LNG

Contract flexibility, strong demand and reliable project execution are bolstering credit profiles of US and Canadian LNG producers, Fitch Ratings said. Longer-term credit upside could fade as competition intensifies, build costs rise and demand visibility weakens, leaving producers reliant on tighter capital discipline and low-cost expansions, analysts warn.

Global oil and LNG shocks are likely to abate following a comprehensive US-Iran peace deal, but embedded inflation and second-round effects are just beginning, Fitch Rating warns. Global inflation likely peaked in the second quarter of 2026, analysts said, but knock-on effects from the initial jump in energy prices threaten to keep inflation elevated in several markets.

Reopening of the Strait of Hormuz will result in a “quick drop in prices,” though Fitch Rating assumes a five-month closure of the critical waterway through July. Oil markets began to balance in the interim thanks to pipelines, but LNG cargoes stay largely trapped.

Fitch Rating reckons utilities in Asia Pacific can only a absorb a “short-lived fuel-supply disruption” linked to the Iran conflict. KEPCO and KOGAS rely heavily on imported LNG, so sustained shortages persist will weigh heavy on utilities balance sheets, analysts warn.

Rating agency Fitch is expecting oil prices to fall further in 2026 from 2025 levels as OPEC+ countries are re-capturing market share. North American E&P companies are consequently focussed on consolidation and cost cutting to manage the impact weak oil prices, analysts noted, warning Capex cuts are on the cards.

Unfavourable market conditions for renewables and other low-carbon energy sources have prompted Shell, BP, TotalEnergies and Eni to bolster their core upstream operations. Reserve replacement should support future cash flows, Fitch Ratings reckons.

Fitch Ratings has revising down EBITDA margins for global corporates to below 18%, down 0.5pp from forecasts in early 2025. For the oil & gas sector, Fitch changed its outlook from ‘neutral’ to ‘deteriorating’ after the rating agency already cut its global GDP growth projections in April due to the uncertainty surrounding US tariffs.

Peace between Ukraine and Russia – if and when agreed – will unlikely lead to large additional volumes of Russian gas returning to Europe beyond current LNG and Turkstream flows. According to Fitch Ratings, the resulting implications for the TTF gas price range from "negligible to a decrease of 50 to 60 percent."

A full return of Russian gas supplies to pre-war levels is highly unlikely as the EU has nearly fully replaced it with alternative sources, says Angelina Valavina, head of EMEA Natural Resources and Commodities at Fitch Ratings. The remaining small volumes of natural gas from Russia that are currently delivered to Europe supplement LNG and other imports. "While a peace agreement could see partial resumption of additional volumes, they would likely be limited by geopolitical considerations, affecting the chosen routes," she explained. 

New LNG projects coming to market in the medium term will create a surplus that will further diminish demand for cheap Russian gas. “We forecast new large LNG supply from Qatar and the US to come onstream in 2027-2028, putting pressure on gas prices,” Valavina said in a market note.

The US has become an important LNG exporter, while Europe offers a competitive market. QatarEnergy is expanding LNG production capacity to 126 million tonnes per annum (mtpa) by 2028 from 77 mtpa currently. US government analysts estimate the country’s LNG export capacity will grow by 100 bcm between this year and 2028.

Sanctions on Russia have limited Gazprom’s supply routed to the EU to the Turkstream pipeline and LNG. Together they account for just 13 percent of imports year-to-date.

Flows via the Nord Stream, Ukraine, and Yamal pipelines have been halted. Russian pipeline gas supplies to the EU fell to 33 bcm in 2024 – split evenly between Turkstream and Ukraine pipelines – down from 153 bcm four years earlier. This equates to a fall from 41% to 11% as a share of total EU imports, or to 18% if including LNG.

Russian oil headed elsewhere

Sanctions have slightly reduced Russian oil exports, though this has not hurt state-owned enterprises much given that discounted Russian oil is being redirected to China, India, and Turkey. According to Fitch findings, Russian oil and product exports fell by 0.5 million barrels of oil equivalent per day (MMboepd) in 2024 from 2022. Despite a 2.8 MMboepd drop in EU exports, exports to China, India, and Turkey increased by 1.8 MMboepd.

Oil production in Russia has not been significantly impacted by sanctions, Fitch analysts find, pointing at an oversupplied global oil market with OPEC+ spare capacity of 5.6 MMbpd. “Russian oil production and exports account for 10% and 5% of global demand respectively, which is insufficient to tighten the oversupplied market," Valavina concluded.