“There has rarely been a more compelling time to invest in energy,” said Barclays analysts in their latest Global Energy Outlook, released this morning.
Here are four key takeaways:
Oil price risk has swung from downside to upside, thanks to geopolitical risk.
Geopolitical risk has supplanted US production growth as the big global story in oil. “Heightened geopolitical risks across the Middle East and North Africa have emphasized just how little spare capacity exists within the global oil market, and fears of an oil price collapse have receded,” the bank said. Syria is grabbing all the headlines, but supply outages in Libya and Iraq pose more of a threat to supply.
Barclays is forecasting Brent and West Texas Intermediate will average $110 per barrel $104/bbl respectively next year.
Oil and gas company valuations are on the way up.
“North American crude differentials will continue to progress from a headwind to a tailwind over the next twelve months,” the bank said. Many US and Canadian companies’ bottom lines have suffered from a wide spread between North American grades and Brent (for more on this, see Benchmark Crude Oil Price Differentials Narrow, but for How Long?).
The bank likes companies with exposure to oil prices, singling out the US’ ConocoPhillips, EOG, Noble, Anadarko and Concho Resources, and Canada’s Suncor, MEG, Baytex and Crescent Point.
Global LNG markets will remain tight through 2014.
The start-up of two liquefaction projects this year – Skikda in Algeria and Luanda in Angola – has not lifted Atlantic Basin supply, with added volumes offset by production declines in Egypt, Nigeria and Norway. In the Pacific Basin, Australian output adds have been offset by Indonesian declines. Demand remains robust in Asia and Latin America.
Four new LNG projects are coming on stream next year: Queensland/Curtis, PNG LNG, Donggi Senoro and Gassi Touil. But even combined with expected demand declines as Japan and South Korea – the world’s largest LNG importers, -restart nuclear generation, this may only slightly relieve market tightness in 2014. “Even without any rise in South Korean and Japanese consumption, we see Asian demand growth matching global supply increases next year,” the bank’s natural gas analysts said.
Industrial demand is gradually tightening US natural gas balances.
Industrial demand growth is driving a gradual recovery in US natural gas prices. Coal-to-gas switching will limit the pace of price rises, but will also set a price floor of about $3.00 per million Btu. Barclays forecasts suggest US natural gas will average $3.73/MMBtu this year, rising to $3.88/MMBtu next year and $4.15/MMBtu in 2015.
