CERAWEEK FACTBOX: Challenges seen in supply, demand and transition

Energy demand growth is, to a large extent, a technology-driven affair, with uptake of artificial intelligence and rollout of power-hungry data centers leading the way, speakers at CERAWeek by S&P Global in Houston said March 19. There's a large role for fossil fuels, even in the midst of a nuclear comeback and renewable energy deployment. Steering progress are energy policy and regulation -- and the energy transition.

Supply

• US crude oil production growth in 2024 will likely drop to about 300,000-400,000 b/d in 2024, down from around 1 million b/d in 2023, said ConocoPhillips CEO Ryan Lance. Current US production is about 13.3 million b/d, according to the US Energy Information Administration. In March 2023 it averaged 12.2 million b/d. "Probably later this decade we'll see US production plateau and will probably stay there a long time," Lance said. For 2024, S&P Global Commodity Insights forecasts about 625,000 b/d of crude oil growth.
• The US should refill the Strategic Petroleum Reserve with crude at 500,000 b/d, Hess CEO John Hess said. Energy security "is so important and the strategic reserves are so important, I don't think we can be asleep at the switch," he said. The US is refilling the SPR at 3 million barrels per month. The US Department of Energy said recently it will add another 3.25 million barrels in August. At 3 million barrels per month "it will take five years to go back to 600 million barrels," Hess said. "We need to accelerate the refilling at a rate of 500,000 b/d, at that rate it will take less than two years to get to 600 million barrels."
• Kuwait Petroleum Corp. is planning to move offshore in the Persian Gulf for the first time and will seek help from international oil majors, its CEO said. "We're looking at a new model to bring expertise from around the world," said Sheikh Nawaf al-Sabah. Kuwait is currently producing below 3 million b/d capacity because of OPEC+ cuts but plans to boost capacity to above 4 million b/d, Sabah said, adding the emirate had lifting costs onshore of $10/b.
• Mexico could revise its energy policies to encourage an increase in oil and gas production following the June 2 presidential election, Harbour Energy Executive Vice President Gustavo Baquero said. "Every country has a different risk, and that picture is moving," Baquero said. "In the case of Mexico, I'm still optimistic." Under the administration of Andrés Manuel López Obrador, Mexico's oil production has fallen as López Obrador halted upstream auctions put in place by the prior administration, essentially stalling Mexico's energy liberalization.
• Tripling nuclear power by 2050, a goal set at the 2023 UN Climate Change Conference, is a big lift. "We're talking about a terawatt of new nuclear by midcentury," Energy Futures Initiative CEO Ernest Moniz said. Meeting the goal will require more countries to embark on nuclear investment, speakers said. Countries in Africa, South America and Central America are expressing serious interest in adopting nuclear, not only for electricity but for increased energy autonomy, World Nuclear Association Director Sama Bilbao y Leon said.

Demand

• US federal government and private sector stakeholders must move quickly to increase demand for hydrogen, speakers said. David Crane, Department of Energy undersecretary for infrastructure, described the US bipartisan Infrastructure Investment and Jobs Act of 2021, which allocated $9.5 billion to fund regional hydrogen hubs, as "the most inspired pieces of legislation ever passed and signed into law to get us on the path to energy transition. Anyone who's been around the energy industry for a very long time knows, energy at the end of the day comes down to a very basic supply-and-demand business."
• Rising power demand from the proliferation of artificial intelligence supports US gas production growth more than even LNG export demand, and AI-driven demand is less volatile, EQT CEO Toby Rice said in an interviewwith S&P Global Commodity Insights. Rice said his Appalachia-focused company is particularly well positioned. "While Gulf Coast has LNG as a hot emerging market, guess what Appalachia has: We've got AI. We've got 'data center valley' right next door, and now we have the pipeline that services that: MVP (Mountain Valley Pipeline)," he said.
• More natural gas-fired power generation will be coming to the US over the next five to 10 years as the industry scales up to meet data center demand, ConocoPhillips CEO Ryan Lance said. Another bullish story for gas is LNG exports. "We see a hugely growing LNG market," he said, adding that producers who want to be in LNG need to be in the entire value chain, as ConocoPhillips is. "Henry Hub is going to set the floor [price], and then it's going to be liquefaction, transportation and regasification on top of that," Lance said.

Policy, regulation

• Any US federal infrastructure permitting reform would need to address the issue of states "weaponizing" the process for Section 401 water quality certifications, said Michael Dunn, COO of midstream firm Williams. "If permitting reform passes without that, it's ineffective for natural gas projects." Many gas projects have been stopped because of 401 certifications even "when you have an environmental impact statement that says this project will not impact the environment ... that needs to get fixed."
• The US must go beyond talking about changes to permitting if it wants to meet an expected shortage of copper needed for an energy transition, Richard Adkerson, CEO of US copper producer Freeport-McMoRan said. Copper supplies are expected to be in an annual deficit by 404,000 mt in 2028, according to S&P Global Commodity Insights. If the US wants to increase its copper output, Adkerson said the government should focus on improving permitting in the US so that companies like his "have a clear way to invest" in new projects rather than trying to subsidize a copper smelter.
• The US Department of Energy's goal to reduce clean hydrogen costs to $1/mt is being addressed through billions of dollars of investment. That cost gap is the "most important issue," said Toshiaki Takimoto, an executive from Houston-based gas company INPEX. Others disagree. "I hate to say it, but [the cost gap] is kind of a red herring in the discussion," said Kenneth Medlock, energy studies director at the Baker Institute at Rice University. "You want returns, right? If you're going to sink capital into a project and generate sufficient return, then do it." With the right project, the green premium is less than people think, Green Hydrogen International CEO Brian Maxwell said. Renewables prices are much less volatile than other commodities, he said, referencing sudden spikes in Henry Hub gas prices.