Austin, Texas (January 19, 2021) — Enverus, the leading energy SaaS company, has released its latest FundamentalEdge report, The Hangover, exploring the company’s current view of the oil, natural gas and natural gas liquids (NGL) markets.
“As much as the industry might hope the coronavirus vaccine is the cure for what ails oil demand, there are additional factors at play. Rising COVID-19 case numbers, increased travel restrictions and renewed lockdowns do not bode well for demand in early 2021. If not for recent action by OPEC+ members and Saudi Arabia, in particular, oil prices would be much lower than they are right now,” said Jesse Mercer, senior director of Crude Market Analytics at Enverus.
“And while the second half of 2020 was painful financially, the fourth quarter included much-needed consolidation within the U.S. shale industry, production curtailments and well-placed hedges kept many balance sheets afloat. Next up, will be completing drilled but uncompleted wells (DUCs) and a continued focus on improved efficiencies, lowering emissions, free cash flow and sustainable production growth. Additional mergers and acquisitions are still likely, all which lead to a healthy recovery for America’s oil and gas industry,” said Mercer.
Key takeaways from the report:
- Crude oil prices have been on an upward trend after several countries granted emergency-use approvals for the Pfizer/BioNTech vaccine and, subsequently, the Moderna and Oxford/AstraZeneca vaccines. Although the news injected some much-needed optimism into market sentiment, Enverus does not expect the vaccines’ initial rollout to have a significant impact on liquids demand in the early months of 2021. In fact, we expect more demand cutbacks going into the first quarter as the number of COVID-19 cases rises globally and lockdowns are reimposed or toughened. In view of this, OPEC+ ministers’ decision to increase production slowly in 2021 (rather than pumping 1.9 MMBbl/d back into the market all at once in January) should help keep excessive pressure from bearing down on prices.
- Natural gas operators responded quickly to stronger prices during the fourth quarter of 2020, increasing gas production by 1.7 Bcf/d in November alone. However, winter demand started weak, and prices quickly lost ground. On the demand side, LNG exports are back up from the lows observed in July as economics (Europe versus US price spread) continue to improve. Enverus expects gas prices to average $3.25/MMBtu, levels higher than those currently observed in the forward curve, particularly in 2021 and 2022, when oil prices are expected to remain depressed at $45-$50/Bbl.
- Natural gas liquids production has been resilient through 2020. While gas and crude oil production fell, y-grade production hit record highs, largely due to economic ethane recovery and steady demand for ethane. Propane and butane prices have been propped up in the near term by global demand for the products, resulting in record high export volumes. Natural gasoline’s main demand market is in Canada, where it is used as a diluent in bitumen production. Canada was not immune to the downturn earlier this year, and production and activity decreased, resulting in less need for C5. However, rig activity and production have started to pick back up in Canada, which will lead to more C5 exports from the U.S.
- Financials. 3Q20 was one of the toughest quarters for the industry for E&Ps. However, we saw consolidation, production curtailments subsiding, and hedges that kept many balance sheets afloat. As hedges roll off and DUCs start to draw down in 2021, operators should focus on lower emissions, free cash flow, and sustainable production growth – all of which will promote continued M&A.
Members of the media can download a preview of the full report or contact Jon Haubert to schedule an interview with one of Enverus’ expert analysts.
Enverus is the leading energy SaaS company delivering highly-technical insights and predictive/prescriptive analytics that empower customers to make decisions that increase profit. Enverus’ innovative technologies drive production and investment strategies, enable best practices for energy and commodity trading and risk management, and reduce costs through automated processes across critical business functions. Enverus is a strategic partner to more than 6,000 customers in 50 countries. Enverus is a portfolio company of Genstar Capital. Learn more at Enverus.com.