BTU Analytics recently wrote about several trends and events that significantly affected the oil and gas industry in 2022. Now, as the new year begins, BTU Analytics looks toward several topics that are likely to drive change in the oil and gas industry in 2023. Looming fears of a recession, inflation remaining at elevated levels, and supply and demand balances in flux are only a few examples of these drivers. This Energy Market Insight highlights a collection of areas that BTU Analytics will likely be focusing on over the coming year.
Natural Gas Pricing
BTU Analytics’ call on weakened Henry Hub pricing continues to be realized as the new year is ushered in. As has been forecasted in the Henry Hub Outlook over the past year, BTU Analytics expects the natural gas benchmark to approach $3 in the summer and remain weak through 2024. On the supply side, robust U.S. gas production growth is forecasted to continue, primarily driven by associated gas from the Permian Basin. On the demand side, no new LNG export facilities are projected to come online before the end of the year and industrial demand looks to moderate as costs increase and fears of a recession grow. This disconnect in gas fundamentals will cause gas storage to run at near-record utilizations at its summer peaks.
Furthermore, while a weakening of Henry Hub will generally tighten basis, regional price volatility is likely to persist as infrastructure constraints seen across much of the country in 2022 remain unremedied. In the quarterly basis outlook, BTU Analytics notes relief for the Permian and Haynesville will not come until late 2024, which will keep basis in these regions both weak and volatile.
Global Oil
Entering 2023, vast uncertainty exists around the global oil market. BTU Analytics’ latest Oil Market Outlook highlights this uncertainty and expects global liquids balances to be tight through 2023. Both the Russian invasion of Ukraine and the resulting sanctions and price caps placed on Russian outputs by Western nations are likely to push global balances short as Russian production slows. However, the timeline for this decline lingers in flux as Russian tankers continue to find buyers in China and India. Additionally, the fallout from China’s recent COVID policies will continue to drive demand-side uncertainty as the country reels from economic and medical turmoil.
While BTU Analytics remains bullish on oil pricing relative to the forward market, U.S. oil production can significantly influence global balances and prices. The latest Upstream Outlook calls for robust oil production growth in 2023, driven by the Permian, but infrastructure and operations risks could restrict that growth from manifesting. BTU Analytics also sees 2023 supply-related risks around how producers respond to cost inflation, labor constraints, and regional takeaway limitations.
ESG Spending
A cornerstone of producer messaging in the high pricing environment of the past several years, the future of ESG spending may be risked if the forecasted drop in gas pricing this year is realized. Functioning as a key component of CapEx guidance over recent years, the high costs and lengthy timelines of CCS infrastructure buildouts and other similar projects may be difficult to justify in lower pricing environments. While the Inflation Reduction Act’s methane fee will provide an incentive for reducing emissions, it does not phase in until 2024. Additional methane emission regulations have been proposed by multiple arms of the federal government but have yet to amount to anything concrete. Expect more insights on these and other ESG topics as BTU Analytics continues to build out its energy transition offerings.
Conclusion
While 2022 brought its fair share of volatility to the energy sector, 2023 looks to do more of the same. In a year likely to be marred by uncertainty in oil and gas markets both nationally and abroad, BTU Analytics looks forward to offering insights and analysis that provide a comprehensive throughline on trends within the oil and gas industry. For more info about any of our energy market offerings, please email info@btuanalytics.com.
