The above-ground risk environment for upstream investment in 2024 will be shaped by the interplay between divergent trends and pressures among governments, oil and gas companies and other industry stakeholders.

1. The risk of conflict-driven disruptions to oil and gas supply and demand will be sustained.
   Energy security will remain at the top of government agendas in 2024, with conflicts in the Middle East and Ukraine having laid clear the reality that energy transition still has a long way to go, and the potential that escalation could further disrupt oil and gas production and flows. Absent strong multilateral intervention, current disputes are likely to drag on, with potential new trouble spots including those in Asia-Pacific (e.g., in the South China Sea).
   
   
2. An alternative international oil market — anchored by Russia, mainland China and Iran — is becoming more entrenched.
   The fracturing of the global oil trade system has become permanent, marked by increasing oil exports from Russia and Iran to China. At the same time, Saudi Arabia's oil market management is becoming increasingly divorced from US policy and interests, with the Saudi government coordinating with Russia to optimize crude production and prices. One result is the increasing use of alternative (i.e., non-US dollar) currencies for trade in oil, which may serve to limit the effectiveness of future rounds of US sanctions.
   
   
3. OPEC is pushing back against global efforts to reduce the production and consumption of fossil fuels.
   The purpose of OPEC is shifting as the group (under the leadership of Saudi Arabia and the United Arab Emirates) seeks to counter international efforts to limit emissions by restricting the use of fossil fuels. Brazil's decision to join the group in 2024 (albeit as an observer) and Angola's near-simultaneous departure in part reflect these shifting aims, as well as a growing division between resource-rich and resource-constrained member states amid efforts to recalibrate production baselines and quotas.
   
   
4. Crude prices at current levels will pose fiscal challenges for several members of OPEC+, undermining political stability.
   
   

   Barring a significant shift in the oil price outlook, a majority of OPEC+ countries will face sustained deficits in their fiscal accounts, albeit with most of these maintaining current account surpluses. The re-emergence of fiscal deficits will keep pressure on the group to maintain collective supply cuts but could also increase incentives for individual countries to overproduce their quotas. Should oil prices fail to improve, social spending and subsidies will again come under pressure, with implications for political stability across more vulnerable members of the group.

5. It is the beginning of the end for unabated fossil fuels, but the pace and focus of international transition will remain highly contentious.
   
   International efforts to limit emissions of CO2 and other greenhouse gases (GHGs) from fossil fuels use have advanced modestly, with the closing statement of COP28 the first to explicitly call for "transitioning away from fossil fuels in energy systems in a just, orderly and equitable manner." In practice, governments will continue to balance transition efforts with energy security and economic development aims. Still, the explicit identification of the negative impacts of fossil fuels in an international treaty is likely to add grist to legal cases against energy policy and complicate financing for new upstream and infrastructure projects.
   
   
6. Methane represents a rare point of consensus and a rallying point for climate and fossil fuel interests.
   With methane accounting for nearly a third of global atmospheric heating, the need for methane emissions reduction represents a rare source of consensus between fossil fuel and climate interests. The roll-out of tighter restrictions on flaring and venting continues apace, seen as a win-win where gas can be captured and monetized. Notably, European international oil companies (IOCs) and Middle Eastern national oil companies (NOCs) appear to have accepted the principle that all future upstream projects will need to build in an element of emissions abatement, with enhanced methane capture just one tool being deployed alongside renewable power sources and higher cost technological solutions such as carbon capture utilization and storage (CCUS).
   
   
7. A spate of national elections (and the preceding campaigns) will shape future energy policy, foreign policy and taxes.
   The 2024 global election calendar features myriad countries, including the US, Mexico, Algeria, India and Indonesia alongside Russia and Ukraine, with polls also likely in the UK (although not required until 2025) and possible in Greenland and Israel. Most of these elections will have important implications for energy policy — particularly those in the US, where those parts of the Inflation Reduction Act (IRA) that are focused on climate and climate-associated infrastructure are seemingly at risk of reversal.
   
   
   
   
8. Local resistance to upstream oil and gas projects — and energy projects more broadly — is on the rise. Efforts to "keep oil and gas in the ground" are gaining traction in some states, spurred on by a combination of top-down initiatives and bottom-up civil society action. The result of Ecuador's August 2023 referendum, which if implemented will force the shut-in of a nationally important producing oil field, is one example of what can happen when a dedicated group of government actors and activists join forces. At the same time, carbon capture and storage and renewables projects and related infrastructure are also facing pushback from local governments and activists. If unchecked, such resistance risks derailing not only plans for oil and gas development but also government initiatives to diversify energy sources and reduce emissions.
   
   
9. Governments are adapting terms and conditions in the face of energy transition.
   Upstream industry actors are working to optimize their positions as energy transition proceeds. Investors in established producing areas are pushing for more favorable terms to justify continued investment, while producing countries with promising frontier-type opportunities are offering more attractive terms and conditions to incentivize development. Angola is a prime example of the latter, adjusting contractual terms to make long-stalled frontier Kwanza Basin discoveries economic and matching Namibe Basin terms to more competitive tax rates offered in neighboring Namibia. A slew of mature producers are expected to loosen fiscal terms in 2024 (e.g., Indonesia, India, Bangladesh, Libya, Trinidad and Tobago) in an effort to lure back IOCs and/or increase investment, while several others (e.g., Iraq, Nigeria, Algeria) are offering or planning to offer new acreage that will put recent improvements in terms to the test.
   
   
10. Large international oil companies "return" to exploration.
    Exploration spending will continue to grow in 2024, led by global IOCs looking for sizeable prospects where the potential return is large enough to ensure profitability in lower oil-price environments (particularly for frontier areas without existing infrastructure). These companies are betting big on offshore areas in the Eastern Mediterranean, Southern Africa (Namibia and South Africa), as well as Angola, Brazil, Guyana and Suriname because of favorable resource characteristics and investment conditions. The trend brings both positives and negatives for host governments, with large IOCs boasting capital adequacy, technical competence and an ability to get things done, albeit at the cost of superior negotiating power that may force host governments to rein in fiscal and domestic local content ambitions.

Learn more about our coverage of the upstream investment environment at E&P Terms and Above-Ground Risk.

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.