2022 Integrated Energy Outlook: When will the bubble burst?

IN 2022, S&P Global Platts Analytics expects supply to catch up and even exceed demand growth highlighted by an increase in LNG exports, a rebound in US shale oil, gas and NGLs 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.

As an increasing amount of the world’s population with the highest GDP/capita become vaccinated, the potential magnitude of the impact on economic activity and demand will shrink.

Aviation sector demand will likely be the most sensitive if infections become more severe but impacting a smaller number of flights as outbreaks become increasingly localized.

Prices will begin to normalize as inventories recover. 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 longer.

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 divergence between oil and gas prices will see increased oil light-end products into traditional gas markets, tightening LPG supply, and by extension gasoline.

At the same time, we expect strong demand growth for diesel to fuel commercial transport as supply chains debottleneck, as well as the gradual ramp up of aviation activity.

While we expect stocks to recover during the year, the lack of spare capacity both in gas and oil, will leave the market vulnerable to disruption. This will be all the more difficult in light of a handful of geopolitical risks looming in key areas of supply: Iran, Libya, and Nord Stream 2.

Any disruption in global supply chains will also have outsized influence on prices. While oil prices have recently corrected downward, the key test will come in the third quarter as summer demand challenges supply resilience – the absence of an Iran deal could leave the market vulnerable to breaking $100 per barrel ($/b) if combined with any other disruptive event.