Standard & Poor's has raised its estimates on oil and gas prices for 2022 and 2023. An action that today is mainly discounting the effects of the war in Ukraine and the sanctions imposed on Russia which risk blocking supplies of gas and oil to all 'EU. For this reason, the rating agency has revised its price estimates upwards natural gas for North America (Henry Hubs e AECO) for the remainder of 2022 and 2023 and for the Dutch FTT for 2023, as well as its expectation for the long-term price for 2024. Not only gas, in fact, but S&P has also raised its estimates on gas prices Brent oil e West Texas Intermediate (WTI) for 2022 and 2023.
The agency explains that it has increased its price assumptions for 2023 and 2024 because a market rebalancing is expected to take longer, due to structurally limited volumes available for spot sales or before the new large capacity liquefied gas production starts.
In addition, while S&P expects higher price estimates to lead to near-term improvements for oil and gas producers across all rating levels, S&P maintains its focus on the financial policies of investment-grade issuers and the use that they intend to make of any additional cash flow over the next two years. Many speculative-grade issuers already have very robust credit profiles, with ratings on hold pending an improvement in their corporate risk profiles. Consequently, S&P does not expect any short-term changes in oil and gas prices to translate into widespread upgrades in the E&P (exploration & production) sector.
Natural gas price: the comparison between North America and Europe
Natural gas demand and prices generally decrease with warm temperatures. Instead, gas prices continue to rise. This is due to several factors that, according to the report, will remain in effect until 2024, as European countries seek to reduce their dependence on Russian methane and increase supplies of liquefied natural gas from the United States. Additionally, the reopening of the global economy and the energy transition to alternative energy sources will continue to support higher gas prices.
In detail, the indicative price for 2022 of Henry Hub quality gas will go to 5,75 US dollars from 4,75 and the Canadian AECO price to 4,25 from 3,50 dollars, while the agency confirmed the indicative price of Dutch TTF futures contract at $30. For 2023 it points to an increase in the Henry Hub to 4,25 from $3,75, and the AECO to 3,25 from $3, and the TTF to 25 from $18. Instead, the forecasts for 2024 and beyond were confirmed except for the TTF which is revised to 15 from 12 dollars.
The extreme geopolitical uncertainty due to the conflict between Russia and Ukraine continues to exacerbate the already difficult European gas market. Even as Russia continues to supply gas to most major markets, concerns remain about enough gas given sanctions on Nord Stream 2 and the risks associated with the Ukrainian transit, as well as the potential sanctions and the new payment mechanism set up by the Russian government. The high prices are also supported by the structural decline in European domestic production and the fact that most of global LNG supply is locked into long-term contracts. However, with Europe's winter season over and Asian LNG demand showing some price sensitivity, S&P believes that prices of around $30 per mBtu (million British thermal units) could be enough to justify destroying demand for gas and to reroute flexible LNG cargoes from Asia for the remainder of 2022.
Furthermore, the plan of Europe to fill gas depots to 80% by November 1, 2022 and 90% by October 1, 2023, adds pressure on prices. The planned phasing out of coal and nuclear power generation on the Continent, as well as the lack of energy storage to supplement intermittent renewable energy generation, leaves viable alternatives to gas limited in the coming years.
At this stage, the total ban on Russian gas in Europe – specifies the rating agency – it is not part of the study. Despite recent announcements of potential disruptions in Russian supplies to Poland and Bulgaria, which have refused to use the new euro-to-ruble payment mechanism, shipments to Germany, Italy, Hungary and other major markets are continuing. However, a material cut in Russian gas supplies remains a clear downside and could trigger further spikes in volatility and possibly government intervention.
Oil prices will remain volatile
Oil prices will remain volatile, concludes S&P, as buyers of Russian oil are looking at other possible sources of supply and EU restrictions will take effect shortly: expected on May 15th. However, the lockdown in China continues to offset concerns about supply shortages from Russia.
Therefore, S&P has raised its estimate on Brent for 2022 from 85 to 90 dollars a barrel and that for 2023 from 70 to 75 dollars a barrel. From 2024 onwards he sees European oil still at 55 dollars a barrel, while Brent at 50.
OPEC has some spare capacity, the US agency underlines, especially with Saudi Arabia and the United Arab Emirates, but has shown little willingness to increase production beyond the declared rate of 400.000 barrels per day (bbl/day). d). Furthermore, the prospects that offline Iranian production (about 1,5 bbl/d) will soon come online appear to be increasingly low. And while demand is still benefiting from the reopening of the global economy and pent-up consumer demand for vacations, travel and leisure, further into 2022 and 2023, the growth trajectory could decline on higher market expectations. weak, as inflation and interest rate decisions hinge on conflict-related challenges.