KUALA LUMPUR: Global capital expenditures (capex) for the oil and gas (O&G) industry are forecast to reach US$606.6 billion in 2024, a growth of 0.5 per cent year-on-year following an expected growth of 5.1 per cent for 2023, said Fitch Solutions unit BMI.
BMI said its 2024 growth outlook was based on the cautious approach to investing pursued by O&G companies amid growing market uncertainty and softening energy prices.
“Most publicly traded companies will continue to prioritise value over output growth, limiting the upside for investment,” it said in a note released today.
BMI said elevated interest rates add to obstacles for new O&G investment in 2024, as reduced profit margins on high capital projects would delay final investment decisions.
While the pain of higher interest varies across the spectrum of companies in the industry, those reliant on financing are likely to feel the brunt of higher rates, it added.
BMI said project optimisation and cost reductions are helping to reduce project capital outlays but the higher interest rates are forcing the need for higher returns to offset the burden of greater financing costs.
“The growing uncertainty around higher energy prices in the years ahead in the face of the energy transition, limits the projects receiving investment to only those with the lowest breakeven costs with high margins.
“In essence, with higher interest rates and lower inflation the required return from investors is increasing,” it added.
Meanwhile, elections are set to be held in several key O&G producers and demand centres over 2024, including the United Kingdom, United States, India, South Africa, Mexico, Russia, and Venezuela.
“As decarbonisation policy becomes a dividing line among political parties in these economies, election uncertainty would add risks to energy transition commitments and thus the outlook for the O&G industry, for both supply and demand,” BMI said. – BERNAMA
