January 2023
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, 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.