S&P Global Platts Analytics Review 2017 & 2018 Outlook

In many ways, 2017 was a story or strong demand growth across energy markets. For several energy commodities, heightened levels of demand were driven by a period of low prices during 2017, which saw consumer level consumption surge. In other markets, policy shifts played a role in bolstering demand, with new clean air policies in key areas of China driving gas demand higher at the expense of coal, while policy barriers constraining nuclear generation boosting both natural gas and coal demand. Relatively low energy prices also forced the hands of many producers to moderate supply growth, ranging from OPEC/Russia oil production cuts, to emerging restraint in U.S. shale oil and gas production. However, global oil, gas, and NGL production did indeed rise in 2017, with shale again leading the way and a particular focus on the Permian and Appalachian Basin shale plays. The combination of stronger demand and restrained supply in 2017 winnowed away the global crude oil surplus, and brought U.S. natural gas inventories down from historic maximums to around the five-year average. Behind the scenes, the development of renewables and electric vehicles (EVs) continued to accelerate, with wind and solar generation growth having a greater impact on energy markets than EVs, for now.

Into 2018, global demand for oil and gas is expected to remain robust, requiring an acceleration in production to not only accommodate enhanced demand, but to prevent another year of inventory losses. For the oil market, U.S. shale output is expected to be strong, although OPEC conservatism will likely lead to excessive inventory tightening, which will be constructive to market pricing. Despite a marked amount of new gas pipeline takeaway capacity out of the Appalachia, gas production growth has not matched that growth. While record U.S. gas production growth now in effect will limit upside price risks, incremental coal-to-gas switching and LNG exports stand to limited downside price risks this year.

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