, equivalent to around 45 percent of today’s total global LNG supply,” the report explained.

The strong rise in capacity is expected to ease prices and gas supply concerns, though also risks creating a supply glut, given that global gas demand growth has slowed considerably.

“As a result, Russia will have very limited opportunity to expand its customer base. Its share of internationally traded gas, which stood at 30 percent in 2021, is set to drop to half of that by 2030,” the IEA noted.

Variables

The IEA Outlook considered in detail a major variable for energy markets in the coming years. 

“China, which has an outsize influence on global energy trends, is undergoing a major shift as its economy slows and undergoes structural changes,” said the IEA.

“China’s total energy demand is set to peak around the middle of this decade, the report projects, with continued dynamic growth in clean energy putting the country’s fossil fuel demand and emissions into decline,” the agency forecast.

The IEA also forecasts that there are set to be almost 10 times as many electric cars on the road and with renewable energy sources nearing half of the global power mix.

“The phenomenal rise of clean energy technologies such as solar, wind, electric cars and heat pumps is reshaping how we power everything from factories and vehicles to home appliances and heating systems,” it argued.

The WEO 2023 report describes an energy system in 2030 in which clean technologies play a significantly greater role than today. 

It predicts that there will be three times as much investment going into new offshore wind projects than into new coal-fired and gas-fired power plants.

“All of those increases are based only on the current policy settings of governments around the world. If countries deliver on their national energy and climate pledges on time and in full, clean energy progress would move even faster,” it concluded.

ExxonMobil Corp., the largest US oil company and leading LNG producer as a partner of Qatar, agreed to acquire Texas-based Pioneer Natural Resources for $59.5 billion and with an enterprise value of $64.5Bln in the largest acquisition since the historic tie-up between Exxon and Mobil in 1999.

The “Annual BP Statistical Review of World Energy”, published for the past 71 years, reported that natural gas prices rebounded strongly across all three major gas regions, rising four-fold to record annual levels in Europe and tripling in the Asian LNG spot market.

Schlumberger oil field services company Chief Executive Olivier Le Peuch said a super-cycle may be underway for natural gas and oil markets as the firm reported fourth-quarter revenue of $6.22 billion, an increase of 6 percent sequentially and 13 percent year-on-year.

The Houston, Texas-based company, listed on the New York Stock Exchange, said fourth-quarter cash flow from operations was $1.93Bln and full-year revenue was $22.9Bln.

The company reported net income of $587 million, an increase of 90 percent from the $309M reported in the same three months of 2020.

“The macro environment is increasingly supportive of a potential super-cycle with both onshore and offshore market growth well beyond 2022,” Le Peuch told analysts during a conference call on the earnings statement.

He stated that Schlumberger expected oil demand to exceed pre-pandemic levels by the end of 2022, with growth in 2023 and beyond.

“Some characteristics of the cycle have accelerated and some have been accentuated in the recent months,” added the CEO.

Energy intensity

He explained that the first sign is the outlook of economic GDP growth and that concerning the oil intensity and energy intensity that will drive the oil demand beyond the previous peak.

“So the first is the macro demand situation is set to be favorable for the next few years. Secondly, I think the supply demand imbalance and the supply, I would almost call it tardiness that we are facing, is pointing not only to an uplift on to the commodity price, but also is pointing to the return to investment across the broad portfolio of our customers,” said Le Peuch.

The CEO added that North America was still and would remain structurally smaller than in the previous cycle due to the capital discipline but also due to the crunch of supply, including on the services side.

“Secondly, I think the international underinvestment for the last few years, actually, the last down cycle, combined with the dip in the last two years is creating conditions for unnecessary injection of short-cycle capital and then long cycle capital investment to respond to the supply,” stated Le Peuch.

“So we are seeing growth in North America, we are seeing a rebound - a visible rebound in short and long cycle investments, internationally,” he explained.

Market share

“And I will insist on the long cycle because I believe that both oil capacity is being looked upon and by some OPEC member to secure future supply market share, but also the international and majors are investing into their advantaged offshore basins and we are seeing not only infill-drilling, but we are seeing FIDs for offshore that are accelerating going forward,” added Le Peuch.

“So it's a mix of offshore rebound, solid including deepwater, international short cycle and oil capacity in land. And finally, solid growth in North America. So these are unique conditions that are tightening the capacity and that are creating the underlying pricing improvement condition,” declared the CEO.

Le Peuch said Schlumberger was well placed to benefit from the coming surge.

“Strengthening activity, accelerating digital sales, and outstanding free cash flow performance combined to deliver another quarter of remarkable financial results to close the year with great momentum,” he added.

“These financial results conclude an exceptional year of financial performance for Schlumberger, at a pivotal time for the company and in our industry at large,” he said.

“We restored our North America pre-tax operating margin to double-digits and expanded our international margin, both exceeding pre-pandemic 2019 levels,” said Le Peuch.

Global investment in energy is set to rebound by nearly 10 percent during 2021 to $1.9 trillion, reversing most of last year’s drop caused the Covid-19 pandemic, with Qatar and its LNG expansion praised by the International Energy Agency in its annual investment report.