The oil and gas sector will continue to rebound in 2022, reports Offshore Energy quoting Wood Mackenzie.
But the positive outlook will be tempered by concerns about its future.
Implications of COP26 pledges
In its Global Upstream Outlook 2022, Wood Mackenzie points out the upstream industry must respond to the implications of the pledges made at COP26 and governments must set a course for the industry to follow.
Fraser McKay, Vice President, upstream research, said: “The upstream sector is going into 2022 facing ‘peak uncertainty’ – with record cash flows but increasing scrutiny.”
“At a Brent price of around US$70/bbl, oil and gas cash flows will be at near-record levels. At US$80/bbl, it would soar towards US$1 trillion (on a post-tax, post-capex, pre-financing and dividends basis). Despite this, for many stakeholders and even some chief executives, the sector’s risks outweigh its upsides. This tension will define 2022.”
Net zero aspirations
Governments are aligning around net zero aspirations. It is likely that next year will see more enact carbon taxes to align with COP26 pledges. Other fiscal moves will target outsized cash flow to fill pandemic-induced budget deficits. While windfall taxes are possible, so are holistic energy fiscal terms and more carbon capture and storage (CCS) incentives.
McKay said: “Financing oil and gas was getting harder before COP26, but the pressure will ratchet up in 2022. Institutions with over US$130 trillion of capital under management have joined the Glasgow Financial Alliance for Net Zero. Watch for the pool of backers to shrink, borrowing costs to increase, and project financing for oil to get harder.”
“But lending will not dry up immediately. And gas – especially where aligned with coal retirement or CCS – will be spared the worst.”
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Source: Offshore Energy
