US EV sales double, oil rebounds, solar shines and carbon capture booms: It’s energy in 2023 with Wood MacKenzie’s annual Top 10
Wood Mackenzie has released its 10 predictions for 2023, with chestnuts like – bummed out oil rebounding big time and surging EV sales led by a greener USA – to name just a few.
Not to toot his own horn, but vice-chair, Americas Ed Crooks toots that many of the research groups predictions for this year ‘have been vindicated despite shocking world events’ that have transformed the outlook for energy – namely Russia’s invasion of Ukraine – which prompted the EU, US and their allies to cut their purchases of Russian energy, causing havoc in world markets and sending LNG and European gas and power to record highs.
“In some cases, the Russian invasion and the surge in energy prices that followed have reinforced trends that were already under way,” he said.
“High fuel costs and concerns about energy security helped accelerate sales of electric vehicles, for example.”
He also highlights that even the huge disruption that followed the outbreak of war did not throw out fundamental economic relationships.
“We predicted that the oil market would remain well-supplied in 2022, and so it has proved, with the OPEC+ countries deciding in October that they needed to cut their production,” Crooks said.
So, with a decent dash of salt, here’s ten of Woodmac’s predictions for 2023.
Director, energy transition David Brown reckons other countries around the world will follow the US lead in stepping up policy support for low carbon energy
“The extended and expanded tax credits and subsidies offered to low-carbon energy in the US Inflation Reduction Act, signed into law in August, has caused companies around the world to reconsider investment decisions,” he said.
“Key measures in the act, including support for wind and solar power, battery storage, carbon capture, and low-carbon hydrogen, simply outshine existing policy frameworks in most other countries.
“To remain competitive, those countries will have to introduce incentives that are closer in value to what is now available in the US.”
That will be a net gain for the world, not a zero-sum game Brown says.
“A levelling-up of policy support will unlock new business opportunities for the entire globe,” he said.
As 2022 ends, global oil demand is faltering and for the fourth quarter of 2022, head of macro oils Ann-Louise Hittle expects a sharp decline in demand of 1.2 million b/d year-on-year.
However, she thinks this downward trend will turn out to be short-lived.
“We are forecasting a brisk return to oil demand growth next year, with an increase of 2.3 million b/d for 2023 as a whole, driven by the easing of Covid restrictions in China and rising use of petrochemical feedstocks,” Hittle said.
“This resumption of the upward trend in demand is likely to jolt the oil market out of its current doldrums and provide support to prices.”
It’s been a busy year for LNG contracting, with deals signed for 80 million tonnes per year. Of that total, 75% was with exporters from the US, and over 50% was for portfolio players and traders.
“In 2023, we expect that contracting activity to slow down,” vice-president of gas and LNG research Massimo Di Odoardo said.
“Chinese companies will continue to buy, and US independent upstream and midstream players will continue to secure deals to access global LNG prices.
“But portfolio players will be more selective, placing their bets only on those projects that can move quickly.
Meanwhile, European buyers are unlikely to commit to much supply, as they remain concerned about demand longevity and future pricing dynamics.”
ADNOC, Abu Dhabi’s national oil company, did not set a net zero target in the run-up to COP26 in 2021 but in November announced that it would pursue net zero by 2050 and establish a low-carbon energy division.
“It has already started to take action to move towards that goal: it is so far the only NOC to pursue renewable M&A, buying into the H2Teeside hydrogen project in the UK alongside BP,” research director, corporate research Kavita Jadhav said.
But more importantly, as ADNOC and the United Arab Emirates (UAE) continue to ramp up low-carbon investment, this will bring along other oil producers in the Middle East.
“Their investments in low-carbon energy will increase, and they may also make further international acquisitions in hydrogen, CCUS and solar, in a wave that could be similar to the rush of activity seen in the UK and Europe in the run-up to COP26,” Jadhav said.
“The UAE and the Middle East more widely could have a similar eureka moment to the Inflation Reduction Act in the US, which promises a boom time for hydrogen, CCS and solar. “A lot can happen when you have the spotlight on you.”
Head of carbon capture, utilisation and storage (CCUS) research Mhairidh Evans says companies will finally kick off major projects in 2023, making CCUS mainstream.
“We are particularly watching for hub projects – those that provide the infrastructure for multiple emitters to transport and store captured carbon dioxide at scale,” she said.
“Up to 30 CCUS hubs around the globe are targeting FID in 2023, and about half of those are likely to go ahead.”
As to who will be leading the way? Evans sayd it will mostly the European oil and gas Majors, which have existing positions to build on and ambitious energy transition targets to pursue.
For years the US has been sitting in third place behind China and Europe for electric vehicle sales, but now conditions are finally coming together in terms of policy, regulations and product.
The Inflation Reduction Act means that GM and Tesla are both once again eligible for the EV tax credit, and other major automakers that would have been capped off by 2023, can now enjoy another 10 years of subsidies.
Plus, the new Environmental Protection Agency (EPA) regulations set for 2023 will force automakers to reduce fleet level emissions by 10% – and the cheapest way for automakers to achieve that will be to sell more EVs, Woodmac head of road transportation Ram Chandrasekaran said.
“Affordable EVs are finally hitting the market in volume,” he said.
“Next year Ford, Hyundai, GM, Subaru, Toyota, VW will all have compact SUVs on the market with starting prices around US$40,000-45,000.
“This trifecta of policy support, regulatory pressure and affordable models will help US EV sales double to over 2 million in 2023, up from 1 million this year.
“This time next year, everyone will be talking about how the US has finally stepped up to join the global EV battle.”
Supply and demand balances point to a year-on-year decline in average prices across the metals and mining industries in 2023, with softening demand, stronger supply and weaker sentiment all contributing to the downward pressure.
Research director, copper, Nick Pickens says the construction sector, a key area for iron ore, steel and base metals, will be a drag on global demand, with the Chinese real estate market in particular remaining sluggish.
“Meanwhile, supplies of copper, aluminium, lead, zinc, iron ore and steel, among others will all post higher growth rates than in 2022,” he said.
The production of battery materials – nickel, cobalt and lithium – will continue to forge ahead, following double digit-growth in 2022, although Pickens added there are some upside risks for demand.
“Inflationary pressures are showing signs of easing, and so are supply-chain constraints,” he said.
“That could mean the global economic slowdown is less severe than expected.
“A recovery in the automotive sector and in low-carbon energy could help offset some of the demand weakness in other consumer-led segments.
“But overall, we think the prevailing tendency in prices will be downwards.”
Tight oil companies are gearing up to act in unison in the coming year, with all signs pointing to a repeat of 2022: single-digit production growth, and spending hikes that will largely just cover cost inflation.
Oilfield services constraints and project execution challenges remain obstacles to faster growth, but its not a completely level playing field across the listed E&P sector.
“Some companies have better balance sheets, better assets, and more established frameworks for returning capital,” research director, corporate research Alex Beeker says.
“We think 2023 could very well be a year where the best of the best break out, and decide to grow more aggressively than many stakeholders currently expect.”
The US solar industry had a bit of a rough year, with high steel and polysilicon prices, an anti-dumping investigation by the Department of Commerce, and the implementation of the Uyghur Forced Labor Prevention Act – all of which lead to estimates that a a total of 18.6 GW of new solar generation capacity will come online in 2022, down 23% from installations last year.
“However, all the signs point to the US solar industry starting its recovery in 2023,” Woodmac senior analyst, North American utility-scale solar Sylvia Leyva Martinez said.
“The passage of the Inflation Reduction Act boosts the already competitive levelised cost of electricity from solar.
“Module prices are set to remain stable as global polysilicon production capacity increases by 70%, and imports that were detained by US Customs despite using non-Chinese polysilicon are expected to be released during the first half of next year.”
Plus, corporate and utility demand are expected to reach an all-time high, as power prices continue to increase and pressure to meet emissions reduction targets grows.
“Taken together, those factors are likely to drive a 50% increase in solar installations in 2023.”
The list of large oil and gas projects nearing Final Investment Decisions (FID)
has been more than twice the number actually getting the go-ahead since 2020.
Head of upstream analysis Fraser McKay says that capital discipline and increasingly cost inflation and execution concerns have complicated decision-making for companies evaluating major projects.
“Continuing tensions between service companies and operators will keep pouring sand into the cogs of the stage gate process for investment decisions,” he said.
“Operators are nervous about cost certainty, service providers are looking to expand margins.
“Of about 60 large projects that could be ready to go, we think only about 30 will proceed in 2023.”
But operators should be wary of delaying for too long, McKay says.
“The supply chain is not adding capacity quickly enough to avoid further cost inflation. Now could be as good as it gets.”