S&P Global Commodity Insights anticipates global gasoline demand will peak this year, according to its recently published 2025 Energy Outlook. This change is attributed to a rise in electric vehicle (EV) adoption and advancements in fuel efficiency for gasoline-powered vehicles. These factors are starting to offset the demand growth fueled by economic development and population increases, especially in emerging markets.
Contrasting with this demand peak is notable refining capacity additions, including the high-gasoline yielding Dangote Industries Ltd. subsidiary Dangote Petroleum Refinery and Petrochemicals FZE’s (DPRP) refinery in Lagos, Nigeria, that is projected to fully stream in 2025 (OGJ Online, June 26, 2024). Equipped with a nameplate crude processing capacity of 650,000-b/d, DPRP’s refinery, Africa’s largest, is expected to shift gasoline trade flows as it adds to capacity additions in Mexico and the Middle East.
“The imbalance is expected to pressure margins and result in accelerated rationalization of refining capacity, especially in the Eastern US and Europe but also in China and other markets. These dynamics could impact crude markets and the crude slate of the shuttered refineries, which could well be heavier than the expected crude intake at Dangote. So far, Dangote's crude has come from the US and Nigeria, but the plant is only at about half-capacity rates. Refining margins are expected to enter a down-cycle period and a return to mid-cycle margins will depend predominantly on the rate of refinery closures—as opposed to the rate of demand growth, which could have been expected in past recovery cycles,” said S&P.
OPEC+’s dilemma
Meantime, as S&P Global Commodity Insights noted, OPEC+ has been in a difficult position for several years to achieve its objectives of moderately high prices and increased production volumes. Due to strong oil production growth in the Americas (primarily the US, but also Canada, Guyana, and Brazil) and decelerating oil demand growth, OPEC+ or a subset of its membership has cut oil supply four times since 2022, only to see prices continue to generally weaken.
In early June, OPEC+ decided to begin a year-long process of gradually raising production that would start in October 2024, attempting to bring back supply without overly deflating prices. The group, however, has consistently stated that these plans are subject to change, particularly if market conditions are not supportive of such a move. In September 2024, OPEC’s Joint Ministerial Monitoring Committee adjusted the timeline, delaying the increase to December. In early November 2024, OPEC+ decided to again postpone the increase in production to January 2025. On Dec. 5, OPEC+ once again delayed unwinding production cuts, this time by an additional 3 months.
“In our view, OPEC+ will find it difficult to increase supply at all in 2025 without notably weighing on prices since non-OPEC production growth is expected to be greater than total global oil demand growth.”
LNG
The global LNG market is set to undergo substantial transformation in 2025 following 2 years of modest growth, with total trade increasing by just 10 million tonnes (3%) compared to 2022 levels by 2024. The next major wave of supply starts in 2025 and will be kicked off from new liquefaction capacity coming online in North America.
“Of the 27 million [tonnes] of new supply expected in 2025, nearly 90% is expected from North America. According to public statements, facilities such as Corpus Christi Stage 3, Plaquemines LNG, LNG Canada, and Costa Azul LNG are all expected to ramp up throughout 2025. The uptick in exports will put significant strain on the domestic US natural gas market as feed gas demand picks up faster than production can respond. This is likely to pull inventories back into a relative deficit compared to 5-year average levels throughout most of the year and put upward pressure on cash prices across the country, although higher prices are expected especially in the [US Gulf Coast],” S&P said.
“Henry Hub is expected to average more than $4.0/MMbtu in 2025 after 2 years averaging below $3.0/MMBtu. However, the impact of the LNG surge is not expected to put downward pressure on global gas prices until 2026,” according to S&P.
Trump’s second term
“With the election of Donald Trump to a second presidency of the US, expect a scene shift to a very different path for energy and climate policy than the 4-year Biden presidency. Based on actions from the prior Trump administration, statements made during the election campaign trail, and recommendations of the Project 2025 report, the second Trump administration will likely look to pull the US out of the Paris Agreement, rescind and redraft existing vehicle emission regulations, weaken methane regulations, and reduce support for EV adoption,” said S&P.
“Furthermore, we expect the Trump administration to grant export approvals to all pending LNG export projects which could support final investment decisions (FIDs) in second-half 2025. While a complete repeal of the Biden administration’s signature Inflation Reduction Act (IRA) is unlikely given Senate filibuster rules, the Republican Congressional majority can and likely will leverage the budget reconciliation process to at least repeal parts of the IRA.”
In addition, the change in US administration raises questions regarding US foreign policy that may impact energy markets, specifically the ongoing conflicts in Russia/Ukraine and the Middle East, as well as the implementation of sanctions on Iranian oil exports. Also, President-elect Trump has pledged to implement and raise tariffs on imports from several countries, but China in particular, which, if implemented, would have outsized influence on the US, Chinese, and global economy.
“The first Trump administration proved to be unpredictable, and market players will need to be nimble when the second Trump administration begins in January,” said S&P.
