Providing numerical insights and commentary on the oil & gas sector and the wider energy industry.

Q1 Energy Review

Welcome to the Q1 2022 edition of the ERCE Energy Review, a quarterly that provides numerical insights and commentary on the oil and gas sector and the wider energy industry, is now available.

This issue covers:

• Outlook on the energy industry
• Oil & Natural Gas Trading Prices
• Brent Future Oil and UK NBP Gas Price Decks
• Oil & Gas Market Activity & Fundamentals
• Energy Transition and EUA Forecasts

Status Quo: Brent prices fell in the last quarter of 2021, going below $70/bbl, on demand concerns due to the rapid spread of the Omicron variant. Oil prices had recovered to nearly $80/bbl by the end of December, on positive inventory data and supply outages in Ecuador, Libya, and Nigeria. Gas prices remained elevated in Q4, as EU gas storage levels continued to decline at the start of the cold winter period.

Short-term: Short-term consensus on oil prices may depend on the severity of the spread of the Omicron variant and the possible containment measures in countries around the world, as well as any OPEC+ policy reactions. During the January OPEC+ meeting, the group had agreed to stick to the previously agreed plans to boost output by 400,000 bbl/day in February based on indications that the Omicron coronavirus variant would only have a mild impact on demand.

Medium-term: Medium-term consensus would likely rest on the dynamics between the anticipated rise in supply and the expected recovery in demand. US production could rise by as much as 900,000 bbl/day according to IHS Markit, as the Biden administration places pressure on companies to increase supply on looming inflation fears. The US administration had previously released millions of barrels from its strategic reserves in a coordinated attempt to lower oil prices. The US EIA forecasts that Brent prices will average around $70/bbl in 2022, with the expectation that growth in US and non-OPEC production will outpace slowing growth in global oil consumption.

Long-term: Long-term consensus remains heavily debated, as high energy prices raise questions regarding the best approach to the energy transition. The CEO of TotalEnergies warned that a prolonged period of elevated natural gas prices might threaten the energy transition, as countries may be discouraged to switch from coal to gas due to high energy prices. According to S&P Global Platts, the energy crisis has prompted concerns around the indiscriminate phasing down of coal, with China reassessing its energy policies with discussions of coal-fired generation units to be kept as spare capacity instead of dismantling them.