Moody's Investors Service on Tuesday maintained its medium-term price band of $40-60/bbl for Brent and West Texas Intermediate (WTI) crude, the main oil-price benchmarks, and it reiterated a $2.00-3.50/MMBtu price for North American natural gas at Henry Hub, the industry's chief measure of gas prices.
"Our medium-term expectations, extending through at least 2018, are the most relevant price considerations used to estimate financial performance and determine ratings for corporates and oil-exporting countries," said Moody's Senior Vice President Terry Marshall. "Focusing on a range of outcomes within the price bands, analysts are better positioned to understand a given corporate or sovereign entity's resilience to price volatility -- a particularly important feature given the need for credit ratings to be durable across a range of outcomes."
Notwithstanding the ongoing high production levels of natural gas liquids (NGL), prices "have stabilized in line with higher crude prices and modest gains in demand," and Moody's continues to assume a $19-25/bbl price band.
According to Marshall, ethane recovery should begin increasing in 2017 as a "several-year demand increase begins, reducing high levels of ethane rejection and helping both volumes and prices."
The ratings agency also maintained its stress-case pricing of $30/bbl for WTI and Brent, $2.00/MMBtu for Henry Hub and $15 for NGLs. The stress price is used to help assess liquidity profiles of primarily low-rated companies, including room under covenants in bank credit agreements.
Last week Moody's said it expected liquefied natural gas (LNG) prices toremain constrained beyond 2020 as new supply capacity comes online and demand from large importers declines. However, it also sees demand growing.
"The market will not rebalance until the early years of the next decade, when global demand and LNG import infrastructure catches up with supply,” said Moody’s senior credit officer Tomas O'Loughlin.
LNG oversupply should peak in 2019 at about 55 million metric tons/year, according to the credit ratings agency. Until the market rebalances, "investment returns for developers of Australian projects will be weak, and U.S. LNG offtakers will find it difficult to recover all of their liquefaction costs," O'Loughlin said.