Overview
Kepler Cheuvreux has reworked its preferences within the oil and gas coverage, downgrading TotalEnergies (EPA:TTEF) from Hold to Reduce and removing the French major from its Sector Most Preferred list. In its place, BP (LON:BP) has been elevated onto the most-preferred roster. The adjustments reflect Kepler's increasing concern about the emergence of an LNG supply glut and the differing exposures of the two groups to a market downturn.
Valuation and rationale for the TotalEnergies downgrade
Analyst Bertrand Hodée points to TotalEnergies' growing net long LNG position as the core vulnerability. Kepler's forecast shows TotalEnergies carrying a net long position of around 14 million tonnes per annum (mtpa) in 2026, widening to about 23 mtpa by 2030. The brokerage argues that this scale of structural long exposure increases the company’s sensitivity to a prolonged oversupply in the LNG market, particularly if spot prices move toward $5 per million British thermal units (mbtu).
Hodée emphasised the mechanics of losses in an oversupplied environment: "In an oversupplied LNG market, a structurally long LNG portfolio cannot escape losses at the molecule level; it can only redistribute, defer, or partially offset them through integration (power) and optionality."
On valuation, Kepler tactically revised its sum of parts (SOP) valuation using a Brent oil price assumption of $55 per barrel for 2026. That adjustment produced a fair value estimate of 52 euros, which the firm adopted as its target price. With approximately 10% downside to that target price, Hodée moved the recommendation from Hold to Reduce.
Why BP was added to the Sector Most Preferred list
By contrast, Kepler highlighted BP's positioning as comparatively resilient to a downturn in LNG markets. Hodée noted that BP's portfolio is structured so that it will have no long LNG positions by 2027, a trajectory the analyst called "perfect timing." The brokerage pointed out that BP's U.S. LNG offtakes are more than offset by its upstream gas production, which reduces direct exposure to a fall in spot prices.
Kepler also cited the quality of BP’s long-term offtake contracts, which feature particularly low oil-linked pricing slopes. Hodée argued these contract terms support cash flow resilience in weaker gas markets.
Sector outlook and demand-side limits
These individual company assessments come within a broader cautious stance from Kepler on the oil and gas sector. In its latest sector outlook, the brokerage forecasts LNG supply increasing toward 600 mtpa by 2030. Kepler warned that such a rise in supply could create a multi-year oversupply period spanning roughly 2028 to 2031.
On the demand side, Hodée flagged structural constraints to Asian LNG demand growth. He listed limits around coal-to-gas switching and infrastructure as factors that could restrict the market’s ability to absorb the surge in new supply. As a consequence, Kepler sees a need for lower spot prices to rebalance global gas markets, prompting cuts to its long-term European gas price assumptions and a maintained cautious view on the oil and gas sector.
Implications for investors
The brokerage’s moves reflect a view that company-level LNG positioning and contract profile will be decisive drivers of resilience if supply rises materially and spot prices weaken. TotalEnergies’ expanding net long exposure is judged to increase downside risk at the molecule level, while BP’s planned rundown of long positions and contract structure are cited as protective features.
Kepler’s reassessment underlines the evolving risk profile across integrated oil and gas companies as the LNG market balances shift.