Global energy companies face increasingly tight access to capital in 2020, weakening their liquidity, increasing their cost of capital and intensifying default risk for companies with looming maturities, according to Moody's Investors Service.
Low commodity prices will limit opportunities for exploration and production companies to increase cash flow organically, and low-rated energy companies face the prospect of both difficult capital markets and weak conditions for mergers and acquisition activity.
"We expect high volatility in oil and natural gas prices in 2020 amid growing production and slower growth in demand as well as rising geopolitical tensions," said Moody's in a report.
Rising production in 2020 will outpace growth in demand for oil amid a cyclical economic slowdown in several large industrial countries. Short-term supply adjustments and rising geopolitical tensions in the Middle East will heighten volatility.
Oil and gas producers will deliver higher volumes but essentially flat EBITDA growth in 2020, despite their capital spending cuts amid commodity-price volatility.
However, the pace of production growth will slow, which will help midstream infrastructure to catch up in 2020, especially in the prolific oil-producing Permian Basin. Mid-stream EBITDA will grow by about 5 to 7 per cent in 2020 overall.
The leading Democratic presidential contenders' policy positions will be more detrimental to the oil and gas industry than the re-election of US President Donald Trump, whose pro-industry 'energy dominance' policy pursues limited regulation.
Yet state and regulatory opposition to specific projects and practices will affect the industry more immediately than even a new presidential administration will.
Constrained capital spending growth by the exploration and production companies in 2020 will translate to flat demand for oil field services in 2020, keeping prices and margins tight for the providers.
Moody's said refining margins and petrochemical spreads in Asia will remain depressed in 2020, constraining earnings growth for the region's downstream-focused companies.
The trade dispute between the United States and China and the consequent economic growth slowdown in the region has dampened growth in consumption of petroleum products and petrochemicals.
The growth will not pick up significantly in 2020 especially with likely subdued economic growth in the region -- especially in India and China.
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