As the confetti from New Year’s Eve celebrations settles, it is only fitting that we prepare our 2024 New Year’s Resolutions. Our resolutions are often about a change we wish to see in ourselves, but what about making them around the change we wish to see in our homes and our world? Making energy efficiency and sustainability part of your New Year’s resolutions opens a pathway to savings, community resilience, and a safer, healthier Earth for future generations to call home.
Consumption of oil, gas, and coal has been growing, and all three fuels hit new record highs in 2023. But, at the same time, renewable energy has been booming. Production from wind and solar power worldwide in 2023 was about 55% higher than in 2020.
Nonetheless, it's worth noting that despite the recession fears that marked much of the last year, a U.S. recession hasn't materialized so far. Oil demand in the U.S. and globally has been quite good too. I want to point out that the oil prices aren't meager compared to the pre-pandemic years. Natural gas may be low and many U.S. gas-focused producers are generating negative cash flow, but many oil investments remain profitable. I wrote a lot throughout the year about the performance differentiators, but even in the onshore services space factors such as gas vs. oilier basin exposure, the proportion of private vs. public clients or fleets contracted long-term vs. participating in the spot market would matter a lot.
Turning to 2024, I will first lay out my macro expectations.
A solar slowdown, relief for OPEC+, the rise of blue hydrogen, and other trends to watch out for in the year ahead. Even though total global solar capacity will continue to grow rapidly over the coming decade, the pace of growth in annual installations will start to slow in 2024 compared to the rates seen in recent years. If our forecast for 2023 holds, the average annual growth in capacity installations over 2019-23 was 28%, including 56% growth in 2023. By contrast, annual average growth from 2024-28 will be about zero, including a few years with contractions. Growth in the global solar market is following a typical S-curve. Over the last few years, growth has climbed rapidly up the steepest part of the curve. Starting in 2024, the industry will be past the inflection point, characterized by a slower growth pattern. The global solar market is still many times larger than it was even a few years ago, but it’s natural for an industry to follow this growth path as it matures.
Not every region is currently in the same place along the S-curve. Africa and the Middle East, for example, have a long way to go before they hit their growth inflection points. But two major markets are driving this global growth pattern: Asia Pacific, dominated by China, and Europe.
No U.S. recession or at best a very modest one.
Continued deceleration in inflation but not down to the coveted 2%; probably down to 3% with some upside risk in 2024 H2;
The Fed and other central banks cut a bit, though, pushing up commodities.
Weaker dollar/stronger emerging markets. In the conclusions of the first Global Stocktake at COP28, countries acknowledged that the remaining global carbon budget is shrinking rapidly, with a risk of overshooting the 1.5 °C goal. That means hundreds of billion tonnes of carbon dioxide will 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.
Geoengineering techniques can be used to enhance the carbon absorption capacity of the planet, and to reflect sunlight back into space, helping to keep the earth cool. For example, aerosols or other chemicals can be released a few kilometers up into the atmosphere, thus reflecting more sunlight away from the planet’s surface. I believe that in 2024, governments and scientific institutions will come together to study this fascinating subject more deeply and discuss the pros and cons of pursuing it.
In the energy space, I expect an average of $70-$80 crude oil (OIL). Some push-pull between geopolitical risks and OPEC's spare capacity while U.S. shale production growth moderates. The ambitions for low-carbon hydrogen around the world, reflected in government policies and corporate project development, are quite remarkable. As is a 108 - mtpa global project pipeline that skews 80% to green hydrogen, made from electrolyzing water. However, the rate of project maturation for electrolyzer hydrogen will remain slow as developers struggle to overcome key obstacles.
Two of the most important challenges that green hydrogen projects will face are achieving competitive costs and securing firm commitments from off-takers. Projects with credible counterparties and those targeting hydrogen as a feedstock in existing applications are most likely to move ahead. Those targeting new applications will struggle to achieve costs that compete with traditional fossil fuels. Blue hydrogen projects will also move slowly through the project development cycle, but more will achieve FID as they benefit from competitive economics and scaling more quickly.
More downside for U.S. natural gas in 2024 H1 as we are already halfway through the winter with no major events so far.
Sustained international and offshore capex, with flat U.S. activity and single-digit growth in Canada. A quote often misattributed to Albert Einstein is that nuclear power is "one hell of a way to boil water". It was actually coined in 1980, after the Three Mile Island reactor accident that helped to turn the tide of public opinion against atomic energy. In 2024, however, nuclear power 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 has faced and still faces, challenges of public acceptability and economic competitiveness against renewables and fossil fuel generation. But it is the only reliable, dispatchable, small physical-and-material footprint, plug-and-play zero-carbon solution for power generation.
That is all from me and the rest of the Croatian Center of Renewable Energy Sources (CCRES) team for 2023. Many thanks to all of you for reading last year. Have a great holiday, and we will be back again and again in 2024. Happy working and trading in the new year, and feel free to share in the comments where you see the most upside going into 2024. Zeljko Serdar
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