The energy industry has been an exciting market to watch for several years now. We’ve seen several fascinating changes occur, from the rise of green energy and renewables to the discovery of vast amounts of natural gas in the US. There are several exciting trends we’re noticing for the coming year. Here’s an overview of what we see as on the horizon for 2022.
Ongoing Uncertainty Due to the Global Pandemic
The ongoing recovery from the COVID-19 pandemic has had a dramatic influence on the industry. And with that influence comes uncertainty in the market. It’s also worth flagging that the evolving effects of consumer behavior on energy demand because of the pandemic present a wide range of potential outcomes for energy consumption. Supply uncertainty in the forecast results from the production decisions of OPEC+ along with the rate at which U.S. oil and natural gas producers increase drilling at forecast price levels.
Oil Inventories and Pricing Projections
According to the US Energy Information Administration Short Term Energy Outlook, crude oil prices have risen over the past year due to steady draws on global oil inventories. They averaged 1.9 million barrels per day (b/d) during the first three quarters of 2021. In addition to sustained inventory draws, prices increased after OPEC+ announced in October/November that the group would keep current production targets unchanged. The EIA expects that growth in production from OPEC+, U.S. tight oil, and other non-OPEC countries will outpace slowing growth in global oil consumption and contribute to Brent prices declining from current levels to an annual average of $72/b.
U.S. Crude Oil production is forecast to rise to 11.6 million b/d in December, increasing to 11.9 million b/d in 2022 as tight oil production rises in the United States. Growth will come largely due to onshore operators increasing rig counts, which is expected to offset production decline rates. The EIA forecasts that global consumption of petroleum and liquid fuels will increase by 3.3 million b/d in 2022.
In recent months, the rising natural gas prices reflected U.S. natural gas inventory levels that are below the five-year (2016–20) average. Despite high prices, demand for natural gas for electric power generation has remained relatively high. Along with strong global demand for U.S. liquefied natural gas (LNG) has limited downward natural gas price pressures. The Henry Hub spot price is expected to average $5.53/MMBtu from November through February 2022. From there, EIA projects it will generally decline through 2022, averaging $3.93/MMBtu for the year amid rising U.S. natural gas production and slowing growth in LNG exports.
They forecast that U.S. inventory draws will be similar to the five-year average this coming winter. We expect that factor, along with rising U.S. natural gas exports and relatively flat production through March, will keep the U.S. natural gas prices near recent levels before downward price pressures emerge. Because of uncertainty around seasonal demand, they expect natural gas prices to remain volatile over the coming months, with winter temperatures to be a key driver of demand and prices.
U.S. LNG exports averaged 9.8 billion cubic feet per day (Bcf/d) in October 2021, up 0.3 Bcf/d from September, supported by large prices differences between Henry Hub prices in the United States and spot prices in Europe and Asia. LNG exports resumed from Cove Point LNG in late October after that facility’s annual maintenance was completed. This winter, LNG exports are expected to increase in the EIA forecast, averaging 11.0 Bcf/d from November through March. High levels of LNG exports are expected to continue into 2022, assuming that global natural gas demand remains high and several new natural liquefaction trains—the sixth train at Sabine Pass LNG and the first trains at the new LNG export facility, Calcasieu Pass LNG—enter service.
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