As the energy landscape continues to evolve at a rapid pace, this year is shaping up to be a big one for the industry. From new projects and policy changes to emerging emissions reduction opportunities, here are five important predictions that the experts on Validere’s Market Fundamentals Team envision for the energy industry in 2023.
1. Increase in commodity exports from North America.
We expect North American commodity exports to increase year-on-year in 2023, supplying low emissions intensity energy to the world. North American crude and natural gas production growth and export capacity increases will enable higher export flows of crude and natural gas, while flattening domestic gasoline demand and high refinery utilization will free up incremental refined products for export markets.
Oil and gas emissions reductions initiatives, regulations, and pipeline access to feedstocks enable North American exporters to provide differentiated products that are lower in emissions than other foreign supply sources. As exports grow, we expect more bilateral deals with carbon intensity metrics to support companies' net-zero commitments and global demand for lower-intensity refined products. LNG buyers — particularly in Europe — will further scrutinize emissions credentials on cargos or feed gas sources. — Hillary Stevenson
2. Growth in incentives for CCUS projects.
We expect more carbon capture, utilization, and storage (CCUS) projects to achieve final investment decisions (FID) in 2023. Recent Inflation Reduction Act (IRA) regulation changes to Section 45Q of the Internal Revenue Code incentivize this activity, raising the value of carbon credits to at most $85/metric ton and lowering the eligibility threshold to as low as 1,000 metric tons per year.
Projects will range from blue hydrogen and ammonia to natural gas processing, and could include North America’s first “decarbonized” crude refinery. In Canada, further incentivization is introduced by expected changes to Saskatchewan’s Management and Reduction of Greenhouse Gases Regulations (MRGHG) and updates to the Alberta Technology Innovation and Emissions Reduction (TIER) Regulations which will create sequestration credits and capture recognition tonnes, enabling recognition under the Federal Clean Fuel Standard. — Corey Wood & Jen Snyder
3. Focus on reforms for pipeline permitting.
We expect permitting reform to reemerge, and Mountain Valley Pipeline (MVP) to turn the corner. Sen. Joe Manchin of West Virginia, the key 50th vote for Democrats in the 117th Congress, spearheaded permitting reform legislation this fall, with Equitrans’s MVP a key potential beneficiary. Both times, the initiative failed due to opposition both from Republicans who thought it was too generous to electric transmission and from left-flank Democrats who thought it was too generous to natural gas infrastructure.
Nonetheless, both parties’ acknowledge the current challenges with the slow and balkanized permitting process. With Republicans set to hold a majority in the upcoming 118th Congress, we expect this issue to reemerge and that it is ripe for bipartisan dealmaking, especially since natural gas pipeline development is likely to reduce emissions, reduce onerous consumer energy bills, or both. Counter to consensus, we expect MVP to make meaningful progress toward its completion this year, in contrast with the stalled state of the last several years. — Amber McCullagh
4. Increase in methane measurement pressures.
The democratization of data will continue to increase, pushing companies to perform more self evaluation with emergent measurement technology. By the end of year, we expect the MethaneSAT launch and the controversial Super Emitter Response Program of the Oil and Gas New Source Performance Standards (NSPS) to be finalized.
We also anticipate continued expansion in OGMP 2.0 membership and MiQ gas certification, both of which require measurement and reconciliation. Academic and Global Methane Studies will continue to garner funding. Carbon mapper data will grow. And finally, the Environmental Protection Agency (EPA) will figure out how to implement the empirical data requirements into the U.S. EPA Greenhouse Gas Reporting Program from the IRA. — Dr. Erin Tullos
5. Growth in opportunities around carbon & voluntary markets.
We expect compliance carbon markets and voluntary markets for environmental attributes will continue to grow and present significant financing opportunities. As output-based pricing systems and cap-and-trade systems that utilize carbon credits as a compliance mechanism broaden in scope, tightening rates become more stringent, and costs on carbon increase, the demand for offset credits in compliance markets will increase.
Simultaneously, a global push toward carbon neutrality, along with ESG-oriented investing, will increase the demand and value of carbon credits in voluntary markets. However, both markets will continue to face limitations in offset protocol scope, issues of market fragmentation, concerns around additionality, quantification, and verification, and finally, hesitation due to uncertainty as they mature. — Dr. Erin Tullos & Corey Wood
Are you ready for what’s on the horizon for the energy industry in 2023? Connect with our experts now to learn more about how to prepare your business.