What developments can we expect in the oil and gas industry in 2023?

The oil and gas industry experienced significant growth in 2022. In fact, the industry grew from nearly $6100 billion in 2021 to over $7100 billion as of this year. This means that over 1 trillion dollars were added to the market over 12 months, leading to a growth rate of 16.5%.

Geopolitical issues and sanctions meant that the price of oil and gas continued to rise, which bodes well for the market. However, both the prices of oil and gas, as well as the prices of commodities, have resulted in increasing inflation all over the world. This increasing inflation has led to both the European Central Bank and the Federal Reserve raising interest rates to quell inflation and fears of stagflation. Interest rate hikes have led Rating Agencies to believe that oil and gas prices will fall in 2023, given that demand is expected to fall, with a recession expected in the United States and elsewhere.

However, other observations indicate that oil prices might very well move in the opposite direction over the next twelve months. According to Enevrus Intelligence Research, crude oil prices might top $100 in 2023 due to sanctions on Russian oil and OPEC supply management.

Suppose oil and gas prices do indeed rise. In that case, the United States and various countries in Europe might very well end up in a situation of stagflation, whereby the economy has a mix of high inflation and recessionary dips. Such a situation is very much feared, given that it can have a painful effect on ordinary citizens, and therefore it is expected that these countries continue to eye new opportunities when it comes to diversifying their oil and gas supplies. Having a steady supply of oil and gas will mean that prices will be able to go down, thereby ensuring that citizens will be able to spend more and that a recession is avoided.

Libya is one of the countries that has been seeking to strengthen its collaborations with Europe in this regard. As the European Union has sanctioned Russia, with the latter cutting its gas supplies in return, a vacuum has opened when it comes to oil and gas in Europe. Countries from North Africa have been more than keen to fill this vacuum.

As of October 2022, Libya announced agreements with conglomerates Eni and BP to resume exploring gas development opportunities that could be extracted from their Mediterranean offshore fields. As part of this announcement, the NOC was in talks with Eni on optimising the $8 billion investment towards developing natural gas fields in the Western part of the country. This investment is hardly a surprise, given that Libya has natural gas reserves that exceed 80 trillion cubic feet, with more gas discoveries being possible in this regard.

Further to this, the Libyan government is also part of the talks proposed to transport Nigerian gas to Europe, with the said transportation taking place through its territories. This pipeline project is expected to be about 1,000 kilometres shorter than similar projects passing through Morocco and Algeria, and therefore, in the long run, it is expected that the price of gas will see a downward shift since transportation costs will be reduced.

Moreover, the good news regarding Libya’s exporting capabilities is that oil production has recovered robustly in the last months. In fact, production is close to a one-year high, with crude and condensate output averaging 1.211 million barrels per day and 51,000 barrels per day, respectively. According to S&P Global, production is expected to remain stable as long as the agreement ending blockades between the Tripoli and the Tobruk governments remains in place.

On a global scale, the oil and gas industry is expected to enter 2023 with the healthiest balance sheets since record profits were obtained in 2022. The key in this regard is whether these profits can be sustained and whether developments in renewable energy will impact the sector as a whole. Increasing investment is expected when it comes to natural gas, for example, especially when it comes to investments that reduce the gas’s greenhouse gas intensity. Moreover, more gas is being produced with the aim of reducing methane and carbon emissions, and this is something that will also have an impact on gas prices.

That said, although some analysts expect prices to go up in 2023, others indicate a more stable performance in 2023 in particular regions of the world. The Asia-Pacific region, for example, is expected to see its downstream profitability increase as a result of the recovery of demand in the Chinese markets.

With that being said, with all things considered, the outlook for 2023 remains stable to positive in the current circumstances.