Key Takeaways
- We raised our price assumptions for Brent and West Texas Intermediate crude oil for the remainder of 2021.
- We raised our Henry Hub, AECO and TTF natural gas price assumptions for the remainder of 2021 and 2022.
- We affirmed our long-term oil and natural gas price assumptions.
- We don't believe the generally modest revisions in our new price deck assumptions will result in wholesale upgrades, though it's possible we could revise our outlooks to stable from negative on some companies. We remain focused on issuers' financial policies and commitment to improving their balance sheets.
S&P Global Ratings raised its West Texas Intermediate (WTI) and Brent crude oil price assumptions for 2021, as well its Henry Hub, Alberta Energy Co. (AECO) and Title Transfer Facility (TTF) natural gas price assumptions for 2021 and 2022. These revisions are effective immediately.
| S&P Global Ratings' Oil And Natural Gas Price Assumptions | ||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| --New prices-- | --Old prices-- | |||||||||||||||||||||
| Brent ($/bbl) | WTI ($/bbl) | Henry Hub ($/mmBtu) | AECO Hub ($/mmBtu) | TTF ($/mmBtu) | Brent ($/bbl) | WTI ($/bbl) | Henry Hub ($/mmBtu) | AECO Hub ($/mmBtu) | TTF ($/mmBtu) | |||||||||||||
| Remainder of 2021 | 65 | 60 | 3 | 2.5 | 8 | 60 | 55 | 2.75 | 2 | 6 | ||||||||||||
| 2022 | 60 | 55 | 2.75 | 2 | 7 | 60 | 55 | 2.5 | 1.75 | 5.5 | ||||||||||||
| 2023 and beyond | 55 | 50 | 2.5 | 1.5 | 5.5 | 55 | 50 | 2.5 | 1.5 | 5.5 | ||||||||||||
| bbl--Barrel. WTI--West Texas Intermediate. HH--Henry Hub. TTF--Title Transfer Facility. AECO--Alberta Energy Co. mmBtu--Million British thermal units. Note: Prices are rounded to the nearest $5.00/bbl and $0.25/mmBtu. Source: S&P Global Ratings. | ||||||||||||||||||||||
We use this price deck to assess corporate and sovereign credit quality, in particular for exploration and production (E&P) companies and for oil-producing countries, in accordance with the ratings methodology described in "How S&P Global Ratings Formulates, Uses, And Reviews Commodity Price Assumptions," published Sept. 28, 2018.
Since our last price deck revision in March, oil prices have remained on an upward trajectory due to vaccine rollouts and global economic reopenings. Global oil supply has remained supportive of prices owing to continued discipline from OPEC-aligned countries and U.S. shale producers, with the latter under pressure from investors to limit capital spending and focus on cash flow and returns. We expect any demand needs will be met by OPEC who will look to maintain, as well as to increase market share. With a sustained price recovery, it's unclear if shale producers will continue indefinitely with their disciplined production philosophy, but for now, we don't anticipate any significant ramp up in production in 2021. Additional supply from Iran remains a wildcard and it's difficult at this juncture to determine if economic sanctions will be lifted and how rapidly volumes would ramp up. The resulting impact on prices will be a function of the prevailing demand outlook and response of other OPEC members.
Chart 2
Henry Hub natural gas prices also continue to rebound due to economic reopenings and strong global liquefied natural gas (LNG) demand and exports to Mexico. Much like oil producers, natural gas producers have remained disciplined, focusing on returns, and bi-product gas production from oil wells remains contained due to oil producer's self-imposed controls.
The improvement in AECO pricing is due to the expectation of relatively flat U.S. gas production over the next one to two years. The rapid increase in LNG exports from the U.S. should also support demand for Canadian gas exports into the U.S. Moreover, healthy year-over-year export pipeline contracted capacity, and lower-than-normal gas injection in Alberta, signal price support through this summer and into 2022. Our 2023 AECO price assumption remains US$1.50 per million (mm) Btu, based on our assumption that the potential for U.S. domestic gas production increases beyond 2022 could shrink demand for Canadian gas exports, thereby dampening prices.
TTF prices and futures have continued to move up after rebounding strongly during the winter months. We see higher competing prices for LNG in Asia and higher Henry Hub prices as well as little increased supply from Russia, for now. Markedly higher carbon prices support the competitiveness of gas versus coal for power generation. We also note that European gas storage levels remain low on a seasonal comparison with 2019 and 2020. We expect overall European gas demand to rebound somewhat this year, from unusually low levels in 2020, and remain broadly flat over the next three to five years supported by the massive planned retirement of coal and nuclear power generation capacity. We see our 2023 and after $5.50/mmBtu price assumption as underpinned, in part because we estimate this will be sufficient to cover operating costs for most large gas suppliers to Europe.
Still, we expect European TTF prices to remain volatile because of the continent's declining production, volatile carbon prices, massive storage capacity, well-developed gas infrastructure, and geographic location, making it a natural market of last resort for global LNG flows, which are fundamentally exposed to global gas industry developments.
This report does not constitute a rating action.
| Primary Credit Analysts: | Thomas A Watters, New York + 1 (212) 438 7818; thomas.watters@spglobal.com |
| Simon Redmond, London + 44 20 7176 3683; simon.redmond@spglobal.com |
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