S&P Global Commodity Insights Energy Outlook 2023

S&P on Global energy outlook 2023

The latest 2023 energy outlook from S&P Global Commodity Insights indicates that China’s COVID policy is the most important fundamental factor for global demand in commodities and energy in 2023.

The S&P Global Commodity Insights Energy Outlook 2023 presumes China’s energy demand will grow by 3.3 million barrels of oil equivalent per day, up from virtually no growth in 2022. This will represent 47 percent of global energy demand growth next year.

For oil, while global supply will increase, it will grow slower in 2023 at around 1.7 million barrels per day (b/d) than the 4.5 million b/d growth in 2022, due to greater losses from Russia and limited upside from OPEC.

While there has been a growing narrative that the US shale revolution is over, we expect 0.7 million b/d of oil supply growth from US shale alone, with additional growth in crude production coming from Norway, Brazil, Canada, and Guyana.

For natural gas, global supply growth, particularly liquefied natural gas (LNG), will be limited in 2023 despite extremely high prices, due to a lack of new liquefaction facilities coming online. This will require LNG markets to balance again on demand destruction rather than supply growth. This dynamic will be particularly apparent in Europe, where there will be even less Russian gas supply in 2023 than in 2022, requiring considerable demand destruction.

In general, commodity prices are expected to ease over 2023, as fundamentals pull toward recalibration. Natural gas, coal, and crude oil prices are expected to be lower in 2023 than 2022. However, while the “platinum age” of refining will ultimately come to an end, 2023 should still be golden for refiners, with refined products prices maintaining lofty levels.

Electricity prices are also poised to deflate, with another tranche of renewables becoming operational and European policymakers looking to weaken the link between natural gas and power prices. Once again, demand for all fossil fuels will increase in 2023, which points to a global CO2 emissions rise despite continued attention paid to climate and the energy transition.


China’s COVID policy is the most important fundamental factor for energy markets. China’s COVID-related restrictions which led to underperforming energy demand growth, and weaker Chinese energy imports was a key safety valve for oil, gas, and coal markets in 2022. While China’s imports of crude oil (-0.2 million b/d, -2.0 percent), LNG (-58 million cubic meters (cu m) -19.7 percent), and thermal coal (-45 million metric tons (mt), -17.2 percent) are all on track to contract in 2022, we expect them all to return to growth in 2023.

India’s energy demand proved to be one of the greatest areas of strength. While India’s LNG imports will decline year-on-year over 2022, its oil demand will increase by just shy of 0.3 million barrels per day (b/d), with only the United States growing by a larger amount. India’s imports of thermal coal increased by most of any country in the world in 2022 by far (+15 million mt).

The reports of US shale’s demise are greatly exaggerated. There is a growing narrative in the market that “the shale revolution is dead”. While growth in shale has and will continue to be more controlled than in recent years, US shale production, including natural gas liquids (NGLs), is on track to increase by more than 1.0 million b/d in 2022 and another 1.4 million b/d in 2023, representing one of the largest components of global supply growth in both years. Shale oil price breakevens (less than $50 per barrel) remain on the low end of the global supply curve, and ~90 percent of the 180 billion barrels of technically-recoverable oil is yet to be developed. After a sluggish start to the year, US natural gas production has increased by 3 billion cubic feet per day (Bcf/d) in 2022, and another 3 Bcf/d of growth is expected in 2023.

The “Platinum Age” of refining will ultimately come to an end, but 2023 should still be golden for refiners. Refining margins in 2022 were the strongest ever on a sustained basis, driven particularly by middle distillate strength. This requires a new moniker for describing this period, and we have dubbed it the “platinum age”. While some refining cracks will weaken over 2023 due to slower demand growth and new refinery startups, diesel cracks are expected to stay much stronger than historical averages in 2023. And gasoline cracks are expected to strengthen sharply for the second quarter.

European gas and power markets may be even tighter in 2023. European consumers and policymakers achieved a herculean feat in 2022 by building up natural gas storage to near capacity ahead of winter, with an armada of LNG vessels still waiting to unload supply via the Continent’s expanded regasification capacity. Despite this exemplary performance, the encore in 2023 may be more challenging as Europe will have to deal with a full year’s worth of virtually no Russian gas, and only a small increase in global LNG supply.

With several economies expected to be in a recession in 2023 and fiscal budgets stretched, policymakers will be looking to keep energy prices low, perhaps sacrificing progress on the energy transition. While high fossil fuel prices may accelerate some consumers’ plans to switch to an electric vehicle or install rooftop solar, the drain of household wealth from high inflation will limit consumers’ ability to lay out the higher upfront capital for these green technologies even if they are less expensive that fossil fuels over the lifetime of the asset.

The importance of international climate agreements and the annual COPs for driving energy transition will be tested. Amidst concerns around energy security, economic growth, and geopolitical tensions, COP27 in Egypt featured a general lack of increased ambition on reducing emissions. While COP27 did lead to a global agreement featuring historic language on loss and damage, establishing a fund for the costs of climate change for the most vulnerable emerging and developing economies, relatively little was agreed to address the emissions driving climate change.

A clear example of how important supply policy will be in 2023 is how effective the price cap on Russian supply will be. While forecasting markets based on the economics of supply and demand can be difficult, predicting what policymakers will do is next to impossible. Even energy producers situated in countries with limited or more predictable governmental policies will be affected by policies, such ESG pressures from shareholders, net zero commitments, and carbon border adjustment mechanisms.

Inefficiencies in global trade will continue to support freight rates and delivered prices. The emergence of new trading patterns in response to the Russian invasion of Ukraine has led to greater inefficiencies in the shipping sector. Specifically, Europe’s source diversification for oil, and the need to send Russian oil to Asia has led to increased ton-mile demand and consequently clean and dirty tanker freight rates. The efforts to supply Europe with enough gas for the winter created a notable increase in the use of floating storage of LNG tankers.