The fuel industry entered 2024 in a strong financial position. For the first time in history, global demand for crude oil exceeded 100 million barrels per day. The mining industry is predicted to generate as much as $4.6 trillion in free cash flows from hydrocarbons between 2023 and 2030, according to the 2024 Oil and Gas Industry Outlook report by consulting firm Deloitte. The electrification of the automotive industry will play a key role in the future of the fuel sector, with electric vehicles estimated to make up between 62% and 86% of global car sales by 2030.
The energy market is currently shaped by four key factors: geopolitical uncertainty, the macroeconomic environment, regulatory changes and technological revolution. All these factors could significantly impact demand and supply as well as trade and investment in the industry. Despite these disruptions, global demand for crude oil continues the upward trend, surpassing 100 million barrels per day for the first time in 2023.
“The industry had a solid start in 2024, partly due to its strong financial position and high oil prices. The strength of the sector will likely facilitate funding for both investments and dividends, thus supporting capital raising initiatives and shareholder-focused strategies. It is projected that the global mining industry will maintain its hydrocarbon investment levels from 2023, which is around $580 billion, and generate more than $800 billion in free cash flows in 2024,” reports Robert Karczmarczyk, director, Risk Advisory, Corporate Risk & Energy Transformation at Deloitte.
The oil and gas industry should strive to maintain capital discipline and prioritize profitable, low-emission projects, which will allow for effective management as the demand for energy continues to evolve. Although direct mining company expenditure on low-emission fuels and technologies now represent only 4% of investment, the anticipated generation of $2.5 to $4.6 trillion in free cash flow from hydrocarbon-related activities between 2023 and 2030 means lack of funding is not an issue.
The main challenge appears to be fostering innovation while maintaining profitability and shareholder value. In a Deloitte survey of the global fuel industry, 60% of respondents said they would invest in low-emission projects if the return exceeded 12-15%. In contrast, in 2022, the return rate on major renewable energy projects was between 6% and 8%.
“In 2024, expenditure in the industry will focus on improving operational efficiency and reducing emissions. In our study, one-third of fuel industry executives identified these factors as the key measures of progress in energy transformation. Low-emission alternative fuels will be the second area of investment in the near term. More than 40% of executives listed natural gas, carbon capture, biofuels and hydrogen as fundamental to their low-emission investment strategies,” says Michał Pieprzny, partner, Consulting Market Leader in Poland at Deloitte.
Decreasing emission levels at the business level and subsequent capital allocation are also dependent on external factors, such as regulatory changes. Since 2021, numerous new clean energy policies have been introduced worldwide, including the European REPowerEU plan and the Net Zero Industry Act in the European Union (NZIA). Meanwhile, delays in environmental reviews and the issuing of licenses for the export of LNG and the development of CCS, along with challenges in gaining social acceptance for the extraction of critical minerals and the realization of some renewable energy projects, may slow down the pace of transformation.
Global refining capacities have declined by 4.5 million barrels per day since 2019, and Deloitte experts foresee this downward trend continuing. Demand for crude oil is predicted to slow in the long term, growing by only 0.4 million barrels per day by 2027, compared to its previous 1.6 million barrels per day growth until 2023. Meanwhile, demand for biofuels is expected to increase by 44% between 2022 and 2027 as they increasingly replace crude oil-based products.
“The refining industry is currently facing key transformations. It is introducing and offering a range of new products to balance the expected long-term decline in demand for fossil fuels in transport, taking an even more customer-oriented approach. The introduction of low-emission alternative fuels, such as biofuels, hydrogen or synthetic fuels, paired with redesigning customer experiences at gas stations, is crucial for the industry’s success,” says Robert Karczmarczyk.
Refineries can play a key role in the energy transition of economies by developing new opportunities in several crucial areas, one of which is undoubtedly biofuels. Currently, refineries are addressing nearly 80% of the global demand for renewable diesel fuel. However, they often struggle to efficiently leverage subsidies and grants to strengthen the biofuel supply chain. Therefore, considering strategic steps such as ensuring consistent feedstock supplies, dealing with the ability to process different types of feedstock and optimizing transport costs and emissions, could facilitate the development of the biofuel market and stimulate the growth of refining results.
Green hydrogen and ammonia may offer refineries a solution to not only reduce emissions but also lower the cost of generating heat for technological processes, while expanding their product portfolio for industrial customers. Refineries and chemical plants can use CO2 capture to limit emissions from units such as methane steam reformers, catalytic crackers, and combined heat and power systems. The Porthos project in Rotterdam, the most advanced CCUS (Carbon Capture, Usage, and Storage) hub in the EU, is set to capture as much as 2.5 million tons of CO2 annually.
According to Deloitte experts, numerous factors can impact the business models and investment strategies of companies involved in refining and marketing crude oil. These include global sales of electric vehicles, changes in mobility patterns, innovations in battery production technology, shifts in the value chain involving resource acquisition and production, and advances in engine manufacturing technologies, including internal combustion engines. According to data from the International Energy Agency, global sales of electric vehicles increased by over 35% in 2023, and one in seven cars sold is electric. The simultaneous growth in the sale of electric vehicles reflects regional differences in demand structure, infrastructure readiness, technology adoption, regulatory policy, and socio-economic conditions.
“Some predictions suggest that the share of electric vehicles in global car sales could range from 62% to 86% by 2030. Regardless of the actual figure, this represents a significant shift for companies in the energy sector. Apart from implementing charging stations and offering new mobility services at their retail outlets, energy and fuel corporations have a unique opportunity to explore different applications in the electric vehicle sector. For instance, one US energy company is using specialist coke to produce high-performance anode materials for the production of lithium-ion batteries,” says Michał Pieprzny.
