Energy market insight — 2022 themes
Published by Sara Simper,
Enverus Intelligence Research, a part of Enverus, the leading global energy data analytics and SaaS technology company, has released a report analysing key trends that it believes will shape energy markets in 2022.
“2022 is shaping up to be a strong year for the energy sector. Oil and gas businesses are more profitable and attractive to inflation-concerned investors today than in the last decade. Despite the industry’s focus on profitability, we still see significant production growth out of North America driven by the Permian, Haynesville and Montney plays,” said Dane Gregoris, managing director of Enverus Intelligence Research and author of the report. “Valuations have reset across the new energy sub-sectors, particularly in EV charging and energy storage. We believe this presents numerous investment opportunities.”
Key takeaways from the report:
- The oil E&P beta trade is largely over, but a rotation of yield-focused investors into large, high-quality E&Ps with strong distribution programs could drive incremental multiple expansion. There is more rationale for natural gas-exposed E&Ps to re-rate on a long-term basis given low implied gas prices (US$2.75 Henry Hub or ‘HH’) compared to our mid-decade outlook (US$3.50+ HH). However, spot prices for natural gas in North America likely will trade lower over next couple of years (US$3-3.25 HH).
- There is potential for weakness in oil markets during 1H22 relative to the current strip. Unexpected outages in Libya and disappointing OPEC+ production growth is not enough to offset the combination of omicron, seasonal-driven demand weakness and growing US supply (1 million bbl per day this year). Nevertheless, low crude and product inventories and high geopolitical tensions will drive extreme price volatility until stocks return to normal. In 2H22, demand risks tilt decidedly bullish. Supply chain issues fade and vaccinations accelerate, offering strong support for the Brent prices to range US$75-80 per bbl.
- Although one might see downside to NYMEX strip prices over 2022-23, longer term embedded price expectations for HH in gas-focused E&P equities and assets will ultimately rise beyond US$3.50 per million Btu. Gas equities present opportunity for long-term investors as high European and Asian prices continue to incentivise LNG final investment decisions. Higher mid-decade demand expectations should help multiples expand for natural gas-weighted E&P businesses with the capacity for sustainable long-term distributions, both in terms of inventory and takeaway capacity.
Read the article online at: https://www.worldpipelines.com/special-reports/03022022/energy-market-insight-2022-themes/
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