The year 2022 brought global economic growth following the 2021 Covid-19 caused downturn, largely tied to the development and global distribution of Covid-19 vaccines. High energy prices and supply chain pressures spurred record-high inflation and a growing energy crunch.
Natural gas was one of the strongest markets in 2022, substantially
outperforming other commodities. Natural gas prices have risen considerably
since the conflict in Ukraine started in February 2022. This event precipitated
a catastrophic energy crisis in Europe throughout the course of the summer,
which impacted worldwide markets and has yet to be resolved.
In the US, the Henry Hub price of natural gas had a wild year. After
soaring by as much as 170% from US$3.5/MMBtu in early January to US$9.97/MMBtu
in August, the highest level since July 2008, US natural gas
prices plummeted by 40% between their summer peak and December. The
average Henry Hub price for December was US$6.3/MMBtu.
In Europe the AME European Composite
Gas Price for natural gas, skyrocketed from roughly US$30/MMBtu prior to the
start of the war to an all-time high spike of US$108/MMBtu in August before
falling to around US$40/MMBtu in December.
Europe's energy crisis, weather-related winter demand, and technical
issues continue to have a huge impact on the global natural gas
market. The question posed now is will natural gas be able to repeat its
stellar performance next year, or will a recession in the first quarter of 2023
accelerate the decreasing trend that began in the autumn?
As of the end of December, the
year-to-date increase in US Henry Hub natural gas prices was 51.2%, the highest
annual increase since 2016 and up from the 47% recorded in 2021. AME’s
European Composite Gas Prices have climbed from US$27.2/MMBtu in January to
US$46.0/MMBtu at the end of December a 68.9%
year to date increase, but lower than the 262% spectacular performance experienced last year.
The real start of the natural
gas crisis in Europe actually was in the summer of 2021, when a drop in wind
energy generation led to an increase in gas consumption at the same time that
Russia began to restrict supply.
The Ukraine crisis has further
exacerbated an already tight market, with Gazprom opting to suspend gas supply
via the Nord Stream pipeline before summer 2022, forcing European prices to
reach an all-time high of almost US$108/MMBtu on August 23, 2022.
As natural gas prices in Europe
skyrocketed, European buyers sought alternatives, ultimately importing
enormous volumes of LNG from the US in order to meet mandated reserves
ahead of the winter.
Henry Hub prices have risen as a
result of increased price premiums of LNG exports from the US to
Europe. The Northern Hemisphere's mild winter so far has prevented an
early seasonal depletion of gas storages in Europe and the US, which are still
at record levels.
As of early December 2022, Europe's gas storage levels were
92% full, a very high level for the time of year and near to 10-year highs due
to milder weather conditions heading to the winter. As a result, natural
gas prices have been under pressure, falling rapidly from the sky-high levels
seen in the summer.

Both Brent and
WTI crude prices started 2022 by reaching their highest levels since 2008
as Europe was being plunged into an energy crisis that remains unresolved, but
as momentum has reversed throughout the year, they are both now facing their
lowest level in 2022.
The year
started off with strong momentum in January which had been building throughout
most of 2021. At this point, markets were starting to see more clarity about
the end of the pandemic as vaccine rollouts were gathering pace worldwide.
Price volatility picked up throughout the end of January as headlines were
reporting Russian troops mobilising as tensions were escalating in the East.
By
February, prices were seeing daily ranges of up to 10%. By mid-February, as
fighting escalated in separatist regions, oil prices had risen over 25% since
the beginning of the year. March saw the highest average daily ranges on record
but despite the volatility, the price closed only 5.7% above where it had
started the month.
Throughout
the first half of the year, oil prices kept a bullish bias, with Brent and WTI
reaching their second peaks of the year to average US$117.4/bbl and
US$114.1/bbl in June. The build-up to this level seemed more sustainable and the
average daily range shortened considerably as volatility started to wane.
Then came
interest rate hikes from central banks to combat soaring inflation and concerns
moved to the risk of a global recession, which would have a damaging effect on
the global oil demand. After the peak in June, Brent crude spot prices
commenced a steady decline over 3 months, shedding 23% to average
US$90.4/bbl in September, its lowest level since early January.

Since then,
OPEC+ stepped in with production cuts to counteract the selloff in crude
prices. In December however, spot crude fell to its lowest this year, Brent
trading at an average
US$80.8/bbl a sharp decline from US$117.4/bbl in June. The supply
uncertainties that gripped the market following the Russian
invasion of Ukraine have faded while demand-related concerns amid global
economic growth worries have gained prominence.
While
lower crude oil prices came as a welcome relief to consumers faced by surging
inflation, the full impact of embargoes on Russian crude and product supplies
remains to be seen. As we move through the winter months and towards a tighter
oil balance in 2Q 2023, another price rally cannot be ruled out.
Imports
and Exports
Global natural gas demand will grow
at a modest 0.6% in 2022 to 10.8Bcmpd, then a further 1.1% in 2023 to
10.9Bcmpd. Growth takes place in Asia, led by China and India where gas
benefits from strong policy support. Global natural gas demand growth is forecast to falter for the next two
years, as soaring prices and the threat of further Russian supply cuts
discourage consumption.
Global natural gas supply, dominated
by the US and Russia, will be 10.7Bcmpd in 2022, down 2.3% from 2021. Supply
will then rebound by 2.1% to 10.9Bcmpd in 2023. US natural gas production is
expected to hit a record high of more than 2.8Bcmpd by the end of the year.
The
sharp drop in exports of Russian gas by pipeline since the start of the war in
Ukraine in February has slashed Russia’s gas production this year, but an even
bigger cut in output capacity will be seen in 2023, as there is no sign of
flows to Europe being restored.
Liquefied natural gas (LNG) is
expected to remain the main driver behind global gas trade growth, but it faces
the risk of prolonged overcapacity as the build-up in new export capacity from
past investment decisions outpaces slower than expected demand growth.
Global liquid hydrocarbons demand
will grow in 2022 to reach 101.2Mbpd, up 3.4% from 97.9Mbpd in 2021 underpinned
by the insatiable appetites of countries in North America, Asia, and Europe. In
2023, 0.4% growth takes demand to 101.6Mbpd, as crude oil use for power
generation and gas-to-oil switching boost demand.
Global liquid hydrocarbons
supply will reach 100.5Mbpd in 2022, up 1.0% from the 99.5Mbpd in 2021. By
2023, supply will rebound 3.3% to 101.8Mbpd. Crude oil output in the Permian
Basin is set to hit another record of 5.5Mbpd in December, but production is
rising very slowly in the biggest US shale oil basin even though US prices have
surged in 2022. Production is being weighed down
by ongoing supply chain challenges in the industry and a
continued workforce shortage.
In
December, OPEC+ agreed to stay the course on output policy ahead of a pending
ban from the EU on Russian crude. OPEC and non-OPEC producers, decided to stick
to its existing policy of reducing oil production by 2Mbpd, or about 2% of
world demand, from November until the end of 2023. The EU banned all imports of
Russian seaborne crude from 5th December, while the US and other
members of the G-7 have imposed a price cap on the oil Russia sells to
countries around the world.
Libya’s
government, National Oil Corp. and protesters reached an agreement to reopen
oil fields and export terminals in July.
The deal follows a pledge from the new head of Libya’s National Oil
Corp. to end a blockade and double crude production to 1.2Mbpd.
Libya, a
member of the OPEC, has seen its production plummet by about 50% in 2022 due to
a power struggle between rival governments, while chronic under-investment in
infrastructure has also curtailed output. The slump has exacerbated a supply
shortage in oil markets, putting upward pressure on prices that have added to
inflation across the globe.
In US - dry natural gas production in 2022 is expected to set an annual
record, averaging 2.8Bcmpd as the US became the world’s largest LNG exporter. From December through March
production of dry natural gas is expected to drop about 14MMcmpd. This forecast
production decrease is primarily due to weather, specifically the possibility
of extreme winter weather events and freeze-offs. Mild weather in key
producing regions could prevent those declines.
The 2022
growth in natural gas production was driven by increased drilling
activity in the Haynesville region in Louisiana and East Texas and in the
Permian region in West Texas and Southeast New Mexico. Recent pipeline
infrastructure expansions in both regions facilitated the increases in
production.
US LNG
exports peaked at 317MMcmpd in the first half of 2022 as facilities operated
close to maximum capacity, and a new facility, Calcasieu Pass, came
online and steadily increased output in 2022. However, a fire at
Freeport LNG in June resulted in the shutdown of the facility, removing
about 57MMcmpd of US LNG export capacity in second half of 2022. The Freeport
facility recently announced plans to come back online in December.
Natural gas
pipeline exports from the US flowed to either Canada or Mexico. Pipeline exports reached almost
255MMcmpd in November, near its previous record and are expected to reach
record high up to 283MMcmpd through the upcoming winter months.
In
Russia - Gazprom's natural gas production between January and November of this
year decreased by 19.4% to 376.9Bcm compared to the same period last year.
Gazprom's natural gas exports to countries outside the CIS also fell by 44.5%
to 95.2Bcm during the same period.
According to Gazprom, gas exports to China via the Power of Siberia
pipeline increased, exceeding contract requirements.
Demand had fallen partly
because European countries began to consume gas from their storage facilities.
Global gas demand dropped by more than 55Bcm in the first 11 months of this year,
with the EU and UK holding the majority share of the demand of 50Bcm.
India
announced it was poised for a sizeable production boost from some of its
strategic deep-water fields. Reliance Industries and its partner BP are
expected to initiate gas production within weeks from the MJ deep-water field
with peak production expected to be up to 12MMcmpd.

Closures
and Production Cuts
In Europe, the
Dutch government doubled down on its commitment to close Europe's largest
natural gas field, the Groningen gas field, despite skepticism from local
residents and opposition from energy experts.
The
Groningen field has been a vital source of natural gas and income for the
Netherlands since the 1960s. But earthquakes and tremors linked to gas
extraction in the field have been a source of stress and misery for residents,
prompting the Dutch government to announce that the field would be shut down by
the end of 2024.
The
move comes as Europe scrambled to replace Russian fossil fuels following
Moscow's conflict with Ukraine, and European governments are funding massive
public support measures to help households and businesses with skyrocketing
energy bills.
Meanwhile, US
shale oil drillers continue to show little sign of responding to high global
prices with more production, only now it's not just their focus on rewarding
shareholders that's holding them back, but also a preoccupation with soaring
costs. US oilfields currently pump about 12Mbpd, 8% higher than a year
ago but still 1Mbpd below the pre-pandemic all-time high.
Just about the
only American companies planning to significantly expand output are supermajors
like ExxonMobil Corp. and Chevron Corp. or family-owned operators such as
Mewbourne Oil Co. Shale explorers also are unwilling to invest
beyond current drilling plans because of "deteriorating efficiencies"
amid cost inflation. US natural gas production on the other hand increased
2.3% to 2.8Bcmpd supported by strong LNG exports.
The reduced but still dominant crude
oil output of the US continued to unsettled OPEC, leaving a question mark over
the cartel’s future. OPEC's December
cuts and Alberta’s takeaway restrictions combined to lower 2022 production,
though by less than previously anticipated.
New
Fields, Restarts and Expansions
Israel
is boosting offshore natural gas output and aims to reach a supply
agreement with Europe as the continent looks to replace the Russian
supply. The country is on track in the
next few years to double production to about 40Bcm from about 20Bcm as it
expands current projects and brings new fields online.
Israel
currently supplies its own market and, through a local network of pipelines
exports to neighbors Egypt and Jordan, while much of the additional gas is
earmarked for Europe. Karish, a gas
field some 90 km off Israel's coast was due to come online this year and
recently more deposits have been discovered nearby.
In the
US, the Baker Hughes US drilling rig count, an important barometer of expansion
for the oil and gas industry and its suppliers, has risen dramatically in 2022,
a trend that promises to continue into 2023. In late December the country had
471 oil rigs and 105 gas rigs, compared to 620 oil rigs and 154 gas rigs in
2021.
Canada is looking to expand oil production by 900kbpd to make up for supply losses
from Russia’s war in Ukraine. About
300kbpd of unused capacity exists in the North American pipeline system, which
should be filled this year through higher output. Another 200kbpd of crude oil
could be shipped by rail if regulators approve it, and a further 400kbpd could
be added through pipeline reversals and technical improvements. By 2024,
the completion of the Trans Mountain pipeline expansion project to British
Columbia will give Canada even more capacity to ship oil to the US.
In
Brazil, Equinor and ExxonMobil Corp. took the first steps to expand an US$8Bn
oil development off Brazil’s coast. The firms want to boost future production
from the Bacalhau oil field, Equinor’s largest project outside of Norway with
more than 1Bn barrels of oil. A second
drilling rig and a second floating production platform are being considered for
the next phase along with a more than 160km long gas pipeline.
For ExxonMobil,
Bacalhau could provide its first barrel of oil from offshore Brazil, one of its
top growth prospects, and a new supply of oil from lower carbon operations.
First oil is due in 2024 from the venture’s 220kbpd production vessel.
Also, in Brazil, Equinor
resumed production in the Peregrino field, Campos basin, Brazil. Production was
suspended in April 2020. Since then, Equinor has executed a major program of
maintenance, upgrades, and repairs on the floating production storage and
offloading (FPSO) vessel, and has installed a new platform, Peregrino C. The
platform will extend the life of the field and add 250-300Mbbl. Peregrino is
the largest field operated by Equinor outside of Norway and the first of a
series of major field developments in Brazil. Remaining reserves from Peregrino
Phase I are estimated at 180Mbbl.
In Australia, Shell Australia received pipeline
licences from the federal regulator for its proposed pipeline connection
between the Crux gas field and the Prelude FLNG. The development of the Crux
field is estimated to cost US$2.5bn, with first gas in 2027.
Woodside put a Timorese development of the Greater
Sunrise gas field back on the table, reopening the gas-to-Timor studies for
potential development on the south coast of Timor-Leste. The two major project
issues have been the cost of a newbuild LNG facility in a remote part of Timor,
and the geological challenges offered by the Timor Trench, whose volatility and
seismic activity could rupture a pipeline.
Meanwhile, Santos received a full
Federal Court of Australia confirmation that it had failed to adequately
consult with Traditional Owners in establishing the Barossa gas project off the
Tiwi Islands in Australia. The Court victory upheld the Tiwi plaintiff’s
earlier win against Santos' right to drill in their sea country without
consulting them. Santos announced it would once again proceed with applications
for all remaining approvals to continue with its Barossa gas development. The
verdict will delay the project as a new environment plan could take up to 18
months to complete and would need to be reviewed afresh across the entire
project.
Mergers
& Acquisitions
In 2022, as of October oil and gas
M&A deals worth US$192.8Bn were announced globally, marking an increase of
25% year on year. The global oil and gas markets were awash with deals as oil
and gas players alike scrambled to rebalance their portfolios in light of
national climate goals and emission targets.
North America
M&A activity continued to focus on shale plays in the
southern US. While deal activity has been strong in the Permian, there was
increased interest in the Eagle Ford and Haynesville shales as well. Higher natural gas demand in Europe and Asia
post-pandemic drove asset investments in both natural gas production and LNG.
Deal-making in
the US shales was marked by two major mergers during 2022. The first merger was
announced in March and involved Oasis Petroleum and Whiting
Petroleum in a deal worth more than US$6.0Bn. This was followed by the
merger of Centennial Resource Development with Colgate Energy in May
for US$3.9Bn. Furthermore, Riverbend divested some of its non-operated shales
assets to an undisclosed buyer for a purchase consideration of US$1.8Bn.
Europe’s North Sea
The region remained a contentious one for M&A, as high barrel costs and maturing assets have left some companies
unsure about their future in the area. Despite this, Italian energy major Eni
started preliminary discussions to acquire Neptune Energy in what would be one
of the biggest oil and gas deals in recent years if it proceeds. The potential
deal could be valued at between US$5bn and US$6bn.
Neptune produces around
135kboepd from fields in eight countries, including the UK North Sea, Norway,
Germany, Algeria, the Netherlands, and Indonesia, where it shares a licence
with Eni. Approximately three-quarters
of Neptune’s global production is natural gas. European oil and gas majors like
BP, Shell, TotalEnergies and Eni have been more likely to sell oil and gas
assets than to buy them since setting targets to cut carbon emissions and shift
to greener forms of energy.
Middle East
Natural gas deals were the
popular asset for sale. Environmental
considerations continued to motivate an increasing number of M&A deals in
the Middle East, with vibrant 2022 activity that recorded a total deal value of
US$23.8Bn. Despite unfavourable macroeconomic conditions, 2022 saw M&A
activities returning to pre-pandemic levels with ‘green’ M&A deals
continuing to surge with dealmakers recognising the value-creating potential of
such transactions. Green deals increased from 5.0% in 2020 to 10.3% in 2021.
In one of the largest Middle East
mergers of 2022 Abu Dhabi National Oil Company will combine two of its key gas
subsidiaries, Adnoc LNG and Adnoc Gas Processing, to create Adnoc Gas with a
capacity of around 283MMcmpd of gas across eight sites.
Southeast Asia
Indonesia’s Medco Energi is on the lookout for more M&A
opportunities in Southeast Asia after successfully buying ConocoPhillips
Indonesian assets in a US$1.36 billion deal struck last year. The focus of any
expansion will be in Indonesia, Malaysia, and Brunei, where material
opportunities exist.
Aside from materiality, the key criteria for any M&A
deals includes operatorship, ESG strategy; and natural gas assets are preferred
to oil. Spanish company Repsol has advanced plans for a CCS project at its
Sakakemang Block that would be linked to Medco Energi and is projected to
start operations in 2027.
Africa
Africa, representing 70%, or US$15Bn of oil and gas related
M&A in Africa in 2022, Angola has significantly expanded its role
in shaping the continent’s M&A activities. The largest deal in 2022 was the
US$14Bn integration of the respective Angolan assets of BP and
Eni not only formed the country’s largest independent oil and gas producer
but represented the country’s largest oil and gas merger and acquisition deal.