LACKLUSTRE DEMAND A DOMINANT O&G THEME IN 2024

KUALA LUMPUR, Dec 11 (Bernama) -- Lacklustre demand remains the dominant theme of the global oil and gas market in 2024, driven by weaker economic prospects in China and the Organisation for Economic Co-operation and Development (OECD).  

China and OECD economies are struggling to sustain momentum beyond their post-pandemic recovery and are constrained by structural challenges such as the growing penetration of electric vehicles.  

China, with its population of 1.41 billion, has accounted for at least half of global oil demand growth over the past decade. However, its recent slowdown has significantly weighed on the market.  

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In the United States, a much-anticipated boost in gasoline demand during the summer driving season failed to materialise, leaving cumulative growth for the year stagnant.  

"After a huge post-COVID-19 rebound in oil demand in 2023, oil demand growth came crashing down in 2024. Chinese GDP growth has downshifted to 5.0 per cent from 10 per cent-plus in earlier years of the millennium," Moody's Analytics director-economist research Chris Lafakis told Bernama.  

Oil demand in the first half of 2024 grew by only 800,000 barrels per day (bpd) year-on-year, the slowest pace since 2020.  

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Lafakis said the days of China driving annual growth of 1.5 million bpd in global oil demand are over.  

Moody's Analytics anticipates a slightly stronger pace of demand growth in the second half of 2024, raising the total year-on-year increase to 924,000 bpd.  

"Nonetheless, this is a far cry from the 1.98 million bpd increase in 2023, which was fuelled by a return-to-normal following a COVID-19-induced plunge," noted Lafakis.  

He highlighted that, over the past 20 years, demand has averaged around 1.2 million bpd, making the 924,000 bpd increase in 2024 a notable decline. 

This reflects factors such as improved global energy efficiency, slower growth in China compared with the early 2000s, and the gradual electrification of the global vehicle fleet.  

The average Brent price in 2024 is estimated at US$80.39 per barrel, down from US$82.19 in 2023.  

Despite turmoil in the Middle East, oil prices have remained stable, underscoring the industry's resilience.

2024: A Year of Energy Transition and Technological Innovation 

In 2024, the oil and gas sector is navigating a transformative era, driven by energy transition and technological innovation.  

As the world pivots towards sustainability, industry giants are spearheading the integration of low-carbon technologies and digital transformation to sharpen operational efficiency and thrive in a market continuously reshaped by geopolitical shifts and regulatory flux.  

Hefty investments drive a vigorous push towards energy efficiency, carbon capture, and renewables to meet ambitious global decarbonisation targets. This dynamic repositioning reflects the industry's adaptability and commitment to securing a greener, more sustainable future.  

SPI Asset Management managing partner Stephen Innes said a key trend in the oil and gas industry is the strong demand from emerging markets, notably in Asia, coupled with the escalating adoption of AI and generative AI technologies.  

"These advancements are revolutionising the sector, enhancing operational efficiency and slashing costs significantly. Despite geopolitical tensions and supply disruptions, companies are maintaining continuity through strategic adjustments and technological innovation, ensuring they stay resilient and competitive in a fluctuating global market," he told Bernama.  

Domestically, Petroliam Nasional Bhd (Petronas) has intensified its innovation initiatives. Through its Petronas-Academia Collaboration Dialogue (PACD) programme, it has committed RM71 million to fund 61 researchers across 25 universities, including Monash University Malaysia.  

Seven projects have been selected, focusing on reducing CO2 emissions, producing green hydrogen, and enhancing energy system efficiency, aiming to develop sustainable solutions for global energy needs. 

Domestic Sector Activity

The domestic upstream sector is showing increased activity towards the year-end.  

In the fourth quarter, contracts from Petronas and its production-sharing contract partners have surged, mainly for maintenance, construction, modification, and hook-up commissioning services. These have benefitted local players such as T7 Global Bhd, Dayang Enterprise Holdings Bhd, Carimin Petroleum Bhd, and Deleum Bhd.  

Miri-based Dayang Enterprise secured four contracts: Package B4 from Sarawak Shell Bhd/Sabah Shell Petroleum Co, Package A3 from Petronas Carigali Sdn Bhd and SKA Oil, and Package A5 SBA Southern from Petronas Carigali.  

Carimin Petroleum obtained two contracts: Package B9 from Kebabangan Petroleum Operating Company Sdn Bhd in partnership with Evolusi Bersatu Sdn Bhd, and Package B5 from Sarawak Shell/Sabah Shell Petroleum Co.  

Deleum was awarded two contracts for Package A1 and Package A4 by Petronas Carigali, while T7 Global Bhd received contracts from ExxonMobil Exploration and Production Malaysia Inc (Package B2 – Guntong) and IPC Malaysia BV (Package B3). Uzma Bhd was also appointed as a panel contractor for integrated well continuity services by Petronas.  

Political Cauldron

At the time of writing, discussions between Petronas and Sarawak's state-owned oil and gas company, Petroleum Sarawak Bhd (Petros), over the distribution of natural gas in Borneo are still ongoing, despite an initial expectation to conclude by Oct 1—a deadline set in July.

Calm and rational discussions are essential in the ongoing negotiations over Sarawak's demand to assume the gas aggregator role.

Analysts have warned that Petronas's bottom line could be adversely affected if it cedes control to Petros, particularly the RM20 billion in annual profits generated from gas production in Sarawak.

This could lead to reduced capital expenditures, particularly in the gas sector and upstream operations.

As of the third quarter of 2024, Petronas, through its production sharing contracts (PSCs), has invested over RM17 billion in Sarawak's upstream oil and gas sector, including RM11 billion allocated for capital expenditure on new projects.

These projects include hydrocarbon production at the Jerun and Kasawari fields, as well as developments at the DEWA complex cluster and Ketapu cluster.
 

Outlook for 2025

Global oil markets are expected to finish the year balanced and enter 2025 with a surplus of more than 1.5 million bpd.

Lafakis said the surplus could widen if OPEC boosts output before Iranian exports decline, while US output growth slows, though any increase in production would exacerbate oversupply.

On the demand front, Moody’s Analytics projects growth of slightly less than 1.0 million bpd in 2024—a sizeable downshift from last year’s 2.1 million bpd growth, which was driven by COVID-19 recovery.

Lafakis said macroeconomic prospects for 2025 appear stagnant. China’s weak economy is expected to persist, with non-OECD nations, led by India, poised to become the primary drivers of oil demand.

"As a result, prices will remain subdued through the remainder of 2024, with the trend continuing into next year. We expect Brent to average US$78.05 in 2025, and West Texas Intermediate crude oil to average US$74.56," he added.

--- BERNAMA