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2023 oil and gas industry outlook

Investing in the future of energy

The oil and gas (O&G) industry earned record profits in 2022, providing ample cash flow to fund their strategies in 2023. And while O&G companies recognize geopolitical and macroeconomic uncertainty in the year ahead, they’ve also been given a clear mandate to secure supply in the short term while transitioning to cleaner energy in the long term. Our 2023 outlook explores five trends that can help shape the path forward for O&G companies.

Illuminating new possibilities

 

While the oil and gas industry isn’t new to supply disruptions and price volatility, the situation today is unique. A confluence of economic, geopolitical, trade, policy, and financial factors have exacerbated the issue of underinvestment and triggered a readjustment in the broader energy market. As a result, all three components of a balanced energy equation—energy security, supply diversification, and low-carbon transition—are now facing a “trilemma” of concerns.

Although the immediate impact of this imbalance is high energy prices and record cash flows for O&G companies, how and where the industry will invest in the future remains uncertain.

The O&G industry will likely enter 2023 with its healthiest balance sheet yet and with continued capital discipline. The positivity of this situation is reflected in our survey, in which 93% of O&G executives state they’re positive about the industry in the coming year. This momentum could help companies overcome the energy underinvestment of recent years and help enable an accelerated energy transition. Explore the five trends below that will likely influence the direction of the industry over the next 12 months.

Five oil and gas industry trends to watch

 

Healthy balance sheets create opportunities for oil and gas

By practicing capital discipline and focusing on cash flow generation and payout, the global upstream industry is projected to generate its highest-ever free cash flows of $1.4 trillion by the end of 2022 (at an assumed annual Brent oil price of $106 per barrel). Now all eyes are on upstream companies to see if they will continue to prioritize shareholder payouts or increase their hydrocarbon reinvestment rate, driven by the urgency to provide affordable energy to the world.

New policies expected to accelerate the clean energy transition

Supportive policies, in combination with higher O&G cash flows in 2022, have enabled O&G companies to increase investment in clean energy. While this investment is expected to continue increasing, several factors could influence the pace of investment or shift the clean energy focus over the next 12 months

New policies and investments could boost the role of natural gas in the clean energy transition

Increases in natural gas investment are expected in 2023, including investments that reduce the greenhouse gas intensity of natural gas and its related infrastructure. In the United States, more natural gas is being produced with a view to reducing carbon and methane emissions and exporting incremental supplies, especially to Europe. Certified natural gas and carbon-neutral LNG are expected to continue increasing momentum in 2023.

 

Refiners respond to shifting energy demand

In the coming year, refineries could grapple with weakening demand, recession worries, and a projected 1.6 mbpd increase in global refining capacity. Notably, US-headquartered refiners are not expected to increase core refining capacity as they prioritize financial health, optimize operations, and convert refineries to produce renewable fuels.

Deal-making reflects wider trends in the market

While projected record cash flows and renewed interest in resource industries bode very well for O&G M&A, capital discipline and an uncertain economic environment will likely keep M&A in check in 2023. According to our survey, 27% of executives highlight high and stable energy prices as key to sustaining the M&A momentum in 2023.

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