Decarbonisation Technology - February 2025 Issue

Key things to watch in 2025

A review of the oil, refining, chemicals, and liquid renewables industries in 2024, highlighting the key things to monitor this year

Alan Gelder Wood Mackenzie

Introduction The year 2024 marked a significant election period, with more than half of the world’s population involved in the democratic process. In many countries, the incumbents remained in power but with reduced mandates. Populism prevailed in some form. The run-up to the US election was particularly long, with the victory by former President Trump and the clean sweep by the Republican party offering the potential of 2025 being very different from 2024. 2024 had many events that impacted global energy markets, with the Houthi rebels attacking maritime traffic around the Red Sea, disrupting shipping, and an escalation of the Israel/Hamas conflict. The conflict in the Middle East widened as Israel confronted Hezbollah in Lebanon and exchanged missile attacks with Iran. The Russia/Ukraine conflict ground on, with no significant breakthrough by either side. Global oil demand reached a new high in 2024, but the oil market has been plagued by concerns that demand was weaker than projected with a focus on potential over-supply, as OPEC+ withheld significant supplies throughout the year. Plans for OPEC+ to increase supply through the easing of voluntary cuts were delayed, as oil prices weakened during the year, particularly in the second half of 2024. Oil prices, however, spiked upwards in moderate surges during periods of high geopolitical tension, such as when Israel was threatening to attack Iran’s energy infrastructure. Oil prices fell quickly when tensions eased due to the ample spare capacity. For 2024, oil demand growth has surpassed 2024 in review u Oil market

the increase in supply, with only a small gain in non-OPEC production for the year. That will change in 2025 when non-OPEC growth is equal to the projected increase in demand, which is another factor that weighed on oil prices late in 2024. The concerns about demand centre on the forecasts for 2024 oil demand growth published by the Organization of the Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA), which have been unusually divergent, adding to the sense of confusion. Both organisations (and Wood Mackenzie) have been revising their demand growth projections downward as the year progressed. US inflation remained high, slowing the pace at which the US Federal Reserve could cut interest rates, delaying the shift to increased industrial production. China’s economy started 2024 reasonably strongly but weakened as the year progressed, with a weak housing market depressing a key sector in the Chinese economy. Europe continued to struggle with high energy costs, weak competitiveness, and low investment levels. Despite these woes, oil prices did not collapse and only briefly flirted at levels below $70/bbl. v Refining Refining margins were back to five-year average levels at the end of 2023. The global composite margin reset to (or just below) the five-year average, as shown in Figure 1 . For Europe, the regional reference margin is at pre-pandemic levels. This was despite the disruptions of the Russia/Ukraine conflict and the Red Sea, both of which make global inter-regional trade less efficient and more costly, which would support refining margins.