Friday 29 Mar 2024
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KUALA LUMPUR (Dec 15): Oil and gas supply is expected to grow faster in 2022 than it did in 2021.

Independent provider of information, analysis and benchmark prices for the commodities and energy markets S&P Global Platts on Monday (Dec 13) released its 2022 energy outlook.

S&P Global Platts head of integrated analytics Jennifer Van Dinter said energy markets had been on perhaps the biggest roller-coaster ride in history over the past two years, seeing both negative prices and record prices.

"As we enter 2022, most commodity markets remain tight as supply has struggled to match the rebound in demand during 2021, resulting in a drawdown of inventories and much stronger pricing," she said.

For 2022, S&P Global Platts Analytics expects supply to catch up and even exceed demand growth, highlighted by an increase in liquefied natural gas exports, a rebound in US shale oil, gas and natural gas liquids and the return of investment in non-OPEC production. Fears about the impact of new coronavirus variants like Omicron on demand will add to volatility but are likely overblown.

Prices to normalise

S&P Global Platts said prices will begin to normalise as inventories recover.

It said amid this process, "we expect to see a greater divergence between oil and gas prices as oil starts to rebalance in the first quarter, while gas markets will remain tighter for longer".

It said natural gas markets are vulnerable to price shocks if "we experience the below-average temperatures we experienced last winter, particularly outside of North America".

The firm said the divergence between oil and gas prices will see increased light-end oil products into traditional gas markets, tightening liquefied petroleum gas supply and by extension gasoline.

Covid variants

S&P Global Platts said the rise of the Omicron variant in November raised fears that the recovery in oil demand will be derailed by renewed restrictions on mobility.

The report expects that new variants and localised outbreaks will occur in 2022, but does not expect the same magnitude of restrictions on mobility, particularly international air travel, that occurred in 2020 and early 2021.

“We project that oil demand will increase by over four million b/d in 2022.

“Even in a case where Covid-19 proves to be more disruptive than expected, oil demand will still increase by almost three million b/d at a minimum as vaccination continues to build globally and, importantly, in countries with high gross domestic product per capita.

“Oil demand growth could exceed six million b/d if we revert to normal more quickly. The strength in demand will push refinery runs and utilisation rates (even including increased refining capacity) close to their historical ranges, improving margins,” said the firm.

Meanwhile, Dan Klein, the head of energy pathways, analytics at S&P Global Platts, said: "2021 was a clear example that recalibrating from such disruptive events like Covid-19 are often multi-year exercises.

“While recalibration will continue in 2022, it is likely that not all energy markets will be back to normal by the end of the year, particularly as the needs of the energy transition will require further disruption to business as usual,” he said.

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