BTU Analytics' 2023 Preview

BTU Analytics recently published an Energy Market Insight detailing a comprehensive picture of our analysis across the energy sector over the course of the year. Now, BTU Analytics presents a 2023 preview of the events and trends expected to impact energy markets in the year ahead.

Oil & Gas

As has been forecasted in the Henry Hub Outlook over the past year, BTU Analytics expects the natural gas benchmark to approach $3/MMBtu in the summer and remain weak through 2024. On the supply side, robust U.S. gas production growth is forecasted to continue, primarily driven by associated gas from the Permian basin. On the demand side, no new LNG export facilities are projected to come online before the end of the year and industrial demand looks to moderate as costs increase and fears of a recession grow. This disconnect in gas fundamentals will cause gas storage to run at near-record utilizations at its summer peaks. Also, vast uncertainty exists around the global oil market entering 2023. BTU Analytics’ latest Oil Market Outlook highlights this uncertainty and expects global liquids balances to be tight through 2023. Both the Russian invasion of Ukraine and the resulting sanctions and price caps placed on Russian outputs by Western nations are likely to push global balances short as Russian production slows. However, the timeline for this decline remains fluid, as Russian tankers continue to find buyers in China and India. Additionally, the fallout from China’s recent COVID policies will continue to drive demand-side uncertainty as the country reels from economic and medical turmoil.

Power

For years to come, 2022 will be remembered as the year the U.S. stepped on the accelerator of its energy transition by signing the Inflation Reduction Act (IRA) into law. However, if 2022 is to be remembered for the enactment of the IRA, then 2023 must be the year of transmission reform for the momentum to continue within the power market. Transmission reforms were nearly passed last year but stalled. With control of the upcoming Congress split, proposals will likely include more oil and gas friendly policies. However, passed legislation that reforms the cumbersome transmission approvals process would also likely result in new investments to renewables. Given the U.S. grid’s disconnected structure, BTU Analytics expects to see new projects in the Midcontinent moving wind generation east and projects in the West and Southwest moving solar generation towards California. New transmission investments could provide headwinds for coal and natural gas generation and cause the U.S. to rely more heavily on renewables to meet electricity demand. While this might help utilities meet ESG and decarbonization targets, it could also put the grid under increased strain during times of peak demand, as we saw happen in 2022.

Energy Transition

This year is slated to be a tone-setting year for the energy transition. The IRA provided the catalyst for dozens of project announcements in the carbon capture and sequestration (CCS) space, as well as interest in hydrogen infrastructure. Most CCS projects tracked by BTU Analytics are not slated to come online prior to 2024, meaning 2023 is likely to be the year in which final investment decisions are reached for many projects. Additionally, the Department of Energy (DOE) recently announced that 33 of the 79 concept papers submitted for a piece of the $8 billion earmarked for U.S. Regional Hydrogen Hubs were encouraged to submit a full application for grant funds. The deadline for the full application is April 7, 2023, and BTU Analytics expects to see a wide range of applications that are approved. Once the applications are submitted and approved, the shape of potential hydrogen hubs in the U.S. will start to take place.

Conclusion

While 2022 brought its fair share of volatility to the energy sector, 2023 looks to do more of the same. However, BTU Analytics looks forward to offering insights and analysis that provide a comprehensive throughline on trends within the oil and gas, power and utilities, and energy transition industries this year. For more info about any of our energy market offerings, please email info@btuanalytics.com.