S&P Ratings: Use of natural gas as transition fuel to send prices soaring

More and more economies across the globe will use natural gas as a transition fuel on the way to lower-carbon renewable energy sources, putting upward pressure on Henry Hub gas prices for the next three years, S&P Global Ratings said late on Oct. 4, as it hiked the assumed gas price it will use for credit decisions by 29% to $4.50/MMBtu for the rest of 2021.

Soaring prices will continue to ease credit pressures on exploration and production companies over the next two years, Ratings said. It raised the benchmark Henry Hub gas price assumptions it uses for corporate credit ratings $1/MMBtu for the remainder of 2021.

The price of the NYMEX futures contract for November delivery was up another 10% to $6.335/MMBtu at midday Oct. 5, with the rest of the winter 2022 contracts also above $6/MMBtu.

The higher and more volatile gas prices are a sharp contrast to 2020, when drillers suffered through months of $2/MMBtu gas prices.

Ratings cautioned that the move up in its commodity price assumption will not result in the rerating of many companies’ debt. “The revisions likely won’t result in wholesale upgrades, though we could raise some speculative-grade ratings,” Ratings said. “We remain focused on issuers’ financial policies and commitment to improving their balance sheets through debt reduction, particularly for investment-grade companies.”

A warm summer in Europe coupled with a lack of wind power has sucked down gas supplies and increased the continent’s reliance on LNG, while U.S. shale gas exploration and production companies have stuck to low-growth drilling plans designed to generate positive cash flows, the rating agency said.

[Bill Holland]

6 October 2021

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