January2024KeyThemesfortheGlobalEnergyEconomyin2024OIESPaper:SP22OIESThecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsmembers.Copyright©2024OxfordInstituteforEnergyStudies(RegisteredCharity,No.286084)Thispublicationmaybereproducedinpartforeducationalornon-profitpurposeswithoutspecialpermissionfromthecopyrightholder,providedacknowledgmentofthesourceismade.NouseofthispublicationmaybemadeforresaleorforanyothercommercialpurposewhatsoeverwithoutpriorpermissioninwritingfromtheOxfordInstituteforEnergyStudies.ISBN978-1-78467-227-0iContentsContents..................................................................................................................................................iiFigures....................................................................................................................................................ii1.Introduction–Energytransitioncomesofage................................................................................12.TimeforActionafterCOP28............................................................................................................33.Energytransition–Whenclimatepolicybecomesprotectionism...................................................54.Geopoliticswilltestenergymarketresiliencein2024.....................................................................75.Chinain2024:Overcapacityloomslarge........................................................................................96.EuropeanGasMarketFlexibilityWaningin2024..........................................................................117.LNG-Howmuchmorein2024andwherewillitgo?...................................................................148.GeopoliticsandoildemanduncertaintycomplicatetheOPEC+balancingactin2024................169.Offshorewindpower:growth,challenges,andnavigatingthefuture............................................1810.2024:Amake-or-breakyearforcarbonmarketsandsolutions....................................................2011.Hydrogen–ChinaleadingEuropeandUSongreenprojects......................................................22FiguresFigure1:ClimateFinanceProvidedandMobilisedbyDevelopedCountries.........................................4Figure2:BatterysupplychainconcentrationinChina–2023...............................................................6Figure3:EU-27GasStorage(Bcm).....................................................................................................13Figure4:Differencebetweenkeyagencies’globaloildemandgrowthforecasts................................17Figure5:OPEC+cutsvsnon-OPECoutput.........................................................................................17Figure6:Developmentoftheoffshorewindinthelasttwodecades...................................................18Figure7:GreenHydrogenCapacityatFID–UnderConstructionbyregion.......................................23ii1.Introduction–EnergytransitioncomesofageMuchhasbeenmadeoftheenergytrilemmaoverthelastdecade,whichpositionsthreekeydriversoftheglobalenergysystem–securityofsupply,sustainability,andaccess–astheforcesthatdriveenergypolicyandultimatelymarkets.ThedominantargumentinthewakeoftheUkrainewarandsubsequentspikesingasandpowerpriceswasthatthisthree-prongedframeworkhadleanedmoreheavilyinfavourofsecurityofsupplyattheexpenseofsustainability.Thisyear’skeythemessuggestthatnotonlyaresecurityandsustainabilityintractablylinked,butthattheyhavenowbecometwosidesofthesamecoin.Perhapsthisrequiresreframingthetrilemmaasadilemma,withsecurity/sustainabilityontheonehandandthepriceofenergy,aswellastheimportantbutdevelopmentallyseparateissueofaccess,ontheother.Howeveritisframed,thescopefortrade-offsbetweentheobjectivesislimitedandunderminesgrowth,competitiveness,publicacceptability,sustainabledevelopmentgoals,andenergyaccess.Assuch,ourkeythemesfortheyearaheadin2024pointinanewdirection.Therealityofthenewversustheoldenergyeconomy,withitsfocusondecarbonization,electrification,andrenewablesisbynowwellunderstood.Theenergytransitionhasmadegreatstridesinsomeareasbutisstillstrugglingwiththescaleandscopeoftheglobalchallenge,astheCOPmeetinginDubaiacknowledged.Hydrocarbondemandgloballycontinuestorise,evenasprogressinnewenergytechnologyandtherenewablesbuild-outgatherssteam.Butthefactthatoilandgasmarketsappeartobefocusedbeyondnear-termsupplyrisk(oil)andtightfundamentals(Europeangas),suggestssecurityofsupplyriskshavebeenpartiallyeclipsedandarenolongerthesoledominanttheme.Instead,sustainabilitythroughgreenenergyisemergingasakeycomponentofstrategiesthatincorporatesecurityofsupply,industrialpolicy,climatediplomacy,andinternationalrelations.Forhydrocarbons,thefundamentalpictureiscomplex.Whileoildemandcontinuestogrowglobally,OECDconsumptionismostlyflattofallingandChinaandotheremergingAsianeconomiesaccountforthebulkofglobalgrowth.Globaloildemandgrowthissettoeaseyear-on-yearin2024astheimpactsofrecoveryfromCOVIDfadebutremainsrobustandnotfarfromitspre-COVIDten-yearaverage.Aselectrificationandefficiencyeatintotransportationfuelsinmostmarkets,demandisexpectedtoflatteninthemediumtermthoughtimingisuncertain.Theextenttowhichpetrochemicalsreplacestransportasthemaindriverofoildemandwilldictatethelong-termdemandcurve,somethingaroundwhichthereisalsoplentyofuncertainty.EuropeanandotherwesternsanctionsonRussianliquidshasshownupinchangingtradeflowsbutsupplyhasbeenlittlechanged–anothervictoryforRussianresilienceandoilmarketfungibility.Forgas,thehugedislocationcreatedbythelossofRussiangasinEuropepromptedahistoricspikeinprices.Butagain,themarketresolvedthedeficitthroughLNGimports,storagemanagement,andlowercontinentaldemand,whichfellforasecondsuccessiveyearin2023,easingthestrainonbalances.WhileweassessEuropeangasfundamentalsastightandflexibilityonbothsupplyanddemandhasfallen,marketsseemlessconcerned.Promptgaspricesandflatforwardcurvescontinuetolookweak,helpedinlargepartbyEurope’ssuccessinrefillingstorageduringsummermonths.SofterpricingseemstobeatoddswiththeLNGoutlookfor2024,whichatbestwillseesome20bcmofsupplyaddedthisyearintoamarketwheredemandcouldtopthat,especiallyiftheremainderofthenorthernhemispherewinterplaysoutcolderthanrecentyears,implyingadeeperdrawdowninstocks.Whilestrongnon-OPECoilsupplygrowthinlate2023surprisedmany,itpushedOPEC+tocontinueanddeepenitsbalancingmission,creatinginturntheOPECsparecapacitythatinturnishelpingtoinoculatetheoilmarketfromtheimpactofgeopoliticalandsupplyrisk.Inshort,despiteawideningoftheIsrael-Gazaconflict,oilmarketsaresurprisinglysanguineandpriceresponsestosupplythreatshavebeensmallandshort-lived.Thepackedelectioncalendarduring2024andtheincreasingweaponizationofenergypolicyindemocraticpoliticsmayyettestthatresilience.Wheredoesthisleaveenergytransition?Theperennialrefrainthatgovernmentsandcorporationsneedtobackuptheirtargetsandcommitmentswithactionwillcontinueofcourse.Thiswillbeimportantfor1Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.actiononmethaneemissions,financingthetransition,eitherthroughbespokemultilateralfundsorthroughtraditionalbanking,andofcoursenewheadlinetargetsonrenewables,efficiency,andscalingupdecarbonizationtechnologies.Butgovernmentsareprovingwisetotherealitythatmajorenergytransitionpolicyisalsoadriverforgrowthandcompetitivenessand,criticswouldargue,anewavenueforprotectionistpolicies.Expectmoretensionbetweentheindustrializedeconomies,whobyandlargehavethemeanstofinanceandsubsidizetransitioninvestment,andtheGlobalSouth,whichislessableto.Intermsofsomeofthekeyelementsofthetransition,weseeoffshorewind,hydrogen,andcarbonmarketsasthehotspotsin2024.Investorsinoffshorewindfarmshavebaulkedatcostinflationin2023,forcinggovernmentstolookagainatthefiscalplayingfieldandwhethertheyneedtobringnewincentivestothetable,whetherintermsofportlogistics,raisingthestrikepriceofferedforpowerofftakeorhelpingtoeasebottlenecksintheglobalsupplychainforoffshorewindcomponents.Forhydrogen,thestoryisoneofperpetualrunningtocatchup.Unrealistic,upgradedEuropeantargetsonelectrolyticandCCS-enabledhydrogenshowlittlesignofbeingmetwhichmeansthatbluehydrogenderivedfrommethanereformingwilldominatetheindustryinEuropeforlonger.Carbonmanagementandsolutionsremaincriticaltothepushtowardsnetzeroespeciallyinthehard-to-abatesectors.Limitedprogressonrulesforaglobalcarbonmarketwillshiftthefocustobilateraldealsasameansofdrivinginvestmentintocarboncaptureandstorage(CCS)andcarbondioxideremoval(CDR).Thechallengingtaskofboostingthequalityandintegrityofthecarboncreditsmarketmaywellcreatefreshmomentumin2024.Ofallthesethemes,thewildcardisChina,whichcontinuestoplayadominantroleacrosstheenergyindustry,bothasamajorimporterandconsumerofhydrocarbonsandastheworld’sleadingsupplierofenergytransitiontechnologiesandcomponents.WhileChinaisexposedtoglobalmarketsonbothsidesofthetradeledger,itsbullishregionalandglobalforeignpoliciesandthepotentialforfreshtensionsintheSouthChinaSeaorintermsoftraderelationswiththeUSandEuropemakeitaglobalwildcard.Beijing’sforeignandenergypolicywillremainoneofthemostprofoundanduncertainforcesmouldingtheglobalenergylandscapein2024.BillFarren-Price(bill.farren-price@oxfordenergy.org)2Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.2.TimeforActionafterCOP28COP28endedon13Decemberwithafanfarearoundtheinclusionofthephrase‘transitionawayfromfossilfuels’inthefinalconclusions.ThiswashailedasahistoricfirstmentionofallfossilfuelsinaCOPdocument,butinfacttherewereenoughcaveatsinthetextthateventhelargestoilproducerswerenotoverlyworriedabouttheirfuture.Asaresult,althoughitwillbeinterestingtoseehowthefutureoffossilfuelsisinterpretedbydifferentcountriesduring2024,thereareinfactsomefarmoreconcreteactionsthatemergedfromtheCOPwhicharecriticalfortheenergytransitionandthatdeserveaspecificfocusoverthenext12months.Theseinclude:Actiononmethaneemissions:OneofthemainthemesofCOP28wastheneedtofocusoncuttingmethaneemissionssharplyby2030.Atotalof155countrieshavenowsignedtheGlobalMethanePledgetoreduceemissionsby30percentby2030,while50oilandgascompanies(including30NOCs)signedtheOilandGasDecarbonisationCharterwithapledgetoreducemethaneemissionstoclosetozerobytheendofthisdecade.Withsolittletimetotakesuchsignificantaction,companiesmustdeliverresultsin2024andbeseentodoso.Aspartofthemonitoringprocess,aconsortiumledbytheIEAandtheEnvironmentalDefenceFundwillbeprovidingdatafromvarioussatellitestoallowthe‘namingandshaming’ofkeyemittersinordertogetthemainstakeholderstodemandpositiveaction.Itwillbecriticaltoseewhetherthisprocesskicksintoactionandactuallyworksthisyear.Holdingoilandgascompaniestoaccount:TheoilandgascommunitywasdelightedtobebackintheCOPfoldandmadesomeboldpromisestodemonstratetheirkeennesstobepartoftheenergytransition.Aswellasmethaneemissionreduction,thesecentredaroundreducingScope1and2emissionstozeroby2050,haltingtheroutineflaringofgasandworkinghardtodevelopCCUSasaviablebusiness.Theindustrymustnowdemonstrateitswillingnessandabilitytodeliveronthesepromises.Themostobviousshort-termmeasurablegoalisaroundflaring,so2024couldbetheyearwhenroutineflaringstartstodeclinesharply.Satelliteswillagainplayakeyroleinmonitoringperformance.ChangingrolefortheWorldBank:TherehasbeenmuchcriticismoftherolethattheWorldBankhasplayedtodateinfinancingtheenergytransitioninthedevelopingworld,asithasnotfoundawaytoprioritisetheenvironmentovereconomicreturns.WorldBankpresidentAjayBangahaspromisedthattheshareofclimatefinanceintheBank’sportfoliowillincreaseto45percent(from35percent),thattermsforloanswillbemademorepreferentialandthatpausesinrepaymentswillbeofferedtothemostvulnerablecountries.TheCOPconclusionconfirmedallthisandalsourgedtheBanktoplayagreaterroleinreducingrisktoallowmoreprivateinvestmentintheGlobalSouth.2024willthereforebeayearinwhichtheWorldBankhastoreinventitsroleorfaceanincreasingchallengefromitsshareholdersintheGlobalNorth.CommitmentstoprovidefinancetotheDevelopingWorld:Althoughclimatefinanceisattheheartofallenergytransitionactivities,threeareasstandoutin2024aheadofCOP29inBaku,whichwillcertainlybeknownasthe‘FinanceCOP’.Firstly,willtheLoss&DamageFundbecomeacrediblesourceoffinanceforthedevelopingworld?Ithaslessthan$1billioninitatpresent,andtherulesforitsuseremainunclear.ItsannouncementatCOP28wasseenasatriumph,butwillitreallyworkin2024?Secondly,willthedevelopedworldfinallybeseentohaveprovidedthe$100billionitpromisedinclimatefinancebuthassofarfailedtodeliver.Havingmissedthetargetin2020and2021,anOECDreportclaimedithadbeenmetin2022,althoughmanydevelopingcountriesdisputedtheevidence.However,deliveringinoneyearisjustastart,ifitcanbeproved.Thesamelevelneedstobeachievedin2023and2024.Thirdly,cananagreementbereachedonfundingforthedevelopingworldfrom2025?The‘NewCollectiveQuantifiedGoal’,asitisknown,isbeingnegotiatedin2024andshouldbeagreedatCOP29,togointoforcefromJan12025.ThefinalCOPdocumentidentifiedaneedforalmost$6trillioninfinanceforthedevelopingworldintheperiod2023-2030,implyingafigureofc.$850billionperannum.WhetherthecountriesintheGlobalNorthcanpledgeanythinglikethisnumberisdoubtful,butanythinglessthan$500billionperannumfrom2025willleavetheworldsignificantlyofftargettoreachitsclimategoals.3Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.Figure1:ClimateFinanceProvidedandMobilisedbyDevelopedCountries900Tobenegotiatedin2024800700600US$bn500400300200Commitment100s0?Source:OECD,OIESforecastsAdvancesinrenewablesandenergyefficiency:TwooftheleastcontroversialobjectivessetatCOP28involvedthetriplingofrenewableenergycapacityto11,000GWby2030anddoublingtheglobalenergyefficiencyimprovementfrom2percentto4percentperannum(asmeasuredbyunitofenergyper$ofGDP).Thesegoalswillbeeasytomeasurebutachallengetoachieve,andagoodstartisneededin2024tocarryonthemomentumfromDubai.Inconclusion,theworld’slong-termcommitmenttotransitionawayfromfossilfuelswassetinDubai,butintheshort-termtherearesomemuchmorespecifictargetswhichneedtobemettokeeptheworldbroadlyontracktomeetitsclimategoals.Thesewillhavetobemonitoredcarefullyin2024toholdthecompaniesandcountrieswhohavepromisedactiontoaccount,andifnecessarytocallthemoutatCOP29inNovember.JamesHenderson(james.henderson@oxfordenergy.org)4Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.3.Energytransition–WhenclimatepolicybecomesprotectionismEnergytransitionpathwaysthatdonotaddressallelementsoftheenergytrilemma–security(ofsupply),sustainability,andaffordability–willstruggletogainpublicacceptanceandthefebrilepublicdebatearoundenergytransitionislikelytointensifyin2024.Multipleelectionsacrosstheglobemeansthatclimatepolicywillbescrutinizedasakeyplankofindustrial,economic,andevensocialpolicy.Thechallengeofthetrilemmaisthatroomfortrade-offsisverylimited.Under-deliveryonanyoftheobjectivesunderminestheentireenergycomplexaswellasotherkeyobjectivessuchasgrowth,competitiveness,sustainabledevelopmentgoals,andenergyaccess.Balancingthetrilemmain2024andbeyondwillbecritical.Energyiskeytoeconomicprogressanddevelopmentandthereforesecuringenergywillalwaysbeatoppriorityamongpolicymakers.Butitisnotenoughtohavesecuresourcesofenergy.Energymustbeaffordabletoensuremultiplegoals,includingenhancingeconomiccompetitiveness,ensuringwideaccesstoenergyandpromotingwideacceptanceforthetransition.Higherenergycostsincreasetheburdenonbusinessesandhouseholds,evenindevelopedeconomies.Indevelopingcountrieswhereincomesandenergyaccessarelow,affordabilityisanevenmorepressingissue.Energymustalsobeprovidedinasustainablewayandtheenergysystemmustbefittomeetclimatetargets.Themajorthemein2024willbetheswingawayfrommarketstowardsagreaterroleofthestateinenergymarketsandtheriseofindustrialpolicyinmanypartsoftheworld.Inthewest,theUSarguablyfiredthestartinggunwiththe2022InflationReductionAct(IRA),whichhassinceheraldedsimilarapproachesfromtheEUandothermajorindustrializedeconomies.Whilemostacceptthatmajorstatesubsidyandinvestmentaswellasassociatedregulationarecriticaltothesortofprogressthatisneededforarangeoftransitiontechnologiestoadvancebeyondconcepttodelivery,thereisalsoafinebalancebetweendirectgovernmentaidtoastrategicsectorontheonehandandprotectionismandonshoringontheother.IndustrialpolicessuchastheIRAandtheEU’sGreenIndustrialPlanplusunilateraltrademeasuresdrivenbyclimatechangeconsiderationssuchastheCarbonBorderAdjustmentMechanism(CBAM)raisekeyquestionsaboutthechangingnatureofcompetition,thepaceoftechnologicaldiffusionandcollaboration,andtheimpactthiswouldhaveoncountriesthathavetherenewablesandmineralresourcesbutdon’thavethecapabilitytojointhetechnologicalracethroughofferingsubsidiesandincentivesfortheirindustries.Theelectioncalendarmeansthattheseissueswillcometotheforein2024,weaponizedbypartypolitics.Geopoliticalcompetitionbetweenmajorglobaleconomiesplaysintothis.China’ssuccessatdominatingtheglobalsolarandkeybatterymineralssupplychainsthroughincreasinglysophisticatedindustrialpolicypredatestheIRA(seeFigure2),whichitselfwasalsoameansofboostingtheUSindustrialsectorpost-COVID.Butthecompetitionbetweennationstatestocontrolkeyelementsofthelowcarbonsupplychainandestablishleadershipinthenewenergieshasthepotentialtoactuallyslowglobalprogressandbecomeadragonthetransitionitselfespeciallyifissuessuchasfacilitatingtechnologytransfer,increasingtheavailabilityandreducingthecostoffinancetotheGlobalSouth,andmanagingtraderelationsarenotaddressed.Theriskthattransitiontechnologiesaresiloedandinternationalcooperationonnewenergytechnologyinamoregeopoliticallyfragmentedworlddeclines,arealreadybecomingreal.COP-28crystalizedinherenttensionsinamulti-speedenergytransitionConcernsaboutprotectionismor‘unilateraltrademeasures’fromdevelopingnationsasanegativeimpactonsustainabledevelopmentanda‘just(energy)transition’weremadebyBrazilatCOPonbehalfoftheBASICgroupofcountries(Brazil,China,IndiaandSouthAfrica).Thegrouparguedthatsomeofthegreenmeasures–suchascarbonbordertaxes–wereincompatiblewithWTOrules.‘Partiesshouldalsocollectivelyopposeanymeasurestorestricttradeandinvestmentandsettingupnewgreentradebarriers,suchasunilateralcarbonbordertaxes,withthepretextofaddressingclimatechange,whichareincompatiblewithmultilateralrulesundertheWorldTradeOrganizationandtheParisAgreement’sprincipleofequityandcommonbutdifferentiatedresponsibilitiesandrespectivecapabilities(CBDR-RC),inthelightofdifferentnationalcircumstances,’itsaidinDubai.5Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.COP’sabilitytoseteventhebroadestdirectionforpolicywillcontinuetobeovershadowedbytheindustrialandtradepoliciesofindividualnationsorgroupsofnations(inthecaseoftheEUortheG7),whicharenowsettingthepathwayfordecarbonizationfasterthanoverarchingmultilateralcommitments.Inotherwords,theargumentforactionnowandthecreationof‘climateclubs’withmoreambitiousclimatetargets(inDecember2022theG7launchedtheG7climateclub)isovertakingtheneedforcoordinationandcollectiveeffortamidsttheinsistenceofcountriesparticularlyintheGlobalSouththatglobaleffortstoreachclimatetargetsshouldbebasedonprinciplessuchasjustenergytransition,differentiatedresponsibilities,andtakingintoaccountcountries’‘differentnationalcircumstances,pathwaysandapproaches.’Figure2:BatterysupplychainconcentrationinChina–2023Source:BenchmarkMineralIntelligenceLtdBassamFattouh(bassam.fattouh@oxfordenergy.org)BillFarren-Price(bill.farren-price@oxfordenergy.org)6Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.4.Geopoliticswilltestenergymarketresiliencein2024Thecombinationofabusyelectioncalendar,awideningconflictintheMiddleEast,andRussia’songoingwarinUkrainemeansthattheintersectionofgeopoliticswithenergymarketsandinfrastructurewillbeatamulti-yearhighin2024.Thegeopoliticalhorizoniscertainlygettingdarker,withhotconflicts(Ukraine,MiddleEast)layeringextrauncertaintyontheexistingfrozenconflicts(NorthKorea,US-China)andnewones,suchasVenezuela-Guyanaemerging.Despitethegeopoliticalnoise,akeytakeawayfrom2023hasbeenthatenergymarketswerebroadlyresilient,withtradeflowsadaptingtoconflict,sanctions,andotherthreats.Oilpricespikeshavebeenshortlivedandnaturalgaspricescontinuetofalltowardshistoricaveragesafterthepriceshockseeninmid-2022.UnderstandingthedifferencebetweenheadlineriskandthelesswellunderstoodpoliticaldevelopmentsinEuropeandtheMiddleEastiscrucial.IntermsoftheUkrainewar,RussiangasexportstoEuropearenowlimitedtosometransitflowsthroughUkraineandviaTurkey.Onbalance,theUkrainetransitvolumesareunlikelytoberenewedwhenthecurrentcontractexpiresinDecember2024,whichwillforcecentraleasternEuropeanconsumersofthosevolumestorelyonLNGlandedatMediterraneanterminalsorEuropeangassuppliedfromfurtherwest.ButthemajorlossofRussiansupplyin2022hasbeenfullyabsorbedbythemarket.Ontheoilside,theEuropeanbanonRussiancrudeandproductshasforcedRussiansellerstoredirectflows,mostlytoAsia.Butthishasbeenachieved,albeitwitharevenuecosttoMoscow,withlittlenetlosstoglobalbalances.ApoliticalresolutioninUkrainelooksunlikelyin2024,especiallywithWesternsupportforKyivincreasinglyuncertain.Whatseemsmorelikelyisthattheconflictdragson,possiblyatalowerintensity,andRussiangasisunlikelytoplayabiggerroleinEuropeintheforeseeablefuture.IntheMiddleEast,themilitaryconflictinGazahadalimitedandtemporaryimpactonIsraeligasproductionandexportlevels.ButthespreadoftheconflicttoIsrael’snorthernneighboursandattacksbyYemen’sIran-backedHouthisonRedSeashippingisincreasinglyasupplyriskforoilandLNGtankersusingtheSuezroutetoaccesstheMediterraneanandAtlanticBasinmarkets.Evenherethough,thephysicaltradehasdemonstratedresilience,withshipownersandcharterersdivertingcargoesviatheCape,optimizingalternativesupplyalreadyavailableintheAtlanticbasinandmajoreconomiesestablishinganinternationalnavalforcetoprotectshippingintheRedSea.TheconcentrationofmajoroilandgasproducersintheGulfisaperennialrisk,butthisriskhasbarelyjoltedoilmarketsinrecentyears.Asenergymarketshavebecomesanguineaboutsupplyrisks,theyhavefocusedmoreontwoothercriticalmarketdrivers:GDPandclimatepolicy.Electionsin2024willbesignificanttoboth–althoughactualpolicychangefromthosevoteswillbefeltmorein2025andbeyond.SinceG7centralbanksareexpectedtostarttoloosenmonetarypolicyin2024,economiesthatareflirtingwithrecessionshouldbeabletoturnthecornerbacktogrowth,evenifthatisrelativelytepidin2024.Whetherthiswilltranslateintotrendgrowthforoilandgaslong-termdependsuponthespeedoftransition.Westillseeglobaloildemandgrowthof1.4mb/din2024,closetothepre-COVIDtrendforthepastdecade.Decarbonizationpolicywillalsobeelevatedasatopelectionissueinmanycountries.Alooseningofclimatetargetscanbeexpectedonthepopulistright,althoughevencentristandleftpartieswilllikelyalsohavetoslimdowntheirclimatecommitmentsgiventhefiscalanddebtchallengesthathavebecomeubiquitousacrossmajoreconomies.Thisinturncouldkeeptheshareofoilandgasintheenergymixdominantforlongerasthebuild-outofrenewableenergyandlowcarbonalternativestakeslongerthangovernmenttargetsallow.Energypolicywillalsoloomlargein2024.IntheEU,acceleratedplanstodecarbonizetheenergysectorwillcollidewiththeharshlimitsofprivateinvestment,incoherentfiscalsubsidiesand,principally,alackofinfrastructure,particularlyforhandlingCO2anddecarbonizedgases.IntheUK,decarbonizationisamixedbag;whiletheUKisagloballeaderinoffshorewind,theelectrificationofthevehiclefleethasbeenheldupbyinsufficientcharginginfrastructure,whiletheincreaseddemandonpowergridswillalsostarttoweighoncapacity.InChina,structuraleconomicweaknessesarounddebtlevelshaveyettotaketheshineoffadominanceinrenewablepowerandEVsupplychainsbuttheriskisrising.Finally,manydevelopingcountriesfindthemselvesshortofinvestment,technology,andmanufacturingforthenewenergyeconomy–atoxicrecipethatwillcontinuetoholdthemback.7Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.Insummary,establishedenergymarketshavebeenresilientinthefaceofanarrayofrisksincludingCOVIDandEuropeanconflictsofarthisdecade.Marketshaveresolvedoilandgassupply-demandimbalancesandtheargumentfordomestically-generatedrenewableenergyversusimportedfossilfuelshasgatheredmomentum.But2024couldtestthatresilience.Electionswillmeanpublicscrutinyofenergypolicylikeneverbeforeandagloomygeopoliticalhorizonshowsthateventhoughmarketshavebeengoodatlookingthroughthreats,theenergyeconomyrequiressomestabilityforsuccessfultradeandinvestment.Longerroutesavoidinghotspotswillincreasethecostofdoingbusiness,anothersuckerpunchforaglobaleconomythathasyettofinditsfeetpost-COVID.BillFarren-Price(bill.farren-price@oxfordenergy.org)8Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.5.Chinain2024:OvercapacityloomslargeChinaremainstheworld’slargestconsumer/importeroffossilfuelsandmorerecentlyhasrisentothetopranksinmanufacturingandexportingnewenergycomponentsandgoods(solarpanels,electricvehicles,windturbines).Butitisdoingsointhecontextofanuncertaineconomicoutlook-whereBeijingneedstosupportdomesticgrowthwhilealsolimitingemissions-andastrainedinternationalenvironment.ForBeijing,thismeansafocusonself-sufficiencyinenergyandtechnologybutgiventhemacroeconomicwobbles,furtherexpandingdomesticproductionportendsanoversupplyoffuelsandproducts.This,inturn,suggestscheaperexportsthatcouldfuelprotectionistpoliciesinimportingcountries,exacerbatedbythe2024electionpoliticsthatwilldominatetheyear.AndforBeijing,thatwillonlyreinforcetheneedanddesiretobenumberone.AcomplicateddomesticsituationTheChineseeconomy,whileforecasttogrowby4.5-5percentin2024,continuestobeplaguedbyaweakrealestatesectorand,ifthedomesticstockmarketsell-offinearlyJanuaryisanyindication,weakconsumerconfidence.Whilethegovernmentwillcontinuetointroducepolicysupporttoensureeconomicexpansion,itwillbecautiousaboutlargestimulusprogrammesthatcouldundermineeffortstode-riskthepropertyandfinancialsectors.In2023,investmentsinnewenergymanufacturingandelectricalmachineryhelpedoffsetsomeoftheweaknessintherealestatemarket,buttheyremainenergy-andcommodity-intensivegrowthdrivers.Atthesametime,2024isthemid-pointofChina’s14thFive-YearPlan.China’sowninterimassessmentindicatesthecountryisfallingshortonkeytargetsonenergyconsumptionperunitofGDP,CO2emissionsperunitofGDP,andgoodairqualitydays.China’sdecision-makerswillthereforeneedtosupportgrowthwhilelimitingenergyintensity.In2023,GDPgrowthofaround5percententailedanestimated12percenty/yincreaseinoiluse,an8percentriseingasconsumptionanda5percentriseincoaldemand1.For2024,evenasoil,gasandcoaldemandgrowthweakenfrom2023levels,theywillremainrobust.AchallenginginternationalenvironmentSecuringaccesstofuels,ores,andexportmarketswillremaincritical.Butthedomesticeconomicchallengesarecompoundedbyelectionsaroundtheworld:Taiwanwenttothepollson13January,electionsinIndonesiaandIndiaareforthcoming,followedbyEUparliamentaryelectionsthissummerandculminatingintheUSpresidentialraceinNovember.Theelectioncalendarwill,attheveryleast,drivedebatearoundChina’sroleasapartner,client,orinvestorinthesejurisdictions,butitcouldalsoresultinpolicychangesinsomeofitsmostsignificanttradepartners.ChinaisalreadythebiggestsellerofEVstoIndia.Envision,China’ssecondlargestwindturbineOEM,hasrecentlybecomeIndia’stopturbinesupplier,displacingincumbentssuchasSiemensGamesa.ButifcautiousattitudestowardChinatougheninIndia,de-riskingpoliciescouldbecomeevenmoreprominentandcomplicateopportunitiesforChineseinvestors.Similarly,inIndonesia,whereChineseinvestorsaccountfor60-70percentofnickelmining,anewadministrationcouldintroduceadditionalpoliciesaimedatretainingmorevalue-addedinIndonesiaortargetingChina’sfootprintinthecountryinotherways.TheEUandtheUSarealreadyimplementingvarioustradebansandrestrictionsonChinesegoodsandinvestments,butmorecouldbeforthcoming.BeingnumberonehasadvantagesanddisadvantagesForenergypolicies,thesetrendsreinforcethecountry’sneedforsecurityandresilience.Thehostileexternalenvironment,alongwiththeneedtoensureadequatesuppliesofallformsofenergyduringtimesofpeakdemand,pointtoagreaterurgencytobeself-sufficientinenergyaswellastechnology.Foroil,gas,coal,andincreasinglyforcriticalmaterials,Beijingisemphasizingdomesticproductionandstockpiles.Chinaisalreadytheworld’slargestimporterofoilandcoalandin2023itsurpassedJapanastheworld’slargestLNGbuyer,apositionitwillconsolidatein2024.Chinaremainsexposedtoglobalmarkets.Inadditiontobuildingstocks,Chinesetraderswillalsolooktooptimisethosestocksandre-sellexcessvolumes,astheyhavebeendoinginLNGmarkets.Butinthemediumterm,newtechnologiesandelectrificationarekey.Chinaalreadyleadstheworldindeploymentofrenewable1Theseareallestimatesasfinaldatahasyettobepublished.9Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.energy.Itwillnextseektocementitspositionastheworld’stopmanufacturerandproducerofcomponentsandequipment,andstrivetowardtechnologicalself-sufficiency.In2023,Chinaisestimatedtohaveaddedmorethan250GWofwindandsolarcapacity.Itisalsoplanningtoaddover200GWthisyear.OvercapacityloomslargeAsChinacontinuestoexpandthescaleofitsproduction,notonlyisitsettotopthecharts,itisalsolikelytodosoatlowercostsbecauseofovercapacity.WhileChinaremainstheworld’slargestoilimporter,itsrefiningcapacityisontracktosurpasstheUSanditisnowfocusingonchemicalsratherthanrefinedproducts.Withaslowingeconomy,productionofbasechemicalsinChinaislargelyoutstrippingdemand,leadingtohigheroutflows.Atthesametime,China’straditionalimpulsetogenerategrowththroughindustrialactivity-whichincreasinglyreliesonnewenergycomponentsandequipment-meansitsinstalledcapacityforwindturbines,solarpanels,batteries,andelectricvehicleslargelyoutstripsitsdemand.Andasprovincesandindustryleaderscompeteformarketshare,theyexacerbatetheexistingovercapacityanddrivedowncosts.Thisinevitablyleadstoboom-bustcycles,forcingsmallercompaniesoutofbusiness.Butthesurvivorscontinuetoexport.Thisalsohasknock-oneffectsonminerals.SlowingdomesticEVsalesgrowthinChinahasledtoashort-termcrashinlithiumandbatterymineralpricesglobally,asChineseandotherminingcompaniesexpandedupstreamproductiontoorapidly.Lithiumprices,forinstance,fellbyanestimated80percentin2023.Polysiliconpriceshavealsofallenbyabout65percentsinceJanuary2023.Thesepricedropslimitinvestmentsinnewmining,mainlybynon-Chinesecompanies,therebyeffectivelyreinforcingChina’scentralitytothesupplychain.In2024,especiallyiftheeconomycontinuestoslow,Chinawillexportmoreproducts,furtherfuellingprotectionistinstinctsatatimeofelectoralcontention.Andasthreatsofprotectionismrise,Beijing’sinstinctwillbetofocusmoreferventlyonself-sufficiencyandsupply-chaindominance.MichalMeidan(michal.meidan@oxfordenergy.org)10Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.6.EuropeanGasMarketFlexibilityWaningin2024TheEuropean(EU-27plusUK)gasmarkethastraditionallybenefittedfromflexibilityofsupplyanddemandtobalancethemarket.Butmarket-balancingflexibilityisonthewanein2024,implyinghigherpricevolatility.ThelossofRussianpipelinesupplyandtheneedtomaintainstart-of-winterstockshaserodedsomeofthesupply-sideflexibility,justasthelossofcoal/gasswitchingandtherisingshareofintermittentrenewablesinelectricitygenerationhaserodedsomedemand-sideflexibility.Giventhatlackofsupply-demandflexibilityisasignificantcontributortobothhigherpricesandgreaterpricevolatility,thekeyquestionremains:wherecanEuropefindtheflexibilitytobalancethemarketin2024?SupplyFlexibilityFlexibilityinEuropeangassupplyshouldbeseeninthebroadercontextofEurope’sgrowinggasimportdependencyoverthepastseveraldecades.TheshareofimportsinEuropeangasconsumptiongrewfrom40percentin1992tojustunder50percentin2002,climbedto64percentin2012,andreached80percentin2022.WithEurope’sgasproductionnowoperatingatclosetomaximumcapacityalmostyear-round,theonlysubstantialflexibilityinsupplyisderivedfromimportsandstorageinjections/withdrawals.Yetevenfromthosetwosources,flexibilityisbeinglost.Priorto2022,pipelinesupplyfromRussiaincludedboththeflexibilityofofftakenominationsembeddedinlong-termsupplycontractsandGazpromactingasasignificantsuppliertotheEuropeanspotmarketoutsidethosecontracts.WithGazpromhavingwithdrawnfromtheEuropeanspotmarket,andmanyofitslong-termcontractssuspended,2thatflexibilityhasbeenlost.SupplyfromRussiaisnowconstrainedtovolumesavailableunderlong-termcontracts,withinacorridoroflimitedupsideanddownside.Thesupply-sideflexibilityofferedbyotherpipelinesupplierstoEurope(Norway,Algeria,Libya,andAzerbaijan)islimited.PipelinesupplyfromLibya,Algeria,andAzerbaijanisprovidedlargelyatthelimitsofproductivecapacityrelativetodomesticdemand(LibyaandAlgeria)orpipelinecapacity(Azerbaijan).Insummer2022,pipelinesupplyfromNorwayexceededtheusualsummervolumes,butinsummer2023thatNorwegiansupplywasheavilyimpactedbydelayedmaintenanceandunplannedoutages.Summer2024maysee‘normalservice’beingresumed.Inparallel,flexibilityaroundEuropeanstorageutilisationrateshasalsobeenlost.SinceApril2016,EUgasstoragecapacityhasstoodataround106Bcm,upfrom58Bcmin2011.Priorto2022,stocksheldatthebeginningandendofwintervariedsubstantiallyyear-on-year,withlowersummerrefillsandstart-of-winterstocksintimesoftightmarketsandhigherutilisationratesabsorbingoversupply,asin2019-2020.Theneedtoaccommodateboththelarge-scalelossofRussianpipelinesupplyandthedynamicsoftheglobalLNGmarket(wheresupplycanberedirectedtonon-Europeanmarkets,asinQ12021)makeitimperativethatEuropebeginseachwinterwithstorageasfullaspossible.Thiswillparticularlybethecasein2024,withtheRussia-Ukrainegastransitcontractsettoexpireon31December.Iffullstocksby1November2024aretobeachieved,summerstockreplenishmentmusttakeplacetoitsfullestextent,regardlessofsummermarkettightness.Supply-sideflexibilityinEuropethereforeliesinLNGsupplyandtheabilitytoutiliselargewinterstoragestocks,butwiththecaveatthatstockutilisationisdependentonEurope’sabilitytoreplenishthosestocksinthesummer.Thatreplenishment,inturn,dependsonLNGasthemarginalsourceofsupply.EuropeanLNGimportsreachedrecordvolumesin2022andremainedatasimilarlevelin2023.Theprospectsforayear-on-yearincreaseinEuropeanLNGimportsin2024remainsuncertain,asanalysedbyMikeFulwoodlaterinthisKeyThemesdocument(LNG-Howmuchmorein2024andwherewillitgo?)2DuetotherefusalofsomeEuropeancounterpartiestoacceptthedemandtopayinrublesand/ortheeffectiveclosureonpipelinestonorth-westernEurope(NordStreamandYamal-Europe)11Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.DemandFlexibilityTheothersourceofflexibilityisonthedemandside.Gasconsumptiondeclinedby13percentin2022and8percentin2023drivenbyamixoffactorsimpactingtheresidentialandcommercialsector,theindustrialsectorand,lastyear,thepowersector.However,shouldtheEuropeangasbalancetightenagainoverthecomingmonths,itislessthancertainthatademand-sideresponsewouldreplicatesuchflexibility.ThemostpressingissueishowmuchgasEuropewillusethiswinter,forwhichthelargestvariableremainsspaceheatingintheresidentialandcommercialsector.Coldertemperaturesinvariablymeanhighergasdemandwithlimited(short-term)flexibility.Thatsaid,energy-savingmeasureslastwintersavedasmuchas10Bcm,butthisunprecedenteddemand-responsewasfacilitatedbyacombinationoffactors(mildtemperatures,continuedrecord-highgasprices,andgovernmentconservationcampaigns)thatareunlikelytobereplicatedtothesameextentin2024-atleastnotintimeforgasstoragereplenishment.Thisislikelytoinduceareboundingasuseforheatingthatweestimateat2.5-3BcminJanuary-March2024(andpotentiallyupto10-15Bcminamuchcolderwinterthanlastyear).Anotherunknownistheamountofgasuseintheindustrialsectorandbysmallbusinesses,sectorsthathavebeenshowingsignsofrecoverysinceQ32023.Theextenttowhichgasdemandcouldbeaffectedby(potentially)highergaspricesin2024isnotstraightforwardanddependsoncontractualarrangements,hedging,andaccesstoalternativesupply.InvestmentsinnewLPGsystemsarelikelytohaveincreasedflexibilityandpriceresponsivenessbuttheextentofthisphenomenonremainsunclearandlinkedtoLPG/gasprices.Thepowersectorhastraditionallybeenthemainsourceofshort-termgasdemandflexibilityinEuropewiththeabilitytoswitchbetweencoalandgas.Withtheriseofrenewables(andcoalonthewayout),theuseofgasplantsismoreandmoredeterminedbytheavailabilityofwind(dayswithlowwindavailabilityinvariablyprovokeashort-termspikeingasdemand).Inotherwords,gasuseforpowergenerationisnolongeraneasysourceofflexibilityforthegasmarketandin2024,itwillbedeterminedby(rising)electricitydemand,thepaceandextentoftheFrenchnuclearrecovery,andfinally,theavailablyofrenewables.Toconclude,thefundamentalssuggestanoverallweakerflexibility(scaleandtiming)ofgasdemandin2024thanexperiencedoverthepastcoupleofyears,withthemaindriversnotdeterminedbyfactorsexogenoustothegasmarket(temperatures,wind,rainfalls,LPG,etc.),andtherefore,largelybeyondthecontrolofthegasindustry.Thelimitsofsupply-demandflexibilityin2024In2024,thekeymetricwillbetheend-of-winterstockson31March,andbyextension,thevolumeofreplenishmentrequiredinsummer.InQ2-32022,Europeannetstorageinjectionstotalled64Bcm,fallingto43BcminQ2-32023.Inthiscontext,end-of-winterstocksofaround50Bcmwouldappeartobeareasonablebenchmark,althoughthiswouldimplyanincreaseinsummerinjectionsin2024of10Bcmmorethanthosemadein2023.Higherstocksatthestartofsummerwillmakeiteasiertoreachstoragetargetsbythestartofwinter.Stockssubstantiallylowerthanthiswouldseemtoimplyatightsummer2024.IftheEuropeansummerstoragereplenishmentrequirementis(forexample)10Bcmhigheryear-on-year,thiscouldbemetbyNorwegianpipelinesupplyreboundingto2022levels.InviewofthelimitsofupsideflexibilitybothfromotherpipelinesuppliersandEurope’sowngasproduction,anyyear-on-yearincreaseinsummer2024gasconsumptioncanonlybemetbyadditionalLNGimports.GiventheanalysisoftheglobalLNGmarketin2024,thiswouldimplyhigherpricestoattractcargoesinaglobalmarketthatremainstight.GiventheselimitstosupplyanddemandflexibilityinEurope,storagestocksattheendofwinter2023/24willprovideforwardvisibilityforthemarketinsummer2024,whileprogresstowardsfullstocksby1November2024willprovideaforwardviewforwinter2024/25.12Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.Figure3:EU-27GasStorage(Bcm)11010008-Jan2024,89.0Bcm90807060504030201002017/182018/192019/202020/212021/222022/232023/24Source:GasInfrastructureEurope(GIE)aggregatedGasStorageInventory(AGSI+).https://agsi.gie.eu/data-overview/euJackSharples(jack.sharples@oxfordenergy.org)AnoukHonore(anouk.honore@oxfordenergy.org)13Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.7.LNG-Howmuchmorein2024andwherewillitgo?ThelastfiveyearshasbeenarollercoasterridefortheLNGindustry.Asdescribedintheinformationboxbelow,therollercoasterhasseenthemarketbalancingintimesofsurplusbyEuropeabsorbingtheLNGinstorageand/ortheUSturningdownflexibleLNG.Intimesofatighteningmarket,Europehasreleasedgasfromstorageand/orothermarkets,especiallyinAsia,havereduceddemandforvariousreasonswithultimatelysomecountriesbeingpricedoutofthemarket.TheLNGrollercoastercouldbesettocontinueonyetanotherwhite-knuckleridein2024.TheprospectsareforLNGexportcapacitytorisebyjustunder20bcm.Thisgrowthincapacityin2024comeswithafullyearofFreeportandnewprojectsinTangguhT3(Indonesia),Arctic2T1(Russia)andGreaterTortue(Senegal/Mauritania)laterintheyear,plussmallerprojectsinMexicoandCongo.ArecoveryinfeedgassupplyinNigeriaandTrinidadandTobagowillalsosupportgrowth.Onthedownside,AustraliamaylosesomecapacityasDarwinclosesandNorthwestShelfpreparestocloseatrain.Thejustunder20bcmriseremainsuncertain,however,aswehaveseenbefore,becauseofunexpectedtechnicalissues,feedgasproblems,andunscheduledmaintenance,plusexportcapacitycanbeimpacted.Arctic2T1isnowalsothesubjectofforcemajeure(FM)beingcalledbytheprojectparticipants,asaresultofthesanctionsimposedbytheUS.However,theFMseemsmorelikelytoreduceutilisationofTrain1,ratherthanstoppingtheprojectcompletely.Ifthefullincreaseincapacityisdelivered,wheremighttheextrasupplygo?Chinawasthelargestdriverofgrowthin2023and,atleastintheearlypartof2024,thismaycontinue,butyear-on-yeargrowthislikelytoslowastheyearprogresses,giventhehighbaselevelsachievedinthesecondhalfof2023.SoutheastAsiangrowthissettocontinue,especiallywithVietnamandPhilippinesjoiningtheLNGimportersclub.Providingpricesremainsubdued,thepick-upinIndia,Pakistan,andBangladeshisalsosettocontinue.ItseemsplausiblethatthesethreeareasofAsiacouldabsorballofthe20bcmforecastgrowth.Japan,SouthKorea,andTaiwancouldfallfurtherifJapan’sphasednuclearrestartcontinues,butKoreaandTaiwanshouldbestable.Growthinotherareasoftheworld,outsideEurope,maybelimitedtoCentralandSouthAmerica,withthesmallerCaribbeanandCentralAmericanimportersshowingsomegrowth.However,thebiggestswingsinLNGimportsareoftenseeninBrazil,withLNGimportsbalancingvolatilehydropowercapacity.AnElNino-induceddroughtcouldleadtoasurgeinLNGimportsintoBrazilasseenin2021.IntheabsenceofanysurgeinBrazil,LNGimportsintoEuropein2024couldremaincloseto2023levels,whichshouldenableEuropetorefillitsstorageoverthesummermonthsifexcessiveamountsarenotwithdrawnthiswinter,asdiscussedinourarticleonEuropeangasmarketflexibilityin2024.Overall,theprospectofanearly20bcmincreaseinLNGsupplyin2024maybejustenoughtomeetanticipateddemandgrowthforLNGimports.However,ifthereareoneormoreunexpectedevents–supplycurtailmentsand/orsurgesindemand–howwillthemarketbalance?Asnotedabove,EuropeanstorageandflexibleUSLNGhavedonetheheavyliftinginthepast,helpedlatterlybyweakerdemandinChinaandJapan.However,weaknessinLNGdemandinanyareaoftheworldseemslesslikelythisyear.Inanycase,thereisnospareLNGexportcapacitywaitingtobeutilisedin2024.Asever,theEuropeanwinterwillbeakeydriverin2024.WhileEUstoragelevelsweresome5bcmabovethe1Octobertargetin2023at95bcm,temperaturesfortheremainingmonthsofthewinterwilldeterminehowmuchofthatstoragebufferremainsandneedstoberefilledinthesummermonths.AmildwinterwouldallowforsomeflexibilityinEuropeanLNGdemand.If,asdiscussedinthekeythemeonEuropeangasmarketflexibilityin2024,gasinstorageinEuropeattheendofMarchissome50bcm,thentheneedtofillupsome45bcmbyOctober1shouldnotrequireanymoreLNGimports,(andevenpossiblyfewer)thanin2023.AsalsonotedinthekeythemeonEuropeangasmarketflexibility,ontheflipside,colderweatherinEuropeand,especially,inNortheastAsiacouldleadtosignificantlyhigherwithdrawalsfromEuropeanstorage.InwhichcasetheneedtorefillstoragewillcompetewiththerisingdemandinAsia.Insuchascenario,supplywouldberationedbyrisingprices,leadingtogasbeingpricedoutofsomemarketsinAsia,especiallyIndia,Pakistan,andBangladesh,andalsointhepowerandindustrysectorsinEurope.14Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.THELNGROLLERCOASTERRIDE–2019to2023Upto2018–maybethelastnormalyear–LNGimportsweregrowingsteadilymostlyinAsia,withsomegrowthintheMiddleEastandEgypt,whileEuropeofferedastablebaseloadlevelofdemand.SupplywasgrowingintheUSandAustralia,plusPNGandlatterlyRussiathroughtheYamalproject.ThemarkethasbalancedintimesofsurplusbyEuropeabsorbingsurplusLNGintostorageand/ortheUSturningdownflexibleLNGexports.Ontheflipside,marketdeficitshavepromptedEuropetoreleasegasfromstorage,whileothermarketssuchasAsiahavereduceddemandandultimatelysomecountrieshavebeenpricedoutofthemarket.2019wasthefirstyearofsignsofupheavalinthemarket.AvailableLNGexportcapacitygrewbyalmost80bcmledbytheUS,Australia,andRussia(asYamalrampedup).RisingdemandinAsiasoakedupsomeoftherisingsupplybutEuropebalancedthemarketbyabsorbingpartofthesurplusinstorage,aspricesfell,andsomecapacityremainedunutilised.In2020COVIDhitandglobalgasdemanddeclinedsharply.LNGimportsfellslightlyinthecontextofacontinuingriseinLNGexportcapacityofanother20bcm–allfromtheUS.Thiscombinationledtoafurtherdeclineinpricesandtheshutting-inofUSLNGexports,whichbalancedthemarket.2021wasnotjustthefirstCOVIDrecoveryyearbutalsosawacoldnorthernhemispherewinter,andLNGimportsreboundedsharplyinAsia,especiallyChina,andalsoinBrazilashydropowerwashitbyadrought.However,availableLNGexportcapacityactuallydeclinedasabacklogofmaintenanceandtechnicalissueshitcapacity.TheUSmanagedtoincreasesupplyyear-on-year,utilisingthesparecapacityfrom2020andEuropedrewdownitsstorageasLNGwasdivertedtoAsia.In2022,theRussianinvasionofUkrainewasthemainmarketdriver.TherapiddeclineinRussia’spipeflowstoEuropesawpricessoar.EuropemetthefallinRussianflowsbysharplyreducingdemandandincreasingLNGimports,inpartfromareturntogrowthinLNGexportcapacity–some20bcm–butalsobydivertingflowsawayfromAsia,especiallyChina,wheredemandforLNGplummetedonthebackofCovid-inducedlockdowns,andBrazilwhereimprovedrainfallboostedhydro.2023wasacomparativelycalmyearcomparedtothepreviousfour.LNGexportcapacityrosebutonlybysome13bcmorso,largelyintheUSasFreeportreturnedandotherprojectsrampedup.Extendedmaintenanceatsometerminals,feedgasrestrictionsanddelaystothestart-upofnewprojectsmeantthatcapacitygrowthundershotexpectations.EuropeLNGimportvolumeswerelargelyflatyear-on-year.Chinavolumesreboundedstronglyafteraweak2022,SoutheastAsiangrowthcontinuedandIndia,PakistanandBangladeshrecovered.ThemarketbalancedasdemandinJapanandKoreadroppedbysome13bcm.MikeFulwood(mike.fulwood@oxfordenergy.org)15Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.8.GeopoliticsandoildemanduncertaintycomplicatetheOPEC+balancingactin2024Thereispreciouslittleconsensusontheoutlookforoildemandin2024amidanever-morecomplicatedarrayofmacroandemergingstructuraltransitiondrivers.Afterrobustnon-OPECsupplyin2023,thiswillcomplicatetheOPEC+marketbalancingmissionintheyearahead.DespiteaworseninggeopoliticalpictureinEuropeandtheMiddleEast,oilmarketsseemincreasinglyreadytolookthroughshort-termsupplyrisks.Butthe2024electioncalendariscrowdedwhichcouldalsosetnewpolicydirectionslaterintheyearandinto2025,sopoliticsremainsasignificantwildcard.Notwithstandingamid-yearforayabove$90/bbl,thepastyearsawoilpriceslargelyrangeboundbetween$75-85/bblandtheglobaloilmarketclosetobalance,despiteaplethoraofmovingpartsonbothsidesoftheledger.Fordemand,2023wastheyearthatoilfinallyalmostrecoveredthegroundlostduringCOVID(jetfueldemandisstill13percentbelowitspre-Covidlevel),cominginatarobust2.1mb/dofgrowth.China’seasingofCOVIDrestrictionshelpedthisandthecountry’soildemandhitanall-timehighof16.2mb/d.Onthesupplyside,Russiacompletedthere-routingofcrudeandproductexportstoAsiaandotherdestinations,whichmeantthatsanctionsandtheG7pricecaphadonlylimitedimpactsonRussiansupply,althoughtradeoptimizationhascomeatthecostoflongerroutesandhighercosts.Limitedsupplydisruptionscombinedwitharobustnon-OPECcrudesupplygrowthof1.5m/din2023,aswellasamorepro-activeapproachbyOPECtomarketmanagement,contributedtotheOPEC+decisiontodeepenitsvoluntaryproductioncutsby2.7mb/dcomparedtothestartoftheyear.Lookingaheadto2024,thefollowingthreethemeswillshapemarketbalancesin2024.Theme1:OildemanduncertaintyThelackofconsensusonglobaloildemandexpectationsfor2024iselevatedforasecondconsecutiveyear(seeFigure4).Driversofthisuncertaintyaremacrothemesandthedivergentviewsaboutthepaceofthetransition.Onthemonetaryfront,centralbankshavesignalledapathwayforratecutsin2024astheinflationchallengeeases.ThetimingofthestartofthecuttingcyclewilldrivemarketsandreframeGDPforecastslaterthisyear.Butitisthepaceofthetransitionawayfromoilintransportationandothersectorsaswellasefficiencygainsthatoffersthegreatestvectorofuncertaintyinthemediumterm.Forexample,theIEAexpectsglobalgasolinedemandgrowthtoflattenin2024,andhascutitsOECDgasolineforecastby340kb/dwiththemajortransportationfuelsgasoline,jetfuel,anddiesel/gasoilcontractingby200kb/d,30kb/d,and170kb/drespectively.3Conversely,OPECexpectstransportationfuelstodriveglobaldemandgrowthin2024,forecastingoildemandgrowthof2.25mb/dversustheIEA’sforecastof1mb/d.4WithCOVIDimpactsalmostintherearmirror,itshouldbeeasiertogaugetheimpactsofenergytransitiononfueldemand.Theme2:TheOPEC+balancingactTheOPEC+marketbalancingmissioniscomplex.Thegroupagreedtoanoutputplanfor2024whichsees3.7mb/dofcutswhichhavebeenprogressivelycarriedoversinceNovember2022beingextendedtotheendof2024.Italsocommittedtoanadditional1.5mb/dvoluntaryadjustments,withSaudiArabiadoingtheheavyliftingontheseextracutsthatwilllastatleastthrough1Q24.Thisblendofcutswillamounttoatotalof5.1mb/din1Q24,whichforreferenceismorethan50percentofthehistoric9.7mb/dcutenactedin2020inresponsetoCOVID(nearlyallofthosecutswerereversedinthesummerof2022-seeFigure5).Theprospectforunwindingcurrentcutswilldependuponthetrajectoryofactualdemandandwhethernon-OPECsupplycansustainthelevelofgainsseenin2023,whichwethinkisunlikely.Weexpectgrowthinnon-OPECcrudesupplytoeaseto940kb/din2024.3IEA,OilMarketReport,December2023.4OPEC,MonthlyOilMarketReport,December2023.16Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.Theme3:GeopoliticsandelectionsThetwoongoingwarsinEuropeandtheMiddleEastthreatenoilsupplyindifferentways,althoughforUkrainetheimpactsofsanctionsandthepricecaphavebeenmostlysidesteppedbyMoscow.AbroadeningoftheGazaconflictthatinvolvesimpactsonseaborneoilandproductsintheRedSeaisnowdominatingthesupplypicture.Althoughthepotentialfordisruptionelsewhereintheregionshouldnotbediscounted,themarketseemstobeattachinglittleweighttotheserisksfornow.NovemberUSelectionswillalsoplayakeyroleinoilmarkets.Despitesanctionsonseveralmajoroilproducers,theWhiteHousewillwanttoavoidanyriskofrisinggasolinepricesinanelectionyear.InturnthisimpliesthatsanctionsbreacheswillbeoverlookedandthattheSPRcouldonceagainbedeployedtoaddressanyshort-termsupplydisruptionsandlimitupsidepriceimpacts.Iran’soilexportswilllikelyremainelevatedin2024,butareclosetotheirtechnicallimit.USeffortstoallowhigherVenezuelanoilexportsmeanwhilewillhavealimitedimpactduetochronicunderinvestmentandmismanagementinthecountry’soilindustry.TheUShasalsothrownitsweightbehindGuyana,anewsourceofsupplygrowth,initsterritorialdisputewithVenezuela.ProspectsforUSoilproductionarealsoamajormovingpartoftheglobalsupplysideandapotentialpoliticalleverintheUSelections.USproductionsurprisedontheupsidein2023reflectingproductivitygains,improvedprojectexecution,thelargedrawdownindrilledbutuncompletedwells(DUCs)andrisingwellcompletions.AbiguncertaintyiswhethertheefficiencygainsinUSshalewillcontinueinto2024tooffsetthedeclineintherigcount.Figure4:Differencebetweenkeyagencies’Figure5:OPEC+cutsvsnon-OPECoutputglobaloildemandgrowthforecastsNotes:Differencebetweenthe1-yearaheadglobaloilNotes:Crudeoilonly.demandgrowthforecastsfromIEA,USEIAandOPECSource:OPEC,IEA,OIESbasedonDecemberreportsofthepreviousyear.Source:IEA,USEIA,OPEC,OIESAndreasEconomou(andreas.economou@oxfordenergy.org)17Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.9.Offshorewindpower:growth,challenges,andnavigatingthefutureInrecentyears,offshorewinddeploymenthasincreasedsignificantly.Installedcapacityhasrisen,contributingtoacleanerenergymixglobally.EuropeandtheUKspecificallyhavebeenattheforefrontofthetrend,whileinrecentyears,theAsia-Pacificregion,ledbyChinahasmadeimpressivestrides.Fromadecarbonizationperspective,theexpansionofoffshorewindhasundoubtedlybeenapositivedevelopment.Butlookingaheadto2024,theindustrywillneedtoovercomebroadchallenges,fromgridconnectionandpermittingtoauctionrulesandelectricitymarketdesign.Whilegrowthwillcontinue,offshorewindisnowsettoenteraperiodofconsolidationandstabilization.Thestronggrowthinoffshorewindhasnotbeenwithoutitsproblems.Inthelastcoupleofyears,theindustryhasbeenfacingsignificantinflationarypricepressuresformaterials,labour,andserviceswithimplicationsforvariouselementsofthesupplychainandoverallprojectcosts.Costinflationispartlydrivenbypost-COVIDeconomicrecovery,theenergycrisis,andburgeoninggeopoliticalconflicts.Thesupplychaincrunch,characterizedbyashortageofcomponentsanddelaysindeliveries,ispartlyduetotherapidscalingupoftheindustry,whichhasoutpacedtheabilityofthesupplychaintokeepup.TheCOVID-19pandemichasalsohadasignificantimpact,causingdisruptionsinmanufacturingandlogisticsworldwide.Ontopofthat,capitalcostshavebeenaffectedbyfactorssuchastheneedformoresophisticatedtechnologyforlargerturbines,deepwaterinstallation,andmoreremotegeographicallocations.Therehasbeenanincreasingneedforspecialisedvesselsandinfrastructureforinstallationandmaintenance,vesselswhicharelimitedinnumberandthusmoreexpensivetoprocure.Thegrowingsizeofturbinesdemandslargerportsandupgradedfacilities,yetthesecriticalresourcesremainscarce.TheUK’sportinfrastructure,forexample,hasbeencitedasabottleneckwhichhinderstheexpansionoftheindustry.This,coupledwiththecomplexitiesoffloatingwindfarmdevelopmenthascreatedadifficultdilemmainthesensethatlargerturbinesoffergreaterefficiencybutrequiremorerobustinfrastructure,whichiscurrentlyscarceorunavailable.Figure6:DevelopmentoftheoffshorewindinthelasttwodecadesSource:InternationalRenewableEnergyAgency(IRENA).OffshorewindenergypatentinsightreportNovember2023Thereisalsotheissueofgridinterconnection.Inmanymarkets,especiallymaturemarkets,gridsystemshavebeenunabletokeeppacewithoffshorewindtargetsbecauseofgridcongestion,limitationsintransmissioncapacityorthehighcostofadditionalgridinvestment.Fornewoffshorewindmarkets,however,thereisanopportunitytoproactivelyaddressthesegrid-relatedchallengesthrough‘wholesystemsapproachplanning’,thusavoidingthepitfallsexperiencedbymorematuremarkets.18Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.Anotherchallengehasbeentheissueofinadequateandinefficientpermittingandlicensingrules,whichhaveresultedinextendedprojecttimelinesordelays,increasinguncertaintyandfinancialrisksfordevelopers.Insomecases,ithasevenresultedinindefinitestallsinoffshorewindprojects.Thisisexacerbatedbyinflexibleregulatoryframeworksinsomejurisdictionsorlackofharmonisationacrossdifferentregions.Insomeregions,localcontentrequirementshavebeenintroducedintheauctionwiththeaimofboostingdomesticindustry,butithasresultedinincreasedprojectcostsandcomplexity,especiallyinplaceswherelocalsupplychainsarenotyetmatureenoughtomeetdemand.Thecombinationoffactorsmentionedabovehasinsomecasesforceddeveloperstoreviewthefinancialandoperationalfeasibilityoftheirprojectsunderthesenewconditions.Insomeinstances,thishasledtothehaltingofprojectdevelopmentorthewithdrawalofbidsincompetitiveauctions.TheUK’s2023CfDauction,wherenobidsweresubmittedfornewoffshorewindprojects,highlightedthewideninggapbetweengovernmentsupportmechanismsandmarketrealities.Thisnecessitatesare-evaluationofpolicyframeworks,withafocusonadaptabilityandlong-termsustainability.ThisisnotjustanissueintheUK.AcrosstheAtlantic,theUSoffshorewindsectorisalsoatacrossroads.IndustryleadersquestiontheeconomicfeasibilityoftheBidenadministration’sambitious2030targetof30GWgoalofoffshorewind,citingfinancialstrainsonturbinemanufacturersandthepotentialimpactoftheInflationReductionAct.Thisuncertaintyreflectstheglobaltrendsofrisingcostsandpolicychallengesandwillforceastrategicrecalibrationofexpansionplans.Governmentpoliciesplayacriticalroleinremovingbarrierstotheexpansionoftheoffshorewindsector.First,policymakersneedtofacilitateinvestmentingridinfrastructuretoensurethatanincreasedcapacityofoffshorewindcanbeintegratedintotheenergysystemeffectively.Auctiondesignalsoneedtoprovideabalancebetweencompetition,speculativebidding,andindustrialstrategy.Whenthenon-deliverypenaltyislow,theauctionturnsintoanoptionfordeveloperswhobidwiththeexpectationthattechnologycostswilldecline.Inrecentyears,aggressivebiddinginauctionsfornewprojectshasledtoslimmarginswhichhavemadeitchallengingfordeveloperstomaintainprofitabilityandreinvestintechnologyandinfrastructure.Aswesetsailinto2024,theoffshorewindindustryisexpectedtocontinuenavigatingtheseturbulentwaters.TheUKgovernment’srecentdecisiontoincreasetheCfDstrikepriceforthisyear’sauctiondemonstratesawillingnesstoacknowledgetheeconomicrealitiesofthesectorandrespondflexibly.Butthisisonlyoneofanarrayofchallengesthatshouldbethefocusofanypolicyrethink.Forthisreason,thecomingyearsarelikelytowitnessaperiodofconsolidationandstabilization.Economicviabilityandsustainabilitywillbecomeparamountconcernsforoffshorewinddevelopers.Standardizationinturbinesizes,alongsidethedevelopmentofmoreresilientbusinessmodelsarelikelytobecomethefocusoftheindustry.Whilethecurrentconditionofthesectorpresentsseriouschallenges,therearegroundsforoptimism.Theoffshorewindindustryhasproventoberesilientandhasthepotentialtotransformtheenergylandscape.Withadaptivestrategies,appropriategovernmentpoliciesandabetterfocusoneconomicviability,itcancontinueitsvitalroleinpoweringacleanerfuture.RahmatPoudineh(rahmat.poudineh@oxfordenergy.org)19Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.10.2024:Amake-or-breakyearforcarbonmarketsandsolutionsByitsconclusion,COP28hadleftclimateproponentswithabittersweetfeeling.Onapositivenote,forthefirsttimethefinalCOPtextexplicitlynotedtheneedtotransitionawayfromfossilfuelsandfortheurgentdeploymentofcarbonmanagementsolutionssuchascarboncapture,utilizationandstorage(CCUS)andcarbondioxideremoval(CDR).ThiscomesasnosurpriseasdevelopmentsintheCCUS/CDRspacehadbeengainingsteadymomentumthroughout2023,followingenactmentofnationalandregionalsupportivepolicyframeworksintheformoftaxcreditenhancementsundertheUSInflationReductionAct(IRA),andpromisinglong-termplansforaCCUS/CDRmarketembodiedinEurope’sNet-ZeroIndustrialAct(NZIA)andtheUK’srecentlyannounced‘CCUSVision’.Morespecifically,andinrecognitionofcarbonmanagementasanintegralpartoftheclimateactiontoolkit,theinternationalcommunitylaunchedtheCarbonManagementChallenge(CMC)atCOP28.Thislaudablemilestonerepresentsacalltoactionbycountriestoadvancecarbonmanagementandisaculminationofseveralyearsofcollaborativeefforttoplacecarbonmanagementsolutionsontracktoreduceandremoveemissionsinthegigatonneorderbythe2030s,consistentwithnet-zerotargets.Thiswasinalmostperfectsyncwithanotherannouncementondemand-sidepolicy,whereanumberofgovernments,includingtheUK,US,Canada,andGermany,pledgedtoprocurelow-carbonsteel,cementandconcrete–afeatwhichmaywelldrivethebusinesscaseforCCSadoptioninhard-to-abatesectors.COP28wasexpectedtobethe‘CarbonMarketsCOP’,yetitsfailuretooperationaliseaninternationalcarbonmarketmechanismunderArticle6ledtowidelyvoiceddisappointmentamongstmarketexperts,leavingmuchworktobedonein2024.Onemajorpointofcontentionwaswhetheremissionavoidanceprojectsshouldbeeligibleunderthemechanism,withconcernsthatthismayopendoorstolower-qualityprojectsdisplacingotherswithrealandadditionalclimateimpact,suchascarbonremovalprojects.Yet,onremovalsthemselves,concernsremainedregardingtherigourofpresentedguidanceandonmethodologies,particularlyinrelationtoaddressingreversalrisk.Countriesalsoexpressedreservationsovertheauthorisationofsoldcredits(whethertheytobeallowedtoberevokedbyhostcountries),whichcouldraiseissuesofdouble-countingifcreditswerealreadytraded.Despitethestalemate,twopositivescanbetakenaway.First,itisnowclearthatquality,howeveritisdefined,mattersoveroperationalisation;andsecond,intheabsenceofacentralisedArticle6.4mechanism,thefocusshouldshiftbacktobilateralagreementsunderArticle6.2andthevoluntarycarbonmarkettodriveinvestmentintokeyclimatemitigationprojects,includingCCSandCDR.Ontheformer,thevoluntarycarbonmarketenduredaturbulent2023withmanyquestionsraisedregardingthequalityofcarboncredits–andultimatelytheintegrityofcarbonmarketsasagenuineclimatetool.Inresponse,industrystandardsbodiescametogethertodelineatebestpracticesthatdefined‘high-integrity’credits,resultinginseveralpackagesofvoluntaryframeworks,mostnotablybytheIntegrityCouncilfortheVoluntaryCarbonMarket(ICVCM)andtheVoluntaryCarbonMarketsIntegrityInitiative(VCMI).TheseeffortsresonatedwithasubsequentlaunchatCOP28bysixoftheworld’sleadingindependentcreditingprogrammesofacollaborationonanintegrityframework,aswellasajointproposalbygovernmentsatCOP28foraninternationalframeworkthatavoidsgreenwashingandhelpsformulateclearclaimsinrelationtotheuseofcarboncredits–athemewhichissettobeakeyonetofollowin2024.Indeed,thereisanotionofa‘new’andrejuvenatedvoluntarycarbonmarketmovingforward,wheredemandisexpectedtoincreaseforcreditslabelledwiththeICVCM’sCoreCarbonPrinciples(CCP)stampofhigh-qualityapprovalwhileontheotherhand,fallforoldervintagecreditsnotsubjecttothesamequalitystandards.Thisisalreadyevidentinrecentcredittransactionsthatshowpricesofoldervintagecreditstumblingtolessthan$1whilecorrespondingly-adjustedcreditsarevaluedindouble-digitfigures.Itisclearthatdecarbonizingeconomiescannotbeattainedsolelythroughcommoditymarketsand,despitethesetbacks,carbonmarketswillremainoneofthefewvehiclesavailabletodeliverrealimpactandmoniestofrontlinecommunities,especiallyintheGlobalSouth.Alongsideacontinuedfocuson20Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.integrity,carbonmarketsarealsoincreasinglyexperiencingashifttowardsprocuringcarbonremovaloveravoidance/reductioncredits,astheyarewidelyregardedashigherquality,morefuture-proof,andaremuchlesscontested.However,itisimportanttoensurethatthisshiftisequitableandjust,andthatitdoesnotdisrupttheflowofcapitalfromtheGlobalNorthtotheGlobalSouthwhichhasbeenakeyfeatureandadvantageofcarbonmarkets.ItremainstobeseenwhetherthepromisingannouncementsmadeatCOP28willresultinsubstantivechange,coherence,andcollaboration,withbetterdefinitionsexpectedaroundwhatnet-zerotrulymeans.HasanMuslemani(hasan.muslemani@oxfordenergy.org)21Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.11.Hydrogen–ChinaleadingEuropeandUSongreenprojectsEuropeanrenewablehydrogenpresentsoneoftheclearestexamplesofthegapbetweenenergytransitionpolicytargetsandtheharderrealityofinvestmentandapprovals,alagthatcouldworsenin2024orforcetheadoptionofmorerealistictargets.EUplanspublishedinJuly20205setoutavisiontoinstallatleast6GWofrenewablehydrogenelectrolysersby2024,ontheroadto40GWofcapacityby2030.Havingmissedthe2024target,thisnascentindustrywillhavetorunhardifitistohavetheslightestchanceofmakingitstargetof40GWofcapacityby2030,letalonethemoreaggressivetargetssetsubsequently.Aswestart2024,itisinstructivetoreviewdevelopmentssincethenandakeythemeasweprogressthroughtheyearwillbetoreviewprogressinscalingupelectrolyticandCCS-enabledhydrogenglobally.Europe’senergytransitiontargetswerestrategicallyrevisitedfollowingtheRussianinvasionofUkrainein2022.TheEuropeanCommission’spolicypackageinresponsetotheinvasion,REPowerEU,6raisedthetargetto10milliontonnesofrenewablehydrogenproductionwithinEUby2030,andanadditional10milliontonnesofimports.ThedocumentdidnottranslatethisintoGWcapacity,butanOIESpaperatthetime7(confirmedbymultiplepublicationssubsequently)calculatedthatthiswouldrequire125-250GW(dependingonannualfullloadhours)ofelectrolysercapacitytogetherwithassociatedadditionalrenewablepowergenerationwithintheEUby2030.AccordingtothelatestIEAhydrogenproductiondatabasepublishedinOctober2023,8Europenowhasnearly3GWofelectrolysercapacitywhichisatFIDorunderconstruction,althoughjust200MWisoperational.Muchofthecapacityunderconstructionisnotexpectedtobeoperationaluntil2025or2026.SoitisclearthatEuropeisfarofftrackoneventhetargetssetin2020,letalonethesignificantlyhighertargetssetin2022.Itwillbeimportantduring2024totrackwhetherdeliveryfallsfurtherbehindorwhetherpolicyissufficienttostimulatenewFIDs.Therearesomeencouragingsignsofprogress,withincreasingrealismabouttheissuesofbringingsignificantinvestmentstofruition,whichisclearlyfarmorechallengingthanmerelyannouncinganintendedproject.TheestablishmentoftheEuropeanHydrogenBank,whichisstartingsubsidyauctions,isafurtherimportantdevelopment.IntheUK,progressisbeingmadeongovernmentnegotiationswithprojectdevelopersandsomesignificantFIDsarelikelyin2024.ThereisalsoagrowingrecognitionamongEUpolicymakersthatitwillbeverychallengingtorelyonlyonelectrolytichydrogengiventheneedforlarge-scaledeploymentofbothrenewablepowerandelectrolysers.Thisisleadingtoagrowingacceptance,bothatEUlevelandwithinmemberstatesthatso-calledbluehydrogen(fromfossilfuels,typicallynaturalgas,combinedwithCCS)willalsobeimportantatleastforatransitionperiod.SomepotentiallysignificantCCSprojectsinEuropehaveeithertakenorareclosetoFID:inNorway,NorthernLightsisunderconstructionandexpectedtostartoperationsin2024,intheNetherlandsthePorthosprojectinRotterdamannouncedFIDinOctober2023andfurtherprojectsintheUKandDenmarkareexpectedtotakeFIDin2024.Scaleisstillachallenge,however,astheseprojectswouldcaptureandstoreatotalofonlyaround10milliontonnesCO2peryear,equivalenttotheemissionsofjust1milliontonnesofhydrogenmanufacturedviasteammethanereforming.OutsideEurope,theUSInflationReductionActboosteditshydrogenpolicywitha$3/kgtaxcreditforthelowestcarbonhydrogenproduction.Afteraninitialflurryofinvestorinterest,progresshasbeenslowedbyalackofclarityonthemethodologyforcalculatingemissionsinordertoqualifyforthecredit.TheUSgovernmentisexpectedtoannouncethedetailedmethodologyearlyin2024.Currentindicationsarethattherulesunderdevelopmentmayprovesomewhatdisappointingforpotentialinvestors,butthereshouldbemuchmoreclarityonboththerulesandtheresultinginvestorresponseas2024progresses.5https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52020DC03016https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52022SC02307https://www.oxfordenergy.org/publications/repowereu-can-renewable-gas-help-reduce-russian-gas-imports-by-2030/8https://www.iea.org/data-and-statistics/data-product/hydrogen-production-and-infrastructure-projects-database22Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.InChina,analysisoftheIEAdatabaseindicatesthatwhilejust500MWofelectrolysercapacityisoperational,6.3GWofcapacityisatFIDorunderconstruction.WhiledatafromChinamaybelessreliablethanelsewhere,thisdoesindicatesignificantprogressinrenewablehydrogenproductioncapacity.Itisalsosignificantthatsomereportsindicatethatbyend-2024,Chinawillhavemorethan40GWofelectrolysermanufacturingcapacity,welloverhalftheglobaltotalof71GW.9SowhileEuropecontinuestofallbehinditsunrealisticallyambitioustargets,andtheoutlookforUSdevelopmentsremainsuncertain,2024maybetheyearwhenChinastartstodominateinrenewablehydrogen,asithascometodominateinsolarPVinstallationsandmanufacturing.Morespeculatively,thiscouldalsobeanindicationthatChinawillprovemoreabletodeliveronitsNetZerotargetsthanitswesterncompetitors.GreenHydrogenCapacityatFID/Figure7:GreenHydrogenCapaciUtynadteFrICDon–sUtrnudcetiroCnobnysrterguicotnionbyregion12000.010000.08000.06000.04000.02000.00.0SumofCapacity_ktH2/ySumofCapacity_MWelEuropeUSAChinaMartinLambert(martin.lambert@oxfordenergy.org)9https://www.hydrogeninsight.com/electrolysers/interview-china-is-overbuilding-hydrogen-electrolyser-manufacturing-capacity-and-may-have-to-shut-some-of-it-down-citigroup/2-1-150651523Thecontentsofthispaperaretheauthors’soleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.
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