Geopolitical and economic events of the past couple of months are creating significant challenges for the energy business. In fact, the collapse of global oil prices leading into the OPEC meeting of December 6th, raised fears of a repeat of 2014-2016. There have been many explanations for the oil price drop, but they typically deal with near-term trends and resolutions. We step back and begin an examination of the similarities between the 1970s boom years and the following decade-and-a-half’s aftermath. The oil and gas industry that enjoyed the boom was not the same industry we saw when the next industry cycle began. Is it possible that the most recent 68 months of real oil prices above $90 a barrel is creating a similar massive restructuring of the energy business as happened in the 1980s? If so, then we should be preparing for years of change that will produce a radically restructured industry compared to the one we see today. History doesn’t repeat, but we should pay attention to its rhymes, for they may tell us much about where the energy business is heading, and importantly, who may win and who might lose.

Canadian oil prices have surged in recent days following the aggressive step by Alberta Premier Rachel Notley, when she ordered a nearly 9% production cutback in the province’s oil output. After failing to stimulate oil prices with an earlier announcement of province’s purchase of locomotives and tank cars to increase the shipments of oil-by-rail, the OPEC-like move is seen as a more realistic solution, but is actually quite reactionary. It will not make all Alberta producers happy, as some were enjoying the increased profitability of their downstream operations with low wellhead oil prices. However, the enjoyment came at the expense of the health of the industry, and reflectively, that of the province, as both were being sapped of income with deleterious impacts for the future. We will see how whether this move creates further waves within the political arena as 2019 brings a number of key provincial elections, and a political judgement on the Justin Trudeau leadership. Just how will the Alberta oil industry react longer term?

The EIA declared that the U.S. had become a net total oil exporter for the first time in years. This prompted numerous media stories about the dramatic change in the nation’s energy status and outlook. Without taking too much away from the significant progress the country has made in reducing its oil imports, while growing its crude oil and refined product exports, the week’s achievement may have had more to do with the timing of loading and unloading tankers at the LOOP offshore oil port than being a permanent change. LOOP has become much more efficient in loading super-large tankers, and it enjoyed a week with virtually no tankers to be unloaded. Much as Gulf Coast fog often distorts weekly oil import data, the week of “energy independence” may reflect a similar event. Let’s hope, however, that this one week event actually becomes a regular occurrence, something the domestic oil and gas business will relish.

Several forecasts for end-of-winter natural gas storage volumes suggest the nation will be approaching the lows only seen a couple of times in the past decade or so. These forecasts come with gas prices well above $4/Mcf, but gas storage trailing its 5-year history by a healthy margin. Does the gas storage situation reflect a belief that global warming will dominate the upcoming winter’s weather? Maybe. Those who embrace that scenario would be wise to examine weather forecasts suggesting much of North America will experience cooler than normal temperatures from December through May. The only way to build more storage is for gas prices to rise higher, something not now contemplated by the futures market. Sharply higher gas prices could be the surprise of this winter.

With the UN kicking off another of its periodic climate change rallies, the media has been cranking out articles about why the world needs more renewable power, especially given how cheap it is getting. In New England and the Middle Atlantic states, offshore wind is the favored green energy. That’s because it is abundant, important because these regions lack onshore wind and solar alternatives. Additionally, offshore wind can be located away from locals making the turbines less visually intrusive. The media continues promoting how the cost of offshore wind is dropping, although it still remains expensive. This is all based on levelized cost of energy (LCOE), which happens to have soe critical flaws. The EIA actually reminds us that dispatchable and non-dispatchable LCOE should not be compared, but renewable proponents always do. We were reminded of how expansive offshore wind can be with the recent Virginia SCC grudging approval of Dominion Energy’s two-turbine wind project. The power will cost 78-cents per kilowatt-hour. I recently renewed my Texas power contract at 10.6-cents, and I pay 16-cents in Rhode Island, where the utility pays me 34.75-cents for my solar power that they have to purchase because of a government mandate.

Deepwater Wind, the developer of the Block Island Wind Farm and the holder of several other offshore wind leases, was sold by its owner, hedge fund D.E. Shaw, for $510 million. We examine the history of this investment and conclude that Shaw made about a 3.5-times return on its investment over a three-year period. That’s pretty good for private equity investments. The sale suggests that the near-term financial return was more valuable than continuing to play the offshore wind development game. Does this suggest offshore wind promoters recognize future returns have peaked?

GM is restructuring, idling five plants and cutting over 14,000 jobs. At the same time, it is promoting a plan to boost EVs to 25% of U.S. car sales by 2030, lifting the cap on EV purchase subsidies, and extending those subsidies for four more years before ending them entirely. After examining federal income tax data, we sense the 2017 tax cuts may eliminate more families who can actually use the full $7,500 tax credit. That realization may be why a handful of Democrat politicians are pushing to revamp the EV subsidy into a “point of sale” credit, an immediate price cut for buyers. A cut in the consumers’ bill may make expensive EVs more competitive in the auto market.

Another analysis of IMO 2020 shows that the refining industry, along with help from shippers installing scrubbers and seeking waivers from the low-sulfur fuel switch requirement, may be able to handle the change without causing an explosion in oil prices. Tweak the assumptions and the entire refining gap could even be eliminated. Transitioning the world’s shipping fleet to low-sulfur fuel oil by the mid-2020s may be done with less market disruption than previously thought.

Alberta Premier Rachel Notley has proposed that the province start buying locomotives and tank rail cars to boost the volume of oil the province can export, as a way to resolve the current pipeline capacity cap. Her proposal showed a lack of understanding of the hurdles the province faces, and how long it will take to have an impact on the oil glut and extreme wellhead differentials. She has now embraced the proposal we wrote about two weeks ago of cutting production starting in January. Maybe Canada’s 2019 oil activity will be better than currently forecast.

Widening Canadian oil price differentials are sapping cash flow from its E&P industry and increasing frustration over the country’s and Alberta’s energy policies. A lack of capacity for exporting Canadian oil is forcing producers to cutback output or resort to more expensive and environmentally-risky transportation options. The industry’s political frustration is manifesting itself in a growing Separatist movement, a phenomenon not seen since the 1980s when Alberta battled the federal government over who would benefit from rising oil prices. Is it possible Alberta might invoke radical oil policies steps to close the price differential, while increasing the province’s tax revenues?

Canada’s use of rail to move oil to market is about to grow. We explore the cost and difficulty involved in boosting oil-by-rail exports. It is more easily said action than is possible to do.

Natural gas prices have suddenly come to life. Is it all due to the sudden arrival of winter – weeks ahead of schedule and with low gas storage inventory? Maybe it’s due to the recently revised forecast for the upcoming winter weather that now calls for below-normal temperatures for most of the east and southeast regions of the country. More cold weather means we will need more gas in storage and less consumption – both achieved with higher gas prices. Then again, the commodity speculators playing in the gas market may have been on the wrong side of the price trade when prices jumped and scrambled to cover their shorts, thereby driving gas prices even higher.

Election day was not particularly bad for energy, as the industry dodged being hit with several key business disrupting policies. The votes on the industry setback rule in Colorado and the carbon tax in Washington State both went the industry’s way. The repeal of the California gasoline tax hike didn’t break in the industry’s direction, but maybe it was because the ballot issue was poorly written, or that people haven’t felt the pain in their pocketbooks, yet.

Snowflakes were seen in Houston on the earliest date in 40 years! Meteorologists are confronting having to revise their winter outlooks to reflect colder-than-normal temperatures in Houston this winter. Could this winter prove to be as bad as those in the early 1990s, when Houston suffered through Arctic cold temperatures for days, breaking water pipes and often forcing sections of highways to be closed? Or may this winter will be similar to those of the 1970s when Houston experienced snow and cold temperatures numerous times. In fact, there have been 94 times since 1881 that it has snowed in Houston, including a 20-inch blast on Valentine’s Day in 1895!

Despite attempts at linking climate change with increased hurricane activity and intensity, several charts shown in a weather webinar dispel that idea. Even yesterday, California Governor Jerry Brown acknowledged the role of “natural cycles” besides climate change in the shifting weather patterns influencing his state’s weather and helping the wildfires start and spread. He is probably angering the climate change community with that comment, but history shows there have been droughts equally as extensive or even more severe than in 2018. That is a history people seem to forget, or are not willing to admit.

Developments in Canada’s energy business have brought attention to the state of the global LNG industry. Forecasts call for the current market surplus to evolve into a serious shortage. Of course, it depends on projected global gas consumption estimates and gas supply. That latter depends on whether there will be enough new LNG export projects approved and built within the next five years to bring sufficient supply onstream. Canada’s Shell Oil is leading the parade, quickly followed by a much smaller project, both targeting the British Columbia coast. The world is now watching the U.S. gas market for signs of further LNG terminal approvals. Will all the forecasts play out, or is there a risk of significant disruption?

Energy news during the past week may be starting to disperse the clouds obscuring the view that would show us the future path for the energy business. Much like snow globes obscure the scene inside when shaken, so too has the energy business been disrupted since Saudi Arabia shock up the industry in 2014. As the snow crystals in the globe settle, the scene inside becomes clearer. This is happening with energy. We look at the emerging picture.

Autonomous vehicles and Mobility as a Service are touted for their safety benefits and improvements for personal transportation. What city planners are finding, however, is that they are bringing congestion – what they were predicted to ease. We look at NYC taxi and ride-hailing daily trip data confirming the congestion problem. A solution? Put more people in each vehicle. What happened to buses, subways, ferries and airplanes?

Electric vehicle sales soared in the U.S. in the third quarter, led by Tesla’s Model 3 deliveries. The excitement among EV enthusiasts is enormous, and now it is driving projections for how much sooner we will become “all-electric.” A Twitter survey by Green Cars Reports finds nearly one-in-five of the most EV-enthusiasts saying it will be a “long time” before EV’s take over completely, as contrast to the 6% who responded it would happen in 2020! A reality check?

IMO 2020 will not be delayed, even for three months to gather real world data on whether the shift in global shipping fuels can be accomplished without creating havoc in the global transportation business. The IMO insists everything will be fine and there will be no disruptions and plenty of fuel available. Others aren’t so sure. One large shipping company just announced another portion of its fleet will be installing exhaust gas scrubbers to get around the fuel switch. Could this become a global economic disruption that governments are failing to prepare for?

We’re back! While we were gone, the UN’s IPCC issued its report on how to limit global temperatures from rising by more than 1.5°C. Our travels afforded us the opportunity to read much of the report, which acknowledged, maybe in-avertedly, that controlling emissions is actually an attempt to destroy capitalism. There were also plenty of admissions in the report that the authors don’t know a lot about the potential risks, costs and benefits of their recommended courses of action. At the same time, we read the first audit of the global temperature database utilized by climate change modelers. It was declared a disaster! In fact, it is so bad, according to the researcher, that one must question the validity of climate studies based on the data. Our recent travels had us in South Africa where we spent 10 days with the crew that produces the twice-daily, interactive, three-hour live safari show on YouTube. We got to go along with the guides on several game drives and bush walks. We also spent time at another safari camp, and toured Johannesburg and Istanbul. Our second Istanbul stop-over was on the fateful day that Saudi Arabia acknowledged the death of journalist Jamal Khashoggi. Just a little tension at the Istanbul airport.

An updated map of the cheapest electricity by county nationwide, prepared by the UT Energy Institute, shows natural gas dominating most of the nation, with solar and wind scoring victories in parts of the Southwest and the middle of the country. However, when current natural gas prices are plugged in, it wins back some of the area won by renewables. The key to natural gas winning is the detailed county-by-county cost analyses for building, operating, maintaining and acknowledging environmental benefits of the respective power plant types, rather than relying on the sweeping cost generalizations tossed about by renewable energy sponsors and their political partners. Lastly, while a little late, we report on our impressions from the road during the trip back from our Rhode Island summer home, now more than a month ago. We’d bet our impressions are still valid today.

We are always fascinated by markets and the messages they send. Sometimes it is difficult to understand the message, usually because it conflicts with conventional wisdom. Natural gas futures prices around $2.80/MCF is sending a message, given the slow refilling of storage heading into winter. Hard to know exactly what is the message. As hard as we tried, it was virtually impossible to develop a scenario of gas storage at the start of winter reaching the levels established in recent years. In fact, assuming an optimistic rest of the injection season only gets us back to a level 300-500 Bcf short of the 2009-2017 plateau. More likely, we wind up with a storage amount comparable to the 2006-2008 average, or about 3,100 Bcf, which was established before shale gas revolutionized the industry. So, why are gas prices so low when storage is down? In Canada, the political drama surrounding the future growth of the country’s oil sands business is centered on the response from the provinces and federal government to a federal court’s rejection of the Trans Mountain Pipeline Expansion to get more output to world markets. The decision was announced hours before the federal government purchased the existing Trans Mountain system with its planned expansion, the “negotiated” solution to the project’s environmental and political opposition. So what now? All the possible solutions mean a delay, which will hurt Canada’s oil business. No one knows just how long a delay there will be.

Political support for the Granite Bridge Pipeline expansion in New Hampshire is being hailed as a sign that the public is waking up to the region’s energy challenges. With environmentalists having won most of the battles over building new or expanding gas pipelines into New England, prospects for an unstable electric grid are being suggested as the outcome. As more renewable power supplies arrive, and volatile gas prices and a lack of supply during winter months increasingly becomes the norm, more dirty fossil fuels need to be burned. So much for carbon emissions. Is there a way for New Englanders to insure sufficient power during the winter without driving electricity prices further into the stratosphere? The announcement of a merger between drillers Transocean and Ocean Rig got us thinking about the significance of the deal. It sends a message that better times offshore are coming – maybe faster than some think. But the announcement triggered thoughts about how Ocean Rig fits into the long and colorful history of Transocean. Hopefully a few readers remember the storied names of offshore drillers that are a part of Transocean’s history – something we relished remembering. Enjoy some offshore drilling industry history.

As we have written before, the IMO 2020 low-sulfur fuel mandate for the global shipping industry starting Jan. 1, 2020, will have dramatic and varied impacts on the crude oil and refined products markets. It will also usher in greater demand for LNG, which we examine. One forecaster sees LNG for ships becoming the 5th largest world market by 2030, and another says it will be the best thing to happen to US LNG since China. A more recent assessment of IMO 2020 calls for only a $4 per barrel impact on global oil prices, not the catastrophic outcome predicted by earlier forecasters. EVs, and their role in the future transportation system of the globe, are receiving more attention given the recent Tesla bruhaha over going private. We look at how Mobility-as-a-Service may impact the market for both AVs and EVs, but, more importantly, we examine the energy return on energy invested (EROEI) analysis. When the full life-cycle of these vehicles, and emissions from the energy sources powering them are considered, EVs prove not as efficient as ICE cars. A recent AAA study also concludes cars are cheaper to own and operate in 20 large cities than totaling relying on MaaS for getting around.

July in the UK showed that wind and solar power can produce outcomes very different than expected, complicating the challenge of consistently, efficiently and cheaply delivering electricity to customers. When the wind didn’t blow, but the sun showed brightly, the UK’s electricity fuel mix changed radically and rapidly. Oil and oilfield service stocks have suffered in the stock market, reflecting the changed industry dynamics. This underperformance was highlighted by a recent review of how stocks and industry sectors performed during this longest bull market ever. We are all too familiar with the pain of energy investing. The early forecasts for the next winter are out, and they are divergent, depending on whether they believe an El Niño will be present. We know which winter forecast energy execs and investors are hoping for, but unfortunately, that outlook is in the minority.


While natural gas futures prices haven’t cracked the $3/Mcf barrier, they are showing more life than in recent weeks. Recent weak weekly storage injections have left total gas storage volume trailing 2014 – the lowest year in recent times. Gas futures prices have jumped by 20-cents/Mcf, within a hair of that $3 barrier. We need to watch the next few weekly gas injections to better assess the impact of heat-related gas demand and LNG and pipeline exports on limiting the storage rebuild. If true, and it continues, we can look forward to higher gas prices. California’s wind and solar power growth is being trumpeted as foreshadowing the tipping point for renewable power nationally that will collapse fossil fuel demand. A study of the data isn’t quite as definitive, especially as power users rely on lots of coal-fired power imported to the state. What also isn’t discussed is the impact the renewables push is having on electricity prices. Prices have risen in concert with the increase in renewable output. California electricity now costs over 50% more than the U.S. average price, as natural gas costs have retreated, taking national electricity prices lower.

Rhode Island’s latest clean energy jobs report shows growth in marginal categories, but actual declines in solar employment, consistent with the national drop. These jobs reports are always suspect because of job descriptions. How does a traditional HVAC worker qualify as a clean-energy job? The IIHS tested self-driving cars and found none of them “ready for prime time,” although Tesla scored better than its competitors. Maybe this technology is not as far along as every article claims. We were shown a presentation by ShaleCrescentUSA representatives touting the economic benefits of sitting petrochemical and plastics plants in the Ohio-West Virginia-Pennsylvania region rich with cheap natural gas and close to 70% of final demand customers. Success in attracting plants requires their owner CEOs to develop a different mindset than the one that draws them to putting new plants in the crowded Gulf Coast. Maybe a few billion in extra profits will be enough. It seems to have gotten Shell Oil’s attention. A statement by Saudi’s oil minister about the country’s policy is not to use oil as a political weapon reflects his lack of knowledge of history. Saudi Arabia and its Arab friends used that tactic several times in the past, with little success. Maybe that is the real reason for the policy.


An upcoming oil industry event that is receiving significant Wall Street attention, producing apocalyptic negative forecasts for the industry and the global economy, is the scheduled switch in the type of fuel that can be used by all the ships sailing the oceans. The International Maritime Organization (IMO) has mandated, effective January 1, 2020, that all ships must switch from burning fuel oil containing up to 3.5% sulfur content to fuel with no more than 0.5% sulfur. That can be either low-sulfur diesel or distillate, but it can also be a blended fuel oil ix of high- and low-sulfur oil. The gist of these apocalyptic forecasts is that the world lacks sufficient distillate production capacity to meet the new demand without impacting the fuel’s availability for the rest of the global transportation industry. There will also be a serious drag on the refining industry from the lack of a market for high-sulfur oil, such that global crude oil prices for the oil that will be most in demand will soar and consumer prices will jump as shipping transportation costs escalate. We were concerned about the conclusions of many of these forecasts. We elected to do a deep dive into the topic. (Sorry for the length of the article.) What we found was very interesting. This topic is much more nuanced than most forecasters either understand or acknowledge. We know there will be challenges, dislocations, and rising costs. But it won’t bring the end of the world as we know it.

We review an analysis of electric vehicle market forecasts prepared by a former oil company economist. Ms. Kah has done an excellent job in getting behind the assumptions and detailed forecasts of a number of them, highlighting subjects that need substantially more research to understand their potential impact. Also important, as we have pointed out in previous reviews of many climate change forecasts, is that they are more aspirational than realistic, and until we understand more about the assumptions, many of these forecasts are nothing more than “feel good” exercises to appease environmentalists and regulators. We also take a look at the latest climate change lawsuit against the oil industry. We also highlight the problem Maine is having with its effort to promote offshore wind power.

Natural gas is the forgotten fuel of the U.S. energy mix. Gas prices continue drifting below the magical $3/Mcf threshold, while gas storage injections continue to track recent experience. Gas demand growth has been weak, largely dependent on increasing LNG exports. Our low price relative to global markets has opened attractive gas export opportunities. As the same time, people wonder how we will do in rebuilding depleted storage from the second lowest level since 2010. Continuing low gas prices signal that the market and speculators don’t believe will are facing a supply shortage anytime soon. From the absolute lowest storage point in late April, we are averaging 12 Bcf/d injections, the second highest rate in recent years. Gas producers need to be concerned about demand growth as production continues to increase. The latest decarbonization scenario for an economy was launched recently and provides two of four plans for the UK that meet its 2050 carbon emissions reduction plan. The problem with the study is that it rests on unproven technology and questionable assumptions about British residents’ willingness to significantly alter their lifestyles. As with all these grand “green” plans, we are never provided estimates of the cost to consumers from their adoption. A questionable “technically-capable” plan probably will prove to be a highly “economically-unacceptable” plan for the populace.

Tax subsidies for renewable fuels have a history of disrupting the fuels’ growth whenever they are eliminated, or even threatened with termination. Canada’s Ontario province is shutting down it cap-and-trade carbon tax, which has funded the country’s most generous EV-subsidy program. That program propelled Ontario into first place among Canada’s provinces in EV sales. Ending these programs will disrupt Canada’s EV trajectory. At the same time, Tesla is reaching its 200,000 EV sale target, triggering the phase-out of the US tax subsidy. Will that impact its EV sales? The push for renewables is losing momentum. The IEA reported that renewable investment declined last year, despite the “technical” cost reductions. Clean energy projects in Massachusetts are also lagging, as the government is finding it tough to pick projects that meet all its criteria. The local media is now chastising officials over the slow pace and the likelihood it will cause the state to miss its greenhouse gas reduction target. Blame it on unfriendly New Hampshire who opted in favor its citizens over Massachusetts clean power needs. How un-neighborly!



Rhode Island has picked up the environmental baton of climate lawsuits against the oil and gas industry by filing its own suit. The state is being helped by the same law firm representing California municipalities suing oil companies over climate change damage, while working on a contingency basis. Guess what? Rhode Island wants money to cover its claims that carbon emissions will cause 7.5-17.5 feet of sea level increases by 2100, flooding thousands of homes and businesses. We do a deep dive into the lawsuit filing and the latest studies on sea level rises. California’s gasoline sales appear to be flattening at a time when population growth suggests they should be rising. This has one environmental/energy writer speculating that the trend represents a ‘canary in the coal mine’ and marks the start of the eventual demise of the oil industry. It is an interesting thesis not to be ignored, but still fails to account for other considerations impacting the state’s gasoline consumption trend.

The German auto industry is extremely important to its country’s economy. German’s green energy initiative will cause the country to miss its 2020 emissions goal. An internal economic battle has begun over whether Germany should push for an even more aggressive carbon emissions policy for transportation than that currently mandated by the EU. The outcome will confirm just how important autos are to the continued economic health of Germany, and/or how the industry must adjust down the road. The direction has implications for the future of the global EV industry. In the U.S., auto capital spending suggests the industry can, and will, build many more EVs than most forecasters are calling for. This comes as AVs are demonstrating much improved performance before human intervention is necessary during testing. We briefly comment on world electricity and North Sea productivity, both topics we will revisit in future Musings in greater depth.



BP’s 67th edition of its jam packed statistical report highlights the growth of renewables and natural gas last year. We found it interesting that BP has expanded its data topics to include information on the metals used in electric vehicle and power system batteries, and a review of the power industry’s fuel mix. While the discussion of the former was not surprising – demand up, prices up but supplies growing, it was the shock of seeing no change in the fuel shares for power generation over the past 20 years that got our attention. That revelation must have environmentalists fit to be tied given the huge investment in renewable fuels made over the past five years. Another significant news event was the comments of a leading hurricane researcher and National Hurricane Center official saying there is no data showing an increase in the number of hurricanes or their intensity due to climate change. He worries about environmentalists promoting that inaccurate relationship for political purposes. Equally important, we found meteorological data showing the possibility the Atlantic basin is moving into a cool cycle that could last for the next 25-40 years and mean fewer storms.

The recent Ontario election – conservatives thumping liberals – could be a sign of a shift in political fortunes for the Canadian oil and gas industry. One leading investor is pushing the view that this election shift, if it happens, would lead to reduced taxes and better cash flows for companies, and higher share prices as valuations rise in response. This could be particularly good news for oil and gas companies. Bloomberg New Energy Finance released its 2018 electric vehicle forecast, which increases the number of vehicles expected to be on roads in the future, all due to government ramping up support for them, coupled with falling battery costs. This is not surprising as auto manufacturers are forced to shift their vehicle production in order to sell their entire line of models in countries with large auto markets. Pope Francis hosted energy company executives and investment managers for a two-day conference at the Vatican about how to accelerate the steps necessary to address climate change. He chided the o&g executives that the Paris Agreement directed oil and gas reserves be kept in the ground. This warning comes as leading energy forecasters worry about the lack of exploration spending leading to serious world economic consequences in the foreseeable future. Lastly, ExxonMobil plans to build an LNG import terminal on the coast of Australia to overcome the growing gas shortage, while the country is heading to becoming the world’s leading LNG exporter. Is Australia proving the shoemaker proverb true?



The global economy is failing in its goal of limiting carbon emissions and the IEA, among others, has become concerned. Looking at the US economy, we find that over two-thirds of our energy is “rejected,” meaning it is wasted. Surprisingly, in 1970, a similar analysis showed we used more than half our energy, rejecting only 48%. Why the difference in performance? Think about how much money we have invested to improve the efficiency of our vehicles and power industry. Wasted money, or is there a great opportunity to reduce our energy use and carbon emissions? The Trump administration’s current effort to save older fossil fuel power plants has an Inspector Clouseau quality to it. Is it fair to make utilities buy this power, when states make them buy renewable power, if the fossil fuel power means a more stable grid? ISO-NE officials are concerned about what renewable power may do to their power grid reliability. A bumbling effort, or will Clouseau find the right solution?

The East Coast offshore wind business is kicking into high gear with two recent awards. The race to become the industry’s construction and support hub is on between Massachusetts and Rhode Island. The impact on the respective state economies is highly disproportionate. Residents are more focused on what this new power supply will cost, but they are being assured it will be “cheap,” whatever that means. Germany’s clean energy revolution has sent residential power prices to the highest in Europe, with taxes and fees (including support for renewable power) accounting for over half the typical bill. Now the country confronts older wind farms reaching the end of their government financial support, which will result in them being shut down. More windmills are needed! Based on the push by governments, which is driving auto company investment in new electric vehicle assembly and battery plants, the EV business will be growing at an accelerating rate over the next few years. That could translate into faster penetration of EVs in the global vehicle fleet than some forecasters, especially oil companies, are predicting.



EU carbon emissions rose surprisingly in 2017, although several major economies experienced noticeable reductions. Most of the member countries experienced emission increases, including a number of large economies. Germany, for example, will miss its 2020 carbon emissions target due to being forced to use coal in order to enable its renewables power facilities to function. A political battle is ongoing involving the creation of a commission to plan the shutdown of the country’s coal plants, which will create significant social and economic costs for three of Germany’s states. Last year, EU new car emissions rose, after years of decline, despite fewer diesel cars being were sold. EVs haven’t contributing much to reducing carbon emissions because they represent such a small proportion of the total EU vehicle fleet. We just finished our summer drive from Texas to Rhode Island. Yes, truck traffic was a major issue – even more so than in recent years. Our judgement is that the U.S. economy is doing well, if all the Help Wanted signs we saw are an indication. Other signs told us about highway driver attitudes with different messages.

Northeast shale gas exiting the region is growing, forcing a national gas-flow reorientation, at a time when it could be helping electricity users in the region who pay the highest prices in the nation. We examine why this situation is upending the domestic gas and power industries. On our trip north, we stopped to see the TVA’s Raccoon Mountain Pumped-Storage Plant in Tennessee, one of only a handful operating in the United States. A wonder to see and learn about. California is addressing its carbon emissions by mandating rooftop solar installations on all new residential and small apartment buildings constructed after 2019. Will it help? At what cost? East Coast states are racing to build offshore wind farms, but we are now learning that Northern European wind farms are facing significant repairs after less than five years of service. And those wind farms don’t face the similar wind and storm surges of hurricanes and tropical storms that race up the East Coast. Just how successful will these East Coast states be in delivering cheaper power to area residents?



April was a cruel month for natural gas storage as net injections for the month declined for the first time in years. The challenge is determining whether the gas industry can inject sufficient volumes to rebuild storage to a level that the market considers adequate for meeting winter demand. Gas prices suggest the market doesn’t think this will be a problem. EV sales in the U.S. and key European countries reached record levels last month. The volume of EV sales suggests the market is approaching an inflection point, and more EVs will be in our future. Whether EVs take over the entire auto industry is still highly questionable, as subsidies continue to drive sales growth. Can the EV market survive the elimination of government subsidies?

The success of the shale revolution has altered the state of the U.S. energy market, the country’s role in the global energy market, and importantly, the functioning of every significant industry dependent on energy. With all of these relationships are in a state of flux, it is virtually impossible to know how the changes will play out. What we do know, however, is that the pace of change in the energy world is accelerating. We do a survey of the dynamics within the energy industry today as a result of the shale revolution. In California, energy is costing more every year, and given the housing crisis, driving residents out. New rules that remove EV subsidies and that push housing costs up (mandated solar panels) will drive even more people to move out of the state. Has California Dreaming become Hotel California? Forecasting natural gas prices requires examining the changing role of gas exports in the market’s balance. Without increased exports, gas prices could be under pressure, unless production growth slows. Can LNG exports grow fast enough to push gas prices up?


We re-examined Shell’s Sky scenario for a net-zero carbon emissions world in the context of the company’s string of progressively cleaner world planning scenarios since 2013. We were prompted to look at this history by the announcement of a possible lawsuit against Shell by Friends of the Earth Netherlands for failing to work to reduce the company’s carbon emissions footprint. Will Sky be Shell’s defense that achieving a net-zero carbon world is unrealistic despite the best intentions of the company ($400 million in renewable businesses purchased) and the fossil fuel industry? Tracing the planning scenario history suggests it is a real possibility. Oil prices are soaring and forecasts for higher prices are proliferating. OPEC’s supply cut discipline is being credited with changing oil’s price trajectory. Higher price expectations are tied to continued strong global oil demand, but might that dynamic be at risk, based on history, if oil prices remain above $60 a barrel? We look at the history of pricing and demand growth.

Higher oil prices have done little for the share prices of oil and oilfield service companies since 2017. Will that change? We look at the market liquidity aspect of the oilfield service stocks, which has become an impediment for institutional investor buying. Of course, market sentiment can change quickly, especially when we least expect it. The promises of wind energy seem to be coming up short as sharply rising electricity costs are becoming the rule in those countries and U.S. states that are embracing renewable power. If wind and solar are so cheap, why are electricity costs rising? Are we finding that the promises of clean, cheap and reliable electricity from wind are really less in reality? A Washington name from the past, someone who tormented and forever altered the offshore industry, has resurfaced in the Trump-Russia saga. We reveal who it is, and revisit his interaction with the offshore energy industry.


In the battle of climate change and government regulation, Shell executives recognized that the future trajectory for the oil and gas business may not be as certain as they previously assumed. That realization underpins their latest energy planning scenario called Sky, which envisions the world meeting the Paris Agreement goal of restricting carbon emissions sufficiently to keep global temperatures from rising by more than 2o C by 2100. We examine Shell’s view for its impact on oil and gas demand, and importantly, the growth in the use of renewables. In the end, Sky highlights the reality problems for such a scenario occurring. This year’s never-ending winter, especially for those living in the northern reaches of the U.S., continues to empty our gas storage facilities, yet it has had little impact on natural gas prices. We examine why this has been the case, and why continued gas output growth will limit prices from rising materially higher. However, it is also possible these forecasts could be wrong.

We now have predictions for the upcoming hurricane season from all our favorite storm forecasters. While 2018 is being characterized as likely to be more active than normal, climate condition uncertainties could alter the number of storms, their intensity, and more importantly, where they deliver their havoc. Kinder Morgan Canada has suspended essential work on its Trans Mountain pipeline expansion until the politicians work out an agreement to allow the legally-approved project to be built. The battle between British Columbia, Alberta and the Canadian governments is spilling across the western plains with potentially long-range problems, not only for oil and gas, but for all extractive industries and agriculture that constitute the economic strength of that region of Canada. A new paper announces the discovery of a previously unknown supply of nitrogen that is feeding the earth’s plants and trees. This means plants will be able to remove much more carbon dioxide from the atmosphere than assumed by the climate models projecting devastating outcomes for the planet from increased emissions. This discovery has the potential to alter the entire climate change paradigm.


The vision for self-driving cars outlined by master futurist Walt Disney in a 1958 Disneyland segment, Magic Highway USA, has yet to be achieved, but not for the lack of trying by auto and tech companies. Unfortunately, like many exploration ventures in our history, people die. Usually, those dying are the explorers, but this time it was an innocent female pedestrian finishing a bike ride in Tempe, Arizona. She was hit by an Uber autonomous driving test car that failed to see her in the darkness and hit and killed her. We review what is known about the accident, the state of the autonomous technology, and offer our view of the event’s impact on the development of AVs. The week before last was the worst one of 2018 for stocks, while crude oil proved to be the second best performing asset category. The continuing underperformance of energy equities versus crude oil prices highlights the challenges facing the sector as it tries to win back investor support.

We review the first forecast for the upcoming hurricane season. If current climate conditions continue and the analog years prove representative, we may experience an active storm season, but one focused primarily in the Atlantic Ocean, and occasionally along the East Coast. That may be good news for the energy business. If tropical storms don’t disrupt coastal activity, then natural gas producers may be able to boost LNG shipments, providing needed relief for the industry. Although gas inventories have been drawn down sharply compared to past years, the analog year that scares gas producers has to be 2015 when prices fell throughout the year from springtime highs despite significant gas storage restocking. Neither industrial nor utility demand for natural gas is helping the industry, so it will have to rely on increased LNG shipments to fight off the lack of demand and lower prices.

Canada’s energy struggles continue, but now the courts are sending the pipeline objectors to the sidelines. This isn’t surprising, but it further complicates the political situation between BC and the rest of Canada. It further delays the industry from gaining access to critical global oil and gas markets. We also found out from a BC-First Nations’ report that indigenous people have had their positions on LNG and pipelines miss-represented by the environmentalists in an effort to buttress the green case against these energy projects. Did someone say: Fake News? Auto executives are among the most stressed businessmen as they contemplate how to manage and plan their businesses. How to meet increasing mpg-standards amid the turmoil and uncertainty of EVs and AVs is their challenge. These solutions suggest higher-priced vehicles are in consumers’ future. That comes at the same time interest rates are on the rise, raising consumer financing costs. Are the glory days of auto industry profitability over?


California has always been a social leader, and it is now enhancing its environmental leadership role. A new article examines the state’s effort in the transportation sector, and how its success may upend the petroleum industry. Many forecasts have attempted to define the particular moment when EVs overtake ICE vehicles in the fleet and send U.S. oil use down the chute. The article’s author, however, believes merely the shock of oil’s use inability to grow, outside of a recession, will mark a defining point for the petroleum industry’s future, for which it is unprepared. An equally dramatic reassessment of labor market trends – demographics, automation and inequality – signal a radical change for the U.S. economy. How does the loss of 40 million jobs sound? While it is too soon to quantify the impact and exact timing, there is little doubt such an economic shock will also jolt energy markets. While the performance of the U.S. economy and its energy needs, as it transitions to a decarbonized state, has always been of interest, we may be closer to hazarding an educated guess about the timing and impact on energy from these developments.

Contrary to the media’s view, and, unfortunately, some educated energy forecasters, all crude oils are not alike. There is much angst being expressed about shale oil’s output surge, leading to significant volumes being exported, and its impact on global oil markets. At the same time, the U.S. continues importing heavier crude oils to match our refinery needs. This oil quality imbalance is likely temporary, as the oil industry evolves. Shifts in the global refined product market may alleviate the concern about too much light oil. The diesel emissions scandal in Europe is translating into greater gasoline consumption, as well as stimulating EV sales. Light oil is better suited for producing gasoline. Exxon’s recent Gulf Coast refinery upgrade plans may mark the initial phase of refinery upgrades to handle more light oil feedstocks and greater light oil refined product. Autonomous cars are receiving much media attention, but now we are learning of the push to develop autonomous flying taxi services. If successful, these flying taxis will truly take us into the world envisioned by the Jetson’s cartoons. Will it happen? More importantly – when? EVs marked another year of progress in reducing pollution. As the nation’s power grid becomes cleaner, the emissions advantage of EVs over ICE vehicles grows. The advantages in certain regions and states are truly amazing, and may stimulate some EV sales.


It seems that every new forecast for electric car and autonomous vehicle growth shows them gaining larger market share and faster than predicted in earlier forecasts. The result is a bad outlook for the oil and gas industry. Will the reality match the hype? As we are learning, ride-hailing services are leading to greater urban traffic congestion than ever predicted. Additionally, AVs must be hand washed to prevent damage to the multitude of sensors needed to make the car function. How can these trends promote rapid market share gains? Canada is confronting its oil and gas export bottlenecks, which are being exposed in the regional battle between Alberta and British Columbia over the Trans Mountain pipeline expansion. Surprisingly, wine drinkers in western Canada were the latest to suffer.

Electrified vehicles continue to gain market share in Europe. The latest sales statistics confirm two factors impacting sales growth – the need for continued tax credits and increased range are needed. Will incremental battery improvements support the rapid EV market growth forecasts, or is it only necessary to rely on lavish government subsidies forever? Russian LNG has arrived in New England to supply power plants dependent on spot gas purchases, burning oil or expensive LNG due to the blockage of gas pipeline expansions. Politicians in the region, obsessed with Russian collusion and meddling in our elections, seem to have no problem buying natural gas from our primary adversary, Russia, to keep their lights on. Hypocrisy? Spring is coming, but not good news for the natural gas market. Gas prices remain stuck in the $2.50 – $3.00/Mcf range as drawdowns and demand growth fail to spark fear about the ability of the industry to meet market and storage-build needs this summer.


Oil output recently reached an all-time high. The EIA is calling for further production advances, but the agency continues to struggle to match current oil market trends with its conservative long-term forecasts. Significantly higher oil prices in 2018 appear to coincide with a slowing in oil production growth in 2019. One wonders whether the EIA is attempting to cram today’s market dynamics into a small forecast box, resulting in a too conservative outlook? Utility and pipeline companies are fighting various states over the issuance of water quality permits, the lack of which is shutting down new projects. Executives of these companies have complained to Congress, seeking their help in getting the states to understand their proper role in the regulatory process. Now that a major permit proposal has been rejected, and risks upsetting Massachusetts’ clean energy goal, maybe the issue will gain a fair hearing.

Natural gas prices are swinging wildly as traders and producers focus on the latest weather forecast. This is particularly important as we march toward the shoulder months of weaker gas demand. Whether we have much colder than normal or merely normal winter temperatures for the balance of winter, which Punxsutawney Phil says will last another four weeks, will set the stage for how much natural gas supply will need to be injected into storage caverns to meet next winter’s needs, and in turn, summer natural gas prices. We never thought about the moral decisions, and potentially economic ones, too, that need to be weighed in the programing of self-driving cars. Who makes those decisions, but more importantly, on what basis, when programing these vehicles? We consider some of those moral questions. The clean energy battle is moving from the oilfield and parking lot to the restaurant and kitchen as controlling methane emissions has become the new gas industry battleground. While the oil and gas industry appropriately moves to reduce methane emissions, our eating habits be the bigger issue in controlling this greenhouse gas emission.

This time is different. Those four words have cost investors, corporations and governments untold sums over the years. Right now, oil and gas industry strategy is being driven by the mantra of “capital discipline.” A recent industry survey points to interesting trends about the industry with ominous implications for the future of the business. The industry structure is shifting with large companies increasingly driving activity. They are shifting their focus to reflect long-term positive trends for natural gas and renewables. Will the market reward those moves or urge embracing “animal spirits” one more time to drive activity? The world is supposed to be saved by the Millennials given their attitudes toward EVs, AVs and ride-hailing services. An MIT economist involved in that institution’s transportation mobility research suggests none of these beliefs is true. January was good for crude oil and bad for natural gas prices. Will the “January effect,” associated with the remainder of the year’s stock market performance have any parallel impact in commodity markets?

A new survey of auto execs claims they overwhelming believe battery electric vehicles will fail commercially. They believe hybrid and fuel cell technologies are the paths to a cleaner transportation market. Their comments about different issues with EVs and AVs offer sobering thoughts about the conventional view. California’s governor dreams “big” about the future of zero emission vehicles in his state. His goal of five million ZEVs by 2030 implies a 40% ZEV sales rate in 12 years, up from 5% now. Another big budget expenditure for the state’s residents to fund. Canada’s oil and gas industry is in the middle of another political brawl between British Columbia and Alberta, with the Canadian federal government playing a role, too. Its outcome will shape the industry’s future, and interestingly, government revenues for the future.

Investor returns from owning energy shares have lagged the performance of the overall stock market for a long time, even though energy was the top performing sector in 2016. The extended period of poor performance reflected investors’ realization that energy company profitability was a risk well before the 2014 peak in oil prices and subsequent crash. Producers outspending their cash flow was acceptable to investors prior to 2011, but since then not so much. Could Andy Hall and Boone Pickens shutting their respective oil trading and energy hedge funds down in the past six months have signaled the bottom for oil prices and energy share prices? The bitter cold temperatures in New England earlier this month showcased the dramatic impact weather can have on energy prices, especially in a region that is capacity constrained for cheap natural gas. New England environmentalists blocking new and expanded natural gas pipelines to supply the region are condemning residents in the region to increased energy poverty.

The recent consumer and auto shows highlighted autonomous vehicle technology, while ignoring electric vehicles. Is that because one technology is new and sexy, while the other is now mainstream? Importantly, the future for EVs now is more in the control of regulators than consumers. Predicting that future cannot be done without contemplating how shifts underway in the global transportation market will reshape it. Germany’s green revolution is showing signs of structural problems as the increasing volume of renewable energy is driving residential power costs up sharply. Moreover, utility company embrace of more renewable power is working to the detriment of German’s carbon emissions goal and potentially its leadership role within the EU.

Any good industry newsletter is obligated to present an outlook for the upcoming year, even if you are unsure. We offer commentary on the key trends we believe will shape the trajectory for oil prices in 2018 and beyond. Bottom line, we see higher oil prices (mid-$50s to $70 a barrel) this year with an improved psychology within and about the industry shaping activity and share prices. In our view, the bias is for oil prices to go higher, rather than lower, than people’s expectations. Prices might not go as high as the true bulls anticipate, but, they could stay elevated (the high end of our range) longer than expected due to the damage done to the long-term oil supply outlook by the cutbacks in capital spending and drilling over the last three years. Higher prices and increased government intervention in energy markets will impact demand trends, which is the other side of the equation for determining future oil prices. For example, France just banned oil exploration in its country and throughout its worldwide territories. The action will have minimal impact on the county’s supply and demand, but it cements France’s leadership in the environmental parade against fossil fuels. Another example is NY Gov. Cuomo who wants to push forward on developing extremely expensive offshore wind power. He needs the federal government’s help, but even the most optimistic timetable leaves him short of replacing the 25% of NYC and surrounding counties’ power that results from the Indian Point nuclear plant shutdown scheduled for 2020-2021. Will this position help him in his re-election and presidential ambitions?

Autonomous vehicle development is moving ahead rapidly, but one hurdle yet to be overcome is whether they can operate in snow storms. Until they prove it, their market attraction will be limited to “fair weather” states. Will they be able to demonstrate success? Probably, but the bigger question is: Will the public feel safe in these cars? How well does Bluetooth work connecting your cell phone in your car? Increased capital discipline and a lack of oil discoveries will shape the oil market in 2018. This could leave the industry staring at $70 a barrel oil prices. If prices stay there for long, look for “animal spirits” to begin driving the actions of E&P execs. While the bomb cyclone storm drove the natural gas market crazy, traders aren’t buying a sustained recovery as they see continued production growth and limited demand increases. LNG exports remain the wildcard in this market.

A little bit of Christmas cheer was delivered last week when several Wall Street firms announced the results of their preliminary surveys of oil and gas company capital spending plans for 2018. They show increases of 7%-8%, which is about double the expected increase for this year. For the second year of a recovery, however, these increases are below the traditional double-digit gains, suggesting managements either don’t believe oil prices will remain as high as they are currently, or they have embraced “capital discipline.” We will see what companies say about their budgets when they report 4Q17 results early next year, as that gives them another 60 days to assess the market outlook and the impact of the latest tax overhaul legislation. Still, a spending increase for 2018 has to be considered good news for the industry. The long-term outlook for oil prices is subject to growing debate with spectacularly different outlooks bookmarking the range. At one end is a view that the growing shortage of oil in the near-future will push prices into the $80-$100 a barrel range for the next few years before demand begins to ebb, taking prices down. At the other end, TaaS, (Transportation as a Service) will end car ownership as a philosophy and shift all driving to autonomous electric vehicles that are hailed by consumers whenever needed. That shift will destroy oil demand and send prices crashing to $25 a barrel by 2030! We suspect both forecasts are wrong, but which end of the spectrum proves more accurate needs monitoring in order to understand the amount of future oil industry work that will be available.

California’s governor Jerry Brown is touting how well his state is doing in curbing carbon emissions, but the reality is that Mother Nature is the real hero. Last year’s heavy spring rains and winter snows boosted hydropower, allowing utilities to cut their power from fossil fuels. That explains the state’s emissions success, as transportation emissions actually rose for a second straight year. California’s emissions problem is that all its clean cars aren’t helping offset the increased pollution from longer commutes residents must make due to expensive housing in the state. The new National Security Risk Assessment has been released. The latest draft removed “climate change” as a key risk from the outlook. That doesn’t diminish the military’s consideration of the impact of climate change, but it is no longer a driving force in how we plan for our defense. We take another look at electric vehicle forecasts, but also what they mean for battery demand on global rare earth minerals. There also are some interesting estimates about what an all-EV fleet could mean for electricity demand. Can we ever be ready for the load?


The drama of OPEC’s recent Vienna gathering to bless a new oil production strategy was most likely generated by speculators hoping to make a few bucks from oil price volatility in response to rumors about the deal. Would they or wouldn’t they extend the production cut, and for just how long? Would it have the support of Russia? Would the production cut be reduced or increased? The new agreement, which extends the current output cut with Russian support, will run through all of 2018, although it is subject to review in June. While Vienna is hundreds of kilometers from Rome, funny things happened, and we don’t know for a while whether this agreement will be a tragedy or a commodity. In this era of predicting the demise of the global oil and gas industry caused by electric vehicles, it seems that all forecasters openly accept as givens statements by automakers of their new EV models and production plans. Projections and reality are very different animals, and failing to acknowledge those differences is a short-coming of most EV projections. As we have learned, one optimistic forecast moved the oil glut threshold out by five years after they did a careful analysis of the true cost of building EVs.

EV hype has happened many more times than people are aware of. Who knew that EVs were developed in the 1830s? They ruled America’s roads by 1900 with 38% of all U.S. vehicles powered by batteries! They were revived as a solution to U.S. energy needs after the Arab oil embargo in 1973. Today, EVs account for 1-2% of the U.S. fleet. Why should we think they will conquer the transportation space this time? Oh yes, social engineering through government picking and choosing winning technologies explains why. In a media extravaganza, Tesla introduced its electric trailer truck – the Tesla Semi – with delivery of the first ones about two years hence. Maybe what Tesla doesn’t know about how the trucking business works explains why many over-the-road truck drivers dissed the high-tech vehicle. By failing to indicate just how much the truck might cost suggests maybe all the R&D work is not complete. Given Elon Musk’s history of disappointing customers with delivery schedule delays, maybe we shouldn’t expect the Semi to revolutionize the trucking industry just yet.

Much has been made of the success Norway has achieved in driving electric vehicle sales to nearly 30% of new car sales this year, placing it at the top of the list of countries with leading EV penetration. We did a deeper dive into those countries to see there were other drivers explaining their success besides government subsidies. We looked at car sales, gasoline prices, population, land mass, density ratios, road systems, people per kilometer of roads, etc. We also examined Ukraine, which is #5 on the list, but has low gasoline prices and doesn’t provide subsidies, yet. Outside of Ukraine, subsidies and potentially high gasoline prices are the best guide to EV success. The upcoming winter weather forecast doesn’t provide much encouragement for the natural gas market, given the volume of storage we ended the injection season with. Will this be another warm winter, crushing gas prices, or could we see some Polar Vortex winter cold temperatures?

Donald Trump has called climate change a hoax. Maybe he isn’t right about climate science, but maybe his word choice it to highlight his belief that the push by the European Union to beat up on the U.S. over its climate change stance is more likely a hidden economic war. We examine the history of Europe since the end of WW II and the continent’s energy situation, and how it may have shaped a strategy of using climate change to force the U.S. to stop using its cheap energy, thereby lifting U.S. business costs. Higher energy costs would create a more competitive landscape for EU industry. Our examination impressed us with how vulnerable Europe is to high energy prices, and why raising U.S. energy costs how be a competitive benefit. TransCanada is rumored to be considering a name change. We use the Dragnet approach to understanding the potential motivation for corporate name changes. Just the facts, ma’am.

Saudi Arabia’s recent political moves that have shaken up the Middle East along with expectations for stronger global economic growth have pushed oil prices to new highs. But it is the impact of long-term fundamental trends in energy demand that will reshape the energy landscape. The latest electric vehicle sales figures from Norway suggest the third largest EV market in the world has crossed the tipping point establishing the technology as mainstream. As a result, we continue examining the EV revolution because its future will impact the future of the oil business. Investors are now beginning to eye energy stocks for their possible addition to portfolios. Is this a trading ploy, as the lagging performance of the sector this year (-8.5%) could lead to its outperformance as we approach year-end? Many institutional investors buy lagging sector stocks as year-end nears in order to catch any suddenly improved expectations about a group’s fundamentals in the near future. Higher oil prices could be the catalyst for better energy stock performance, but to understand how the group trades, we look at the message energy stocks have been sending since 2010. It’s not particularly attractive.

Natural gas supplies in the U.S. keep growing, but demand seems to be lagging. While in the past this meant more gas would find its way into storage, right now the LNG export outlet seems to be the prime beneficiary of the surplus. As LNG export capacity grows, and gas demand worldwide increases, U.S. gas supplies will become a disruptive force in the global gas market. The environmentalists are pounding the table saying that climate change will impact the number and strength of future hurricanes, meaning more will land on U.S. shores, creating significant damage. As we examine the storm data and forecasts about U.S. landfalling targets, we cast an eye toward the tax overhaul effort underway in Congress. Disallowing or limiting the deductibility of state and local income and real estate taxes will impact home values in those states with high local taxes. Many of those states are located along the East Coast. Maybe changing the tax code will actually reduce the damage exposure from future hurricanes. Perish the thought that tax policy could actually be helpful in minimizing U.S. hurricane exposure.

In our view, the single biggest issue confronting oil and gas executives, as well as the leaders of businesses supporting them, is the transition underway in our energy supplies. As we have pointed out previously, energy transitions are an ongoing process. That is due to the slow pace of change. What slows the transition? Historically, rapid transitions have been hindered by the need to build new infrastructure to harness the new supplies whenever there have been significant shifts. Not only does it take time for the infrastructure to be put in place, but society must embrace the new fuel.

Having written on aspects of the energy transition, we felt the need to put the bits and pieces together in one place. This Musings is our attempt to do that. We apologize up front since covering the topic has increased the length of this Musings. It is, however, still written in parts designed to be self-contained. That means each can be read individually. We also apologize that we couldn’t go into great depth on each topic. From this exercise, however, we have gained a greater appreciation for those energy transition topics requiring greater research and analysis. Look for those articles in future Musings.

While there are always many newsworthy energy developments to be covered in each Musings, in our mind, the most important issue confronting energy executives dealing with their long-term business strategy is gaining a better understanding of the pace of the current energy transition. It is happening faster than many anticipate, but, in our opinion, nowhere near as fast as some forecasters predict. That is what makes understanding this issue so difficult, yet also so important. Whatever the pace, rest assured it will prove disruptive to the “business as usual” mindset of many industry executives. Hopefully, our readers will not fall into that camp.


From 100% to well less than 50%, the question is how dominant will electric cars become among new car sales around the globe. Public proclamations about banning the sale of internal combustion engines by various governments have spurred auto companies to plan to electrify most, if not all, their future vehicle models. Company actions are in response to forecasts predicting how the auto market will evolve – but critical assumptions underlying those studies are seldom spelled out. They can lead to markedly different conclusions. We consider a couple of major studies. Speaking of driving, a whole segment of Saudi Arabia’s population – its females – will soon be able to drive without fear of arrest. The reality is that the move by King Salman is more an economic stimulation than political correctness step.

Our two-day trip home from Rhode Island produced one day of stress, but another of ease. Truck traffic was heavy all weekend, likely reflecting a strengthening economy. Our other observations about restaurants and our hotel also suggest a healthy economy, which should be good for oil demand. Natural gas is enjoying a stronger storage injection season than expected by those anticipating much higher gas prices this summer. An analysis of the weekly natural gas volume/price relationships for 2015, 2016 and 2017 YTD point to little need for meaningfully higher prices to boost gas storage. Will the industry get any help from the upcoming winter? TransCanada has pulled the plug on its Energy East and Eastern Mainline crude oil and natural gas pipeline projects, suggesting a status quo outlook for Canadian oil prices and U.S. eastern gas producer market gain opportunities in Ontario.


The oil market is facing a major unknown – understanding how much, if any, and for how long, the nation’s oil demand may be hurt by the combined impacts of Hurricanes Harvey and Irma. If, as speculated, the impact of these two storms will be more than that of Hurricane Katrina in 2005, demand will suffer. Katrina lowered oil demand by about 2% for the three months following the storm. There are many factors influencing oil prices. One of them is the value of the U.S. dollar, which lately has been falling, helping to lift oil prices. What has been the relationship between the dollar’s value and oil prices? How important are oil market conditions in this equation? Do market conditions outweigh oil prices? In response to Houston’s flooding due to Harvey, claims were made that the city wasn’t being treated fairly by its business community, especially its major energy companies. We give you some background on the relationship between big business and Houston’s development, and how that relationship had Houston the dynamic city it is today. In our opinion, this is history critics should have learned before leveling their criticism.

Germany’s auto industry is being forced to change in response to its diesel scandal and the global EV movement. The industry is making progress, but much more needs to be done, so patting themselves on their backs may be premature. Is there any justification for linking the recent hurricanes to climate change? The U.S., along with the world, is actually making measurable progress in capping and/or reducing carbon emissions, likely more than people appreciate. Daily oil prices send a message to people much like the news of the day’s performance of the DJIA and/or S&P 500 indices. Should we be fixated on the impression that daily oil price fluctuations are sending important messages to oil industry executives?


Electric cars versus traditional gas-powered – which is the cheaper alternative? We examine the true total cost of owning and operating them over eight years and 80,000 miles. The analysis, especially after considering expenses usually ignored, such as charging-related expenses and the value of the car owner’s time spent recharging EVs, shows how dependent EV economics are on federal and state tax credits. Every analysis will come down to individual considerations, but ICE cars appear the winner. Natural gas prices seem to be settling into a future that will be centered around the $3/Mcf mark as optimism for a $4/Mcf level has been bled out of the market.

EV sales grew more slowly than expected last month – an emerging issue? Chevy’s Bolt sales were strong in August, meaning that cheaper cars with greater range are popular with buyers. We look at long-term issues for Houston and the energy business, after the critics took their shots following Harvey’s devastation. Much of the criticism about zoning and flooding was ill-founded in our opinion. Congress is mandating the introduction of 100,000 autonomous vehicles on America’s roadways without having to meet normal safety standards. Is this the nose of the camel under the oil industry tent?


Much of the oxygen in the energy room is sucked up by the EIA’s weekly oil storage report and the daily oil price movements in the oil trading pits. Yet, for oil industry executives, the pressure to develop appropriate long-term strategies for their companies is intense. Should they listen to their shareholders about short-term trends, or devote their time to issues such as future oil demand, where demand will grow, how to staff their companies, and answering whether they should be more involved in renewables? The natural gas market is struggling to reduce the growth of storage volumes in order to lift gas prices. The shale drilling boom is producing greater volumes of associated natural gas that is confounding the economics of the gas market. Are we destined to live in a low gas price world for some period of time?

Al Gore’s latest climate documentary is struggling at the box office, partly because some of his science claims are failing to deliver climate disasters. The latest is rising sea levels. Contrary to NOAA’s claim about the seas rising in 2016, NASA’s satellite data shows the exact opposite, and sea levels continue dropping in 2017. There remains much about continental and oceanic movements due to plate tectonics that are not understood. At the same time, satellite sea level measurements, which have a significantly shorter history, project a much faster rise than do land measures. In Germany, the diesel emissions scandal is driving the auto companies to develop more EVs. Is this a runaway train confronting the oil industry? Lastly, the latest political news from Canada shows more provincial government attacks on the fossil fuel industry, potentially to the detriment of the economic health of its residents.


OPEC struggles to match its rhetoric with shifting oil market fundamentals. The longer the production reduction deal goes on, the greater the risk of its breaking down due to the growing financial pressures from low oil prices on its smaller members. But maybe oil market fundamentals are working – just not as quickly or demonstratively as OPEC hoped. We also look at who may be hurting the market’s recovery. The state rankings in CNBC’s Best States for Business survey highlight the weak cost of doing business and cost of living performance of the New England states. This group of states also happens to have the highest electricity cost among all regions in the Lower 48 states – a coincidence? We look at individual state performances. The political landscape in Alberta is shifting with a goal of conservative organizations recapturing the government. British Columbia’s government has shifted further left and now the Ontario election campaign is starting. One common tread in all three provinces is the greater prominence of energy policy and its impact on jobs and cost of living in reshaping the political scene.

A very detailed analysis of the CO2 and energy efficiency performance of electric vehicles versus internal combustion vehicles shows that high-efficiency (mpg) ICE cars and hybrids outperform EVs when the correct heat measurements are used in the calculations. Real world electricity data further confirms this conclusion. Canada’s LNG hopes were slammed with Petronas’ decision to abandon its C$26 ($20.8) billion project to export gas to Asia. Toyota has filed a number of patent applications covering technology to build a solid-state lithium-ion battery. That technology will allow for more power to be stored in a smaller space as well as for faster charging times. Both improvements would meaningfully improve the economics of EVs.

While pessimism about the oil industry dominated the World Petroleum Congress, there were some important insights offered that have a longer lasting impact on the industry’s future than the current emotional views. Did Volvo call the peak in ICE vehicles? While a smart PR effort by the company, it was helped by the lack of understanding by the mainstream media of the difference between “electric” cars and “electrified” vehicles. They aren’t the same thing.

As Tesla lost is crown as the most valuable auto company in the world, challenges to it and electric vehicles in general continue to erupt everywhere. Whether it is Volvo, the loss of tax subsidies in Hong Kong, or questions about a new NEF EV study on battery price trends, a new Chinese study on EV carbon emissions being 50% greater than ICE vehicles besides being an eye-opener, may actually have an impact on the world’s largest EV market.

Natural gas production in the Marcellus is growing, but neighboring New England continues to face the highest electricity bills in the nation due to the region blocking pipeline expansions. Power customers are forced into dependency on expensive LNG rather than significantly cheaper domestic gas from Pennsylvania, Ohio, and West Virginia. A recent article caused us to review last year’s snookering of a government climate official over a 1922 newspaper article by a politician at a Congressional hearing. Does history repeat?

During the past two weeks, oil prices threatened to fall below $40 a barrel until oil trader short-covering, in response to a couple of positive data points last week, pushed prices above $46. Although short covering was the driving force, market sentiment shifted in response to the upcoming long weekend as traders don’t like being shore for an extended period of time, as well as data showing a decline in the EIA’s estimate for weekly U.S. oil production and the first drop in the weekly rig count in 24 weeks. Ignoring the short-term oil price focus, we wanted to concentrate on fundamental changes underway in the industry because them will have long-term impacts on its future. For guidance, we examined the 1982-1986 and 2008-2011 industry cycles compared to the current one for clues to the future. A new study from Sweden points to the magnitude of carbon emissions associated with EV battery manufacture. It will take years of driving to offset that beginning carbon sinkhole. Larger EV batteries, to offset range anxiety, actually make the carbon sinkhole deeper.

The roof-top solar industry gets a reprieve in Nevada, but its support is often based on flawed assumptions about the industry’s job creation power. We look at solar job creation, as well the history of questionable “green” job creation figures. The latest hurricane forecasters have raised their estimates for the total number of tropical storms and hurricanes, but not increasing the number of major hurricanes to occur. The most significant forecast change, however, is the sharp increase in the probability of a major hurricane making U.S. landfall. It has been 4,271 days since the last major hurricane arrived, nearly 12 years in duration, the longest streak in history. The latest J.D. Power car quality survey highlights consumer frustration with aspects of autonomous driving systems being added to new cars. Will these concerns pose a stumbling block for the early arrival of self-driving cars?

Last Friday, the U.S. rig count marked its 22nd consecutive week of increases, with rigs drilling for oil matching that record.  That’s the longest streak since 1987 (we haven’t had time to check our 1949-1987 records).  Will the weakening of oil prices end this streak, or have oilfield economics changed sufficiently that it could go on forever?  We just returned from nine days touring Tibet, which opened out eyes to how a poor but tradition-rich country is slowly being absorbed by China – its “liberator” of some 50 years ago.

The upcoming parliamentary elections in Norway, the world’s leader in EVs, will feature political debate over the cost of the government’s electrification of its auto fleet efforts.  Scaling back subsidies could create another Denmark, where EVs could barely be given away following the elimination of their subsidies.  Even in China, the spiritual leader for EVs, buyers/owners are questioning their performance and economic value, while also trading back to internal combustion engine cars.  The cost of the battery-pack of a Chevy Bolt accounts for more than half of their subsidized $30,000 price tag.  Herein lies the conundrum for EVs – without cheaper batteries, subsidies can’t be dropped, and without subsidies, EVs quickly become expensive cars.  The logistics of a trip half way across America in a Bolt is explored, showing another challenge for EVs.

OPEC has decided.  A nine-month extension was the outcome, but the commodity market didn’t like it, dropping oil price by nearly 5%.  Although oil prices rebounded on Friday, WTI remains below $50, about $2 a barrel below where oil prices began 2017.  By extending the production cut agreement until April 2018, OPEC is betting its action, along with non-OPEC support, will lift oil to $60 a barrel by the start of 2018, in time to help the Saudi Aramco IPO.  Besides global oil demand, OPEC/non-OPEC compliance and U.S. shale output, there are other factors that will determine if OPEC’s prediction works out.

Peak oil demand is the new hot topic, but there are considerations about forecasting that should be considered.  The key variable in this debate is what happens to transportation fuel consumption as more EVs enter the fleet.  The latest optimistic EV forecast suggests a dire outcome for fossil fuels, but are its underlying assumptions grounded in reality?  Offshore well cost reductions, combined with the prospect of higher oil prices may finally revive the offshore sector, the one segment of the oil business yet to show signs of recovery from the oil price downturn of the past two years.  British Columbia’s provincial elections are now complete and the reality of a minority government creates uncertainty for major energy projects in the province that are critically important for Canada’s energy and economic progress.



It’s college graduation season and some newly minted graduates will be wrestling with the decision about joining the energy business.  If they read the financial or industry press, they might be scared to go to work for energy companies as commentary about daily oil price fluctuations create impressions of immediate booms or busts.  A look at long-term fundamentals suggests a more challenged future for energy, but still a future.  That is the more important consideration for grads.  Barack Obama, the Environmental President, gave a talk in Milan where he not only made confusing climate change claims, but actually aligned with the views of a climate skeptic.  Were his environmental views all about politics?

Trucks and weather dominated our drive from Houston to Rhode Island, see our observations.  It turned out to be our fastest trip ever.  We take a look at what happened in recent weeks to erase the 5-handle from oil prices, even now after Saudi and Russia agreed there should be a 9 months extension of the OPEC production cut agreement.  Anti-fossil groups now are targeting banks in an effort to pressure them to stop making loans to build pipelines.  If you can’t stop the building of pipelines, maybe you can prevent their financing.  With so much capital available for energy, it’s hard to see this strategy working.  Does it matter as we find that photosynthesis is much more efficient today removing tons of CO2 from the atmosphere.  Is this one of those climate unknowns that have challenged the climate change theology?


Are you worried about electric vehicles’ impact on oil demand?  Maybe you should be, then again maybe you shouldn’t worry.  We examine some of the broad trends that will determine how much impact there might be.  But a major study for the EIA on “connected and automated” vehicles shows why we aren’t sure whether to worry or not.  We examine the study in depth.  The political and economic drama unfolding in Saudi Arabia makes us wonder if we are watching a re-run of the 1960s TV western Bonanza.  The family leader and his three sons ruled their ranch and dealt with moral dilemmas of that time and place, much like in Saudi Arabia today.  However, this may merely be the next round in the latest Rumble in the Desert between OPEC and American shale producers.

Britain recently went a full 24 consecutive-hours without using coal-generated electricity.  This is being hailed as a watershed moment for renewable power.  Natural gas has been taking up the slack from coal, and biomass – wood – is also playing a role.  Coal will likely be used to meet the country’s power needs this next winter, just as it was last winter, and at considerable cost.  China is aggressively moving to boost EV purchases at a time when its citizens want SUVs.  The same seems true in the U.S. and Germany.  How will this policy clash work out?  Subsidy-free wind power for Germany is touted as opening a new era for renewables.  Upon examination, the successful bidder’s outs, for its 2021 FID may mean offshore wind still won’t be ready for level-playing field completion, even in a land of high electricity costs.


The oil industry recovery is on a breathtaking pace.  It has been driven by optimism for higher oil prices and reduced well breakeven costs.  Forecasters are grappling to understand how well costs have fallen, and what will happen to activity as oilfield inflation rises.  Will shrinking profit margins cause producers to slow drilling, or are we back in a world that worships volume growth over profitability growth?  Environmentalists and auto manufacturers are facing off over a potential Trump administration review of vehicle fuel-efficiency standards.  What could that mean for EVs?  The face-off is playing out against a backdrop of weakening auto sales, a glut of young used cars and deteriorating consumer credit standards?  With low gasoline prices, EVs are being shoehorned into the auto fleet, not because Americans are clamoring for them.  Will all of this change?

The latest summer weather forecast suggests little help for natural gas consumption.  Furthermore, the forces shaping the upcoming weather may not help trim gas supplies.  It may all come down to cheap gas for electricity and increased LNG exports to keep supplies from overwhelming storage and driving down prices. Germany’s green power revolution is coming at a huge cost for its residents, workers and the environment.  These forces have knocked the country off its emissions-reduction path, produced the most expensive household electricity prices in Europe and pushed more citizens into energy poverty.  Should this be a warning to Americans?


Understanding the dynamics of past oil cycles helps to gauge what forces will define the industry’s future.  Importantly, understanding what is different this time from the past should help people assess better corporate strategy shifts.  Equally important, people can consider events and trends that might become the next big cyclical industry driver.  Examples might include the failure of shale to deliver its miracle production growth, or how many electric vehicles will it take to disrupt oil consumption’s growth?.  Broad trend shifts are more important than near-term sentiment or short-term inventory fluctuations.  The natural gas market continues to struggle trying to establish sustained higher price levels in the face of low prices that have enabled coal to seize market share in the electric power generation sector.  After a mild winter, analysts are shifting their focus to what the summer holds for gas consumption.  All the while, support for gas prices comes primarily from lower gas supply.  Will increased oil shale drilling create more associated natural gas supply, hurting gas prices?

The oil price climb back above $50 a barrel has been driven by a more optimistic outlook for oil prices in the second half of 2017.  Comments about extending the OPEC/NOPEC’s production cut agreement, more positive global economic growth indicators, and continuing oil exporting country supply disruptions have overwhelmed the previous negative sentiment that had gripped the oil market in early March following a jump in U.S. weekly oil inventories.  Can the positive sentiment be sustained?  The greatest risk for the global oil industry is electric vehicles destroying gasoline consumption growth, and even causing it to shrink.  Just how green are EVs and what about their costs?  Moreover, if EVs continue gaining market share, will we eventually face a battery-disposal environmental hurdle?  Lastly, another test to use wind power to assist ocean tankers reminded us of the experiment offshore contract driller Rowan’s long-time CEO Bob Palmer tried during the 1980s.  Costs proved to be the ultimate bug-a-boo.

Support for crude oil prices has diminished with the surprise oil storage jump, domestic oil output growth coupled with continued oil rig count increases, and fears that global oil demand is being muted by higher oil prices.  The first event initiated the oil price slide.  The latter two issues continue to hold back any oil price recovery.  We look at some other indicators impacting oil prices and the sentiment surrounding them.  The great future for electric vehicles may have to await their ability to fulfill more tasks Americans ask of their cars.  We examine one woman’s 800-mile journey in her new Chevy Bolt.

Germany has declared it wants to outlaw ICE vehicles by 2030 and use 100% renewable power instead.  But with the current nuclear power plant phase-out, Germany has set itself up for increased, rather than lower carbon emissions.  How could that happen?  2016 was touted as a great year for renewable power in the U.S.  How much of that growth came from rational economic decisions rather than mandated actions?  Finally, we report one man’s analysis of the efficiency and economics of a BMW versus a Tesla.  The EV Tesla wins on operating cost, but loses on green power.  It makes for an interesting analysis.

One of the hottest topics in the energy world right now is carbon taxes.  We have been following the proposed carbon tax in Rhode Island along with the recent proposal from a group of leading Republican leaders headed by former Sec. James Baker.  The scope of these carbon tax proposals is widely divergent.  We examine some of their claims along with examining the experience of British Columbia, the shining example the tax proponents point to in order to justify the tax.  We also look at the current status of many of the factors that shape oil prices and will influence whether prices head higher or not in the near term.


A recent study examined how improvements in electric vehicle and photovoltaic technologies will crater oil demand putting substantial resources within the industry at risk of losing their value.  We examine the EV acceptance claims, along with the shifts underway in the European power market.  Some of these claims may be questionable.  Understanding how quickly and to what degree EVs will impact gasoline/oil use remains a highly speculative analysis and open to widely divergent assumptions.  We will be reviewing more studies in the future, as this is a serious question for energy policy makers and energy company executives, and making new forecasts has become a sport.  Lastly, a new study suggests that New York State may not need as many new renewable energy projects to replace the power it will lose when the Indian Point nuclear reactors are shut down.  Whether the proposed solution will work remains uncertain.  What it will cost is also unknown.

The issue of how much new shale oil output can come from a revitalized U.S. drilling effort will determine future oil prices.  More drilling in response to higher oil prices, and hopes for even higher ones in the future, combined with reduced well breakeven costs due to better drilling and completion technology will help drive higher output.  Better rocks, greater rig efficiency and improved economic ultimate recovery metrics are powering this revival, but with they continue?  We explore how these developments could disrupt the march to higher oil prices.  UPS drivers studiously avoid making left-hand turns.  Surprisingly, driving further to avoid making left hand turns can actually save gasoline.  We look at the results.  Crude oil prices are more than just a reflection of supply and demand.  They are also influenced by measures of oil-price volatility as well as shifts in the value of the U.S. dollar.  The current environment for these factors resembles 2009-2010, at the time oil prices began heading toward $100 a barrel.  Could that happen again?

Commodity traders are starting to pull in their bullish horns, which shouldn’t be a surprise.  Interestingly, European oil traders/speculators, although still bullish, are less aggressive than they were in early 2014 as oil prices approached their peak and then collapsed.  Should we be watching what they are doing to forecast oil prices?  Crude oil prices have been supported by the historically high OPEC production cut compliance in January.  One forecaster sees U.S. oil output ramping up to record levels in the next five years without oil prices reaching $80 a barrel.  As Americans gain weight, car safety experts have to use larger crash-test dummies to study injury risks.  What would happen to small car demand in this country if Americans go on a diet?

The role of the automobile in the world’s future transportation system will determine the amount of gasoline and diesel fuel needed, and in turn the amount of oil required to produce the fuels.  Impacting this outcome will be the share of the global vehicle fleet represented by electric and other non-gasoline and diesel powered vehicles.  We examine both the BP and ExxonMobil views on this topic along with reviewing recent trends in the U.S. auto transportation sector.  In anticipation of higher oil prices later this year in response to the OPEC/NOPEC(non-OPEC) production cuts, crude oil traders have placed their most bullish bet on that occurring in the last decade.  Interestingly, in past periods of peak optimism, traders often faced falling oil prices shortly after their bullish bets were placed.  Will that happen this time?

Low natural gas prices are driving coal from the electricity generating market and will potentially drive nuclear out, too.  But there are other dynamics at work shaping the nuclear industry outlook such as the push for more electricity generated by renewables.  We examine the latest nuclear power battle in New York State where Gov. Cuomo is working to get the Indian Point nuclear plant located near NYC closed by 2021, 14 years ahead of its license expiration.  The problem for New York power consumers is that this plant accounts for 12% of the state’s electricity supply, an amount that wind and other planned green energy sources will be unable to replace, leaving customers facing skyrocketing electricity prices and at risk of an unstable grid ensuring increased blackouts, i.e., the worst of both worlds.  As with many issues impacting the power market, this battle over the future of 20% of America’s power that comes from nuclear is well below the radar screen.  Finally, we review the BP 2017 Energy Outlook as it offers some interesting and confounding views about the future of the energy business, and the oil and gas markets, in particular.

A key ingredient impacting 2017 oil prices will be the value of the U.S. dollar, something President Trump has focused on recently.  His comments drove the dollar’s value down by 1% last Tuesday.  It is interesting to see what the dollar/oil price relationship was during the 1980s and 1990s as a potential precursor for the future.  If we repeat that pattern, look for oil prices to remain in a fairly tight range for a number of years, contrary to a number of forecasts.  Two federal judges have slammed government agencies over their abuse of the “rule of law,” something likely to change under the new administration.  Both the EPA and BSEE were admonished to follow the laws they operate under and to stop making new laws.

Crude oil was the best performing asset class in 2016, but that didn’t lift it from last place for the 2007-2016 decade.  In fact, if you owned oil over that decade you actually lost money, the exact opposite of the prior decade’s results.  Where might crude oil rank in the coming decade?  A recent study showed that a handful of integrated oil companies generated more than the lion’s share of the entire oil industry complex’s free cash flow.  Are integrated oil companies the best (or safest) way to invest in the energy business?  With the Chevy Bolt being selected as the 2017 North American Car of the Year, auto industry thought-shapers (journalists) have unofficially designated this as the year of the Electric Vehicle.  Will it actually prove that significant?

With the holiday season and then traveling half way around the world, we wrote a slightly different Musings.  In keeping with our recent theme of cold weather being worse for humans than hot temperatures, the EPA is now focusing on shutting down Alaskans’ wood-burning stoves to address minor smog issues caused by wood-burning stoves.  This is the least costly and most used method for heating homes in an energy-disconnected infrastructure, but that doesn’t seem to bother the regulators.  At the same time, a respected Russian climate researcher has demonstrated with his acclaimed and highly rated climate model how a new Little Ice Age has commenced.  This is a media world obsessed with global warming.

The energy themes of 2017 will likely be the same ones we were focused on in 2016.  In that regard, understanding more about electric vehicles is helpful, but the scariest thought was expressed by the portfolio manager of the New Era Fund who says this commodity downturn could last for a decade!  Is his view what “lower for longer” means?  We also have a brief review of the crude oil and natural gas markets for 2016 and what 2017 might hold.

While it is no longer the night before Christmas, Phil Price’s updated poem offers insight for 2017.  As 2016 draws to a close, the U.S. energy business opened a new era with the official start-up of the Block Island Wind Farm – the nation’s first offshore wind project.  The eight-year development effort was completed this month with the switching on of the turbines, even though one was damaged during the installation, and producing electricity for the residents of Block Island and Rhode Island.  While offering encouragement for environmentalists and future wind farm developers, one can’t escape the fact that offshore wind is very expensive and without tax incentives likely wouldn’t have much of a future now.  We take a look at the project’s history and economics, likely for the last time.

Forecasting oil prices is always a challenge, and has usually been done with little success.  There’s this slight problem of having to forecast both the oil price and when it will be there.  With the new OPEC agreement, some say the worst is over for the industry, but what exactly does Bob Dudley’s “lower for longer” really mean?  The Electric Vehicle juggernaut is rolling – driven by feel-good economics and automaker business strategies.  Just how green these cars are depends on where they get their electricity, and we now have an early attempt at determining what is the cheapest energy for every county in the U.S. thanks to the work of researchers at the University of Texas’s Energy Institute.  Their analysis may surprise some people.  Climate change proponents always scares us about the harmful effects of warming temperatures on humanity.  An examination of recent studies shows that more deaths are due to cold weather than hot temperatures, so maybe a gradually warming planet won’t be so bad for the human population after all.

What is rapidly becoming a hot topic in the energy world is electric vehicles.  Whether it is the flashy Tesla with its colorful leader, or the traditional automakers GM, Ford and Toyota all announcing new electric models, the push to electrify our nation’s automobile sector is gaining traction.  While strides have been made to enable electric cars to go longer distances on a single battery charge, the public has yet to embrace this technology, which is over a century old.  The amazing thing about this market segment is how much per unit automakers are losing when they sell a car, and how buyers face decades of ownership in order to recover the premium they are paying for them.  We examine what’s going on in the electric car market.

The OPEC agreement to raise oil prices is big (and welcomed) news.  Some of the oil market trends in the U.S. show why the deal was acceptable to OPEC and Saudi Arabia.  But this near-term market solution may portend larger challenges for the industry down the road.  The U.S. federal government is once again changing how it wants the offshore oil and gas business to operate, which could have a significant impact on the future of the industry.  Will the Trump administration move to revoke some of these changes, or rewrite them once again?  Lastly, in Canada, the Trudeau government has just approved two new oil export pipelines, while rejecting another.  The Canadian oil industry is cheering, while environmentalists are furious.  Will this move open up a new era for the Canadian oil and gas business, or will these pipelines meet the same fate as Keystone XL?

Will we witness another failed OPEC meeting with the organization unable to deliver a production cut/cap agreement?  We don’t think so.  On the other hand, never forget that it is NOT what OPEC members say, but rather what they DO that impacts oil prices.  Too much is at stake for OPEC to fail to reach an agreement, but the details and execution are an entirely different story.  Maybe we will find out what “lower for longer” really means.  The future of the electric vehicle market is approaching a key point in its development history.  The EV industry is working on new models and how to make them more attractive to younger buyers, especially given the financial health of Millennials and completion from cheap gasoline.  A new study shows that the success of EVs largely depends on government incentives and initiatives to support them.  Even now, In Germany the environmentalists want the government to ban fossil fuel-power cars and have that policy be embraced by the entire EU.  German car manufacturers are aggressively developing EV models.

Weather forecasts for this winter are changing as fast as the weather.  It is difficult to know how this winter might impact the natural gas business.  We look at what is causing forecasters to waffle in projecting this winter’s weather and how this might play out for natural gas consumption.  That outlook is impacting natural gas prices for the winter months, but importantly it will impact prices for next spring and summer.  Thank goodness gas output is falling.    Battery technology is always just a breakthrough away from revolutionizing the renewables industry.  We look at the economic challenges for batteries and the EV market, along with trying to understand more about Toyota’s fuel cell initiative.  IBM’s Watson, the winner of a Jeopardy game, is making a play for a greater role in helping oil and gas companies manage their business in the future.  Watson offers intriguing potential for handling the large volumes of unstructured data currently residing in companies’ offices.  Big data and its benefits/challenges underlay some of the shifts underway in the business strategies of oilfield service companies.

Until a month ago, it appeared the natural gas market was heading for a healthy recovery that would support prices north of $3/mcf during the winter, and possibly pushing as high as $4/mcf.  The shift from El Niño to La Niña would lead to colder temperatures and increased moisture.  However, a strong jet stream is blocking Arctic cold air from descending into North America, thus we are experiencing record warm temperatures that have contributed to higher weekly gas storage injections and weaker gas prices.  The election of Donald Trump to the U.S. presidency caused us to examine what this may mean for energy and the environment.  We draw on a presentation we made in Calgary trying to explain the U.S. election system and the prospects for energy under the various presidential candidates.

Canadian Prime Minister Justin Trudeau has announced a new ocean-protection plan that may be the first step toward a more liberal program for approving the construction of export pipelines, something the country’s oil and gas industry needs.  The first commercial job for an autonomous truck involved a two-hour trip delivering 51,744 cans of beer in Colorado.  The trip proved the technology can work, but it has truck drivers nervous for their future.  The trip also highlighted the challenges autonomous trucks face in capturing more work in the transportation business.  Will Mr. Trump’s Make America Great Again policy boost the domestic oil and gas industry, alter our relations with Iran and force OPEC to reconsider its strategy at its November 30 meeting?

While everyone is focused on how and when OPEC can reach an agreement to cap its oil output, people may be ignoring the potential elephant in the meeting room of a recession.  We are not predicting one, but there is a pretty long history of recessions accompanying the new occupant to the White House.  We look at what has happened to US oil consumption and global oil consumption during past recessions to provide a perspective on what might happen in 2017.  We always wonder why protesters do stupid things.  We look at their latest episode of endangering themselves and the environment.  The violence at the Dakota Access Pipeline protests reflects the intensity of the issue of building another crude oil pipeline.  DAPL has become the next Keystone XL rallying point for the environmental movement.  Activists say the DAPL protest will be followed by battles over new pipelines and fossil fuel infrastructure projects in the Northeast and mid-Atlantic regions of the country.

There are certainly mixed messages about Americans’ concerns over climate change.  When polled specifically about climate change, Americans are worried.  But when asked to list all their principle fears, climate change isn’t anywhere to be found.  On our recent trip home, we encountered an interesting exhibition about the history of climate change and the Shenandoah National Park in Virginia suggesting other forces at work in causing climates to change.  The issue of carbon taxes has received much attention in both Canada and the U.S.  Up north, the Canadian federal government wants all provinces to have a carbon tax.  If they won’t by 2018 then the federal government’s new carbon tax will do just fine.  But in Washington state, a proposed carbon tax on the November ballot is opposed by environmentalists because it doesn’t raise enough money or the money is not be directed to new environmental spending programs.  We now know that environmental taxes are really only general taxes in disguise.

Natural gas prices have been climbing as the over-supplied market shows signs of returning to more normal conditions and cold winter demand looms. Those active in the natural gas market are wrestling with how high prices might rise this winter.  We examine the current state of the gas market including revisiting our forecast for storage made six weeks ago.  The big variable for gas prices in the next month or so will be the outlook for winter weather, which according to the latest BrowningTM World Climate Bulletin may prove disappointing for those counting on a colder than normal winter.  From a regional perspective on the natural gas market, the battle over market share  between cheap U.S. Marcellus gas and western Canadian supplies has entered a new phase as gas pipeline operator TransCanada is offering to cut transportation tariffs in half to help Canadian producers compete.

We recently completed our drive back to Houston from our summer home in Rhode Island.  Due to the route we chose, we can’t compare all aspects of the trip with prior journeys.  However, we had a number of experiences and saw some interesting things that provide some perspective on how America is doing economically, and possibly politically.  California has just revised its autonomous vehicle testing rules, now allowing units without steering wheels, gas and brake pedals and an operator to be tested on public roads.  The change was made more to allow a testing site to operate than a reflection on the best types of vehicles that should be built and tested.  With Ford looking to move into this vehicle market with a vehicle without a steering wheel or pedals, we may be looking at a watershed point in the evolution of self-driving cars.  The AMA has issued a warning about the health effects of LED highway lights.  Some communities are already moving to replace their current LED lights with different ones that emit fewer health-disturbing rays.  Just because a light bulb is more efficient doesn’t necessarily mean it is healthful.

The oil war is over!  Good times will roll again.  We briefly examine the last two years in “hell” for the oil business.  The bottom line is that we have a more efficient industry that will shape the recovery.  We take a deeper dive into what different levels of penetration of EVs into the American fleet may have on gasoline demand.  Interestingly, the results from our models  bracket those of the EIA, but we get there differently than they do.  The oil industry has been struggling to rebalance global supply and demand in a world shaped by negative interest rates and low economic growth that seems to be continuing to slow further, which is contributing to a slowing of global oil demand.

The federal government finally issued its guidelines for the development and testing of self-driving cars, as well as highly-autonomous vehicles.  While welcomed by the auto industry for being less heavy-handed than they had expected, the behavioral standards seem to put some high hurdles in place that may slow down the pace of autonomous vehicle development.  One fallout from OPEC’s shift to allow market forces to set oil prices is the growing battle among the largest oil exporters over Asian oil market share.  You may be surprised to learn how fast the continent of Australia is moving.  It is forcing the resetting of latitude and longitude lines, impacting GPS locations.  This could mean that self-driving cars could be on the wrong side of the road, or maybe be even in another neighborhood.

Money manager Jeremy Grantham of GMO has co-authored a white paper arguing the case for investing in natural resource stocks.  This is surprising as he has become an environmental activist and finances two environmental institutes in the UK.  Are we talking only about differing time horizons, or is something else at work?  What is the case and why doesn’t GMO consider climate change in their research protocol?  As part of the white paper, GMO looked at the dismal oil price forecasting record of industry experts.  We point out they only needed to look at the historical record to know that oil price forecasters barely get the direction right.

The oil price downturn is taking a toll on the industry success in finding new reserves.  This failure is expected to impact future oil prices a decade ahead, assuming that intervening forces don’t diminish the need for substantially more oil as currently projected.  One factor that has held oil prices up this summer has been the growth resurgence in VMT and the need for more gasoline.  It takes 2 barrels of oil to produce 1 barrel of gasoline.  Will the future of driving remain as robust as it has been this summer or are forces at work that will suppress the trend.  Lastly, Hurricane Hermine ended a decade-long hiatus of a hurricane making landfall on the Florida coast.  Weather conditions are still favorable for tropical storm formation, but the conditions may limit storms landing in the Gulf of Mexico.  Meteorologists are now shifting their predictive powers to the upcoming winter.

The long awaited oil industry recovery remains mired in its own purgatory.  Supply was supposed to drop faster given the crushing of the rig count over the past two years, but now demand is becoming a potential problem.  The result is that the restructuring/survival of the oil industry and its service support businesses is stuck attempting to solve its massive debt overload condition.  We look at some of these challenges as part of our ongoing effort to scope out the industry’s likely recovery trajectory.  In another article, we take a stab at assessing what winter gas demand may be and whether it will be sufficient to lift prices higher, or whether we and the gas producers may be disappointed for another winter season.  It’s early for a definitive verdict, but our analysis gives you the good and bad outcomes.

The Obama presidency along with its media supporters are trying to build a case for a wind energy legacy by citing the successful completion of the construction of the first offshore wind farm off Block Island, Rhode Island.  The problem is that this project was actually initiated by the state’s last Republican governor and didn’t involve the federal government.  Just a minor detail for the worshipers.  On the other hand, efforts of environmentalists to fight the use of oil and gas by disrupting energy infrastructure developments is highlighted by the current protests over the construction (approved by the Corps of Engineers) of the Dakota Access Pipeline.  Will this be a rerun of the Keystone XL Pipeline wars?

Despite recent oil price volatility, the drilling rig count is growing suggesting that producers are finding profitable wells to drill or maybe they are just desperate for additional cash flow and have other people’s money to spend.  Both sentiments will affect the pace of the current rig recovery.  We take a deep dive into the history of rig count recoveries and oil prices.  Specifically, we looked at five recent cycles and how they might provide guidance for this recovery.  Canadians are learning the hard way how environmental policies are impacting their electricity costs.  In Ontario, it is due to how green subsidies impact ratepayer electric bills, while in Alberta the cost rise will be due to bureaucratic incompetence in implementing their new green energy policies.  In the U.S., renewables enter a new era as the first (only) offshore wind farm has been finished and should begin generating electricity in the fall.  The cost of the project, and its electricity, are not cheap and we look at this issue.  Another renewable – solar – is draining state subsidy plans at record rates, creating budgetary problems.

Adequate power availability is always a challenge for utilities, which gets complicated when environmentalists on the West Coast start fighting among themselves over the government’s approval of new transmission lines to deliver power from a new wind farm.  On the other coast, the Massachusetts Supreme Court just shot down the utilities plan for financing the expansion of natural gas pipeline capacity into the New England region.  These battles highlight the challenges utility executives face in determining their business model for the future.  The newly proposed heavy-duty truck fuel efficiency ratings are being positively received by the industry and offer hope for reducing the now-largest component of carbon emissions in the U.S. – those from transportation.

Crude oil prices continue fluctuating.  After hitting $50 a barrel in June, oil prices fell throughout July and eventually they fell below $40 a barrel at the start of August.  Since then, prices are now rallying.  It is interesting to look at this most recent cycle in comparison with the Spring 2015 cycle and how the industry responded by hiring more rigs in each period.  The pace of U.S. electric power consumption has slowed and is now trending lower.  Why?  Maybe it has to do with the cost of renewables and the weakness of the manufacturing sector.

We are now in the historically most active period for tropical storms in the Gulf of Mexico.  Meteorological conditions have become more favorable for storms and hurricanes to form and strengthen.  We have now gone 10+ years without a Category 3 hurricane landing on the U.S. coastline.  Are we about to experience a stormy summer, and if so what might that mean for the oil and gas industry?  Some environmentalists are now acknowledging that their plans for a clean-energy U.S. needs nuclear power.  Now that low natural gas prices are undercutting nuclear power plant economics, regulators and politicians are beginning to address how to keep these valuable plants open and operating.

The Democratic Senators exercise in trying to drum up phony support in order to shame legitimate criticism of climate change is part of a broader effort to silence free speech political progressives don’t like.  We examine the issue.  LED bulbs are the latest product to confront the challenge of the planned obsolescence business model.  Who knew an incandescent light bulb could burn for 115 years!  Maine’s PUC has opened a new battle over expanding natural gas access to New England.  This battle will last for years with important ramifications for the utility bills of citizens in the region and the domestic natural gas market.

The IMF has reduced its global economic growth forecasts once again.  Can sick economies really help boost energy demand?  The arrival of two U.S. LNG cargoes in the Middle East shows how much our exports are reshaping the global gas market.  It is interesting that the government and the auto industry realize that the fleet fuel-efficiency goals aren’t going to be met.  What isn’t known is how they might be changed, if ever, or whether existing industry fines are merely ramped up and/or the products the companies can sell are restricted.  We also take a look at where people fit on the spectrum of climate change belief or skepticism, although it doesn’t matter for the proponents of climate change.

The Northeast region of the country is facing a transition in its electricity market as older power plants close and new generating capacity needs to be built.  But what fuel will power those new plants?  The answer to that question may significantly impact the region’s economy, as high electricity costs are retarding economic growth.  The decision will also impact national energy markets.  The oil market is currently experiencing a cyclical demand rebound driven by the low prices during 2015.  Demand will need further long-term growth drivers.  We examine the challenge for the U.S. and world’s economy along with specific issues related to China.

$100 a barrel oil was responsible for huge energy industry profits in recent years.  We look at that perspective and what has happened to the energy sector given the collapse in oil prices.  It puts into perspective the energy industry’s history and challenge for the future.  More surveys of people (including engineers) show less than rousing support for self-driving cars.  A niche or ubiquitous product?  The nuclear power sector of the electricity industry is under extreme economic pressure, but some environmentalists are suddenly realizing that this technology is critical for a bridge to a cleaner energy future.  They are conflicted by the confusion that support for nuclear would create amongst their members, but reality may force such a shift.  We also have comments from climate change officials highlighting how that movement is more about controlling and redistributing global income than curbing emissions.

Note:  This issue of the Musings is being sent early to accommodate my travel to locations where I cannot guarantee Internet connectivity.  Therefore, the next Musings will not arrive until after mid-July.  Allen

Oil prices are bouncing around $50 a barrel, buffeted by news about positive weekly oil rig count gains, the value of the dollar rising and falling based on daily  expectations about the Fed’s prospective rate increases, estimated weekly production increases and other factors.  One of those factors is natural gas, which is showing surprising strength.  What will the rig count recovery look like?  Electric cars are touted as the way to end oil use in transportation, but is that claim overdone?  We examine the electric car market potential.  Support for wind energy, along with other renewable fuels, in Europe is waning as the cost of the subsidies is weighing on various country’s economies at time when their growth is slowing.

The Canadian oil and gas industry is struggling to find its footing given the change in the country’s policy orientation, the lack of export opportunities to the U.S., and virtually no export outlets to non-North American markets.  We evaluate the industry’s challenges.  High tech sponsors of autonomous vehicle technology are pointing to regulation as holding back its appearance on U.S. roads, but surveys suggest the public isn’t clamoring for it.  The non-existent U.S. offshore wind business gets positive plugs, but the real message is the need for a President Hillary Clinton who could do much through executive actions to boost the industry.

Jeremy Grantham, a dean of value investing and one of the leading bulls on commodity stock investing recently acknowledged that he was wrong, at least on metals and grains.  He still is bullish on oil, but for a much shorter time frame.  We look at his analysis.  Autonomous trucks are gaining greater traction in the U.S., as they are in Europe.  There are many reasons why we expect self-driving trucks to be on the road ahead of autonomous cars.  Oil prices have been soaring, but they seem to have hit a wall at $50 a barrel.

El Niño has been declared over and now meteorologists are now focused on whether the cooler La Niña develops.  We looked at these weather patterns for their implications for next winter’s temperatures and natural gas consumption.  Already NOAA is saying we may have a hotter than average summer, at least in a few areas of the United States.  Politicians in Massachusetts are hedging their bets on wind energy by allowing utilities to enter into long-term hydropower contracts with Canada.  In Rhode Island, however, the battle over a natural gas power plant is escalating potentially subjecting ratepayers to increased power bills in the future.  Research into the activities of Floridians 4,000 years ago show how they dealt with rising sea levels.  Their lessons plus the stability of the Florida panhandle should be examined by residents in South Florida as their concerns may be overdone.

During our annual drive from our home in Houston to our house in Rhode Island confirmed conditions about the national economy and that of the energy sector that we have been following.  Non-existent oilfield service highway traffic, empty hotel parking lots, rows of for-sale energy and construction equipment and Louisiana police officers aggressively using radar guns to track and ticket drivers in the state were signs of the impact the nearly two-year downturn in oil prices.  Light truck traffic on the rest of our trip, coupled with empty overnight truck rest stops, supported the weak national economic figures along with the weak retail sales reports.  Read some of our other observations from our 1900-mile drive north.

The replacement of Saudi’s oil minister actually means little change for the country’s oil policy.  The focus in Saudi Arabia will be on generating maximum revenues from its oil reserves as those funds represent the grease easing the country’s economic and social transition that its royal leadership has embarked on. Billionaire technologist and environmentalist Bill Gates discussed why the U.S. needs to boost basic science R&D to achieve an energy breakthrough.  At the same time he criticized many of the arguments of “green” energy activists.  CalPERS is considering reversing its anti-tobacco investment policy after learning how much money it has lost by following that policy.  Maybe the fossil fuel divestment movement should worry about institutions questioning that ban versus their fiduciary responsibility to maximize income for their pensioners.  The environmental movement is trying to make the case that fossil fuels were responsible for the forest fire that burned Fort McMurray.  In reality, without oil the city’s residents might not have escaped unhurt.  The battle over natural disasters and climate change goes on.

The virtues of offshore wind power were highlighted at the recent NOIA conference.  Unfortunately, the economics of offshore wind were glossed over as other than Deepwater Wind’s small project off Block Island, Rhode Island, almost every other one being considered is sponsored by government money.  As renewable power is suddenly be targeted for their economic cost to consumers, very expensive offshore wind may only survive on the largess of the federal government or the mandate of politicians.  The future of Saudi Arabia after their sabotaging of the Doha meeting’s agreement to freeze oil output was unveiled last week by Deputy Crown Prince Mohammad.  A bold plan to restructure and reorient the Kingdom’s economy away from oil earnings and toward investment income was laid out, along with plans for an IPO of Aramco and an altering of the social compact between the royal family and its subjects that has existed since the Kingdom was founded.  The success or failure of this plan will determine whether Saudi Arabia leads the Middle East into a new era or becomes another failed state in the region.

We take a look at some of the challenges shaping the future of the domestic natural gas market as its future appears bleak.  Europe has moved ahead of the U.S. with its platooning technology for heavy-duty trucks that was test in mid-April with three convoys crossing the continent.  We consider its impact on self-driving technology and diesel demand.  The end to the Halliburton-Baker Hughes merger deal highlighted the growing pressure energy company execs are under to develop new business models or revamp their existing ones in order to survive and prosper in the new energy world characterized by maybe only modest oil prices for years.

The verdict is in: No Production Freeze.  We offer an analysis of some of the critical changes underway within the government of Saudi Arabia that makes interpreting how the country will or might respond to future economic and geopolitical events almost impossible.  You no longer can rely on the 50-year playbook that governments and the oil industry used to predict Saudi Arabia’s actions.  Understanding the impact of this oil downturn on energy employment is compounded by the shift in relative importance of drilling rigs.  Now we have a question of whether we will be looking at a second down leg in energy employment as was experienced in the 1980s downturn, or will forces driving us toward a supply/demand balance overwhelm lower prices in the near term.

We found another example of a major scientific study that forms the core of the federal government’s nutrition mandate for Americans falling apart under recent scrutiny.  This highlights the issue of whether a re-examination of the thesis underlying climate change science should  be undertaken.  The rush for self-driving vehicles is running into more serious questions about the issues with the technology and whether America’s roads and its auto fleet are anywhere near ready.  Lastly, we examine the hurricane forecast for 2016 that calls for a normal year.  It could change as quickly as the weather.

The debate over climate change has shifted into another gear.  We look at how belief in its orthodoxy is declining leading to a lashing out at ExxonMobil, skeptical scientists, non-PC politicians and even everyday Americans who dare to question the apocalyptic future projected for the U.S. and the planet.  BOEM has published a final rule revising many of its offshore operating policies.  While the agency skipped dealing with operator bonding requirements (leaving that for a new, separate rulemaking) it benignly expanded offshore regulation in ways those impacted may not fully appreciate or even know.  Although oil prices have slipped from their perch above $40 a barrel, an examination of U.S. production data and oil and gas rig counts leads to the conclusion that the industry downturn may be coming to an end.  The question now shifts to what the recovery will look like, when it will start and how far it is likely to run?

The DOI is using a power granted under a decade-old law to facilitate construction of a new high voltage power line from Oklahoma to Tennessee planned to ship wind-generated electricity to the Southeast in order to overcome the objections of the Arkansas PUC.  While this highlights the federal government’s love of picking winners, it may ignore the fact that power demand is failing to grow as earlier projected putting this the need for this power at risk.  We examine the issue.  The latest GOM lease sale results provides a glum outlook for activity there, while at the same time the assault on the petroleum industry by environmentalists is gaining steam.

Crude oil prices have been soaring as the pessimists arguing for lower prices this spring abandon their position while the optimists are encouraged by production declines, forecasts that the declines will accelerate given capex spending cuts and rig count declines, and now the prospect of an April meeting of leading oil producing countries to cap their output.  We examine how the oil price pattern during the first 10 weeks of 2016 mirrors almost exactly the pattern of the first five months of 2015.  Does that mean we are primed for another price collapse, or will this time be different?  We examine the challenge of slowly-growing economies and government efforts to boost their recovery, which would help energy demand.  Cheap capital, however, has created more than its share of unintended consequences, and we look at one significant result.  The announced U.S. Shell/Saudi Aramco JV split is actually a “win-win” for both parties, but it also carries important implications for Saudi’s oil strategy going forward.

More government regulations are impacting the offshore sector’s outlook, possibly hampering the recovery.  We examine several of the recent Obama administration actions.  Oregon has just enacted legislation to make it the first coal-free power state, but it benefits from some unique power generation advantages that make the policy possible.  Are there implications for other states, or is this just a one-off?  People were surprised by FERC’s rejection of the Jordan Cove LNG project.  Should they have been, and can the project be resuscitated?

Most people focus on how the current oil glut has been driven by the dramatic growth in shale oil in the U.S.  That is largely true, but the lack of demand growth, especially relative to what was forecast in the past, also helps explain the glut.  We examine how the outlook for oil demand in 2004 has changed compared to now.  As a result, there needs to be a mindset among E&P executives about the lower oil demand and how that translates into the need for lower oil prices in order to bring supply and demand in line.  We also look at the issue of Saudi Arabia’s declining foreign currency reserves and the potential impact on the country’s oil pricing strategy.  Another factor impacting near-term oil prices, despite the current oil futures short-covering rally, is the growing storage capacity issue.  Never underestimate the ingenuity of oilmen to find places and ways to handle more output.

China’s oil demand remains the key wildcard in any forecast for global oil markets.  The death last week of Aubrey McClendon, former CEO of Chesapeake Energy and one of the key people behind the American shale oil revolution caused us to pause and reflect on his imprint on the business.  Lastly, we take a look at the economic health of Texas and Houston in light of the oil price collapse and the thousands of lost jobs.  Our prediction is that Houston will be back, and probably sooner than many expect.

Comments from a Middle East expert provide interesting insights into the thinking behind the Saudi Arabian oil policy.  This expert’s observations also shed light on the potential disruptive condition within the Royal Family that could signal even greater change for the country and its oil, economy, society and geopolitical relationships.  We offer our thoughts about these observations.  As oil prices languish, following a brief period of extreme volatility due to OPEC and non-OPEC country oil policy discussions, the problem of weak global economic growth is again highlighted.  We look at the recent OECD economic growth forecast reduction and the need to stimulate economic activity in order to see stronger oil demand.
The oil industry news has been bad and seems to be getting worse as companies come to grips with the devastation being done to them by low oil prices, weak cash flows, overspending and high debt loads.  We look at the state of corporate bankruptcies in Houston, the E&P and oilfield service businesses.  Could electric vehicles be the death knell for the oil industry?  We do the math on EVs versus gasoline consumption. Cows and their methane releases (burps and farts) are becoming a regulatory target as the economics of manure power systems are being undercut by weak natural gas prices.  Will the cow problem require more regulation?

The oil industry appears to be crumbling, and now faster than ever.  Massive layoffs, bankruptcies on the rise, dividends and spending being slashed – can this industry survive, let alone rebound?  We ask and analyze: What if we are living in a Black Swan world and everything we thought we knew about economics, geopolitics and the energy business is wrong?  (This is only the first installment.)  We also take a look at the changing energy world in Canada in light of its new pipeline review criteria and the Alberta royalty review.  After attending a presentation on Aramco’s new research centers in the US we gained new insight into Saudi Arabia’s possible oil strategy.  Maybe they are smarter than we think.

We take a look at what everyday consumer products cost if bought by the barrel – makes oil look downright cheap!  President Obama has proposed a $10 a barrel tax on oil consumed in the U.S., but it’s not about taxes, and hurting consumers, but rather a stealth climate change attack on the use of oil.  We doubt it goes anywhere, but watch out for executive actions.  Lastly, GE is getting out of producing CFL bulbs and switching to LED – why?

Offshore oil service markets are deteriorating rapidly presenting challenges for the companies operating there.  The conditions are also challenging the industry’s leading lobbying organization, NOIA, which is engaged in determining the most relevant services it can deliver for its members.  At the same time, the world of offshore regulation has changed – it is now a crime to violate those rules.  We hope NOIA takes up this issue!  We also look at the challenge for forecasting oil prices in today’s volatile oil and equity markets, especially in light of weakening economies.  Reality, logic or alcohol – which helps the most?

Despite record U.S. auto sales last year, the global auto market underperformed investor expectations.  Global auto sales appear to be slowing further.  In the U.S., auto companies increasingly are turning their attention to electric vehicles, due to the increasing pressure to meet higher fuel-efficiency standards.  These standards will force more pressure to sell EVs and hybrids, whether you want to buy them or not.  The Obama administration plans to order two new $1 billion icebreakers for the Arctic at a time when climate change forecasts say that region will be ice-free.  Why do we need them?  The cattle grazing on public lands debate adds to the pressure of government regulation of methane releases from oil and gas drilling operations, but cows remain a significant source of the planet’s methane emissions.  Look for methane-spewing cows to sport a new fashion statement.

Last year was declared the second warmest year on record despite earlier projections that it would be the warmest.  The basis for these claims rests on land temperature measurements of NOAA.  A mid-December paper based on years of work examining the temperature recording stations used by NOAA points to problems with their data and the methodology NOAA uses to correct for adverse influences.  We examine the battle over temperatures, carbon emissions and the use of fossil fuels.  Whether one agrees or not, this issue is shaping the energy world of the future.

This year has started with a mess in the Middle East, mixed economic data at home and abroad, and falling oil prices.  We look at these conditions along with commentary from two thought-leaders in the economic world.  While China has received most of the political and economic attention, these observers offer other concerns to be considered.  Recent petroleum inventory data created concerns among oil traders about the health of the energy business and who promptly sent prices down.  We look at the latest data.  The Keystone pipeline saga entered a new phase when TransCanada filed a lawsuit against President Obama for his decision to reject the construction permit.  The company is also bringing a $15 billion claim against the U.S. under NAFTA.  We could be talking serious money if TransCanada wins.  The recent EPA study absolving fracking of water pollution is being criticized by the agency’s scientific review board.  Will the study be revised?  Lastly, the world was buzzing about the possibility of an IPO for Saudi Aramco.  We wouldn’t hold our breath.

Musings from the Oil Patch for December 29, 2015

Happy New Year!  As 2015 comes to an end, we were intrigued by three stories highlighting themes about the future of energy – not just in 2016 but long-term, also.  First was the announcement by ExxonMobil of the appointment of a new president who is widely perceived to be the heir-apparent to current Chairman and CEO Rex Tillerson when he retires in 2017.  Based on our experience with prior ExxonMobil CEOs, we have found that understanding their education and career experience with the company is a tip to what the directors and senior executives believe will be the greatest challenges facing the company.  Those challenges may also produce its best future growth opportunities.  We examine the history of ExxonMobil’s CEOs since 1960 and industry events to demonstrate this point.

The Paris climate change agreement is being hailed as a tipping point for a carbonless future for the world.  We look at the issue of transitioning the planet’s energy mix away from fossil fuels, especially if that shift ignores the rule that nuclear power might play.  While the rhetoric of a carbonless world is one thing, the reality is quite different, but the agenda of climate activists is rigid leading to absurd claims.  We look at how this agenda is distorting the issue and actually harming its ability to influence meaningful progress.  One of the leading catalysts in the global energy mix shift will be the development of self-driving vehicles.  They offer numerous economic benefits including a shift to a fully-electric vehicle fleet and the need for substantially fewer vehicles.  California, the home of technology innovation including autonomous vehicles, has introduced new rules for these self-driving cars that represent more than a bump in the road, but rather a serious setback for their commercialization.  Given the rules being proposed for the U.S.’s largest car market, can autonomous vehicles revolutionize the transportation industry as quickly as the optimists predict?

Musings from the Oil Patch for December 15, 2015

We take a lighthearted look at how OFS company CEOs probably should be preparing their business plan for 2016.  While the government has a positive forecast for new job creation to 2024, it marks the slowest growth in decades and bodes ill for strong energy demand growth – just one more headwind for the energy business in the coming years.  Rhode Island’s governor has embraced climate change (not surprising given the leadership of her state’s two senators) and will try to accomplish miracles with clean power at a cost to the residents at a time when the state’s economy is struggling.  In fact, Rhode Island is ranked one of the worst performing states in the union and the latest economic statistics show its economy weakening.  So much for executive leadership.

We were surprised to learn that the first offshore wind farm is supposed to be in Lake Erie.  Oh, sorry, that’s the first “freshwater” offshore wind farm.  But it still hasn’t sold most of its power so we don’t know what the impact will actually be on the area’s electricity consumers.  Therefore, we’ll wait to see if it gets built, while the real first offshore wind farm completed its initial turbine construction work.  We offer some thoughts about the recently completed Paris climate change conference (written before it was over), although there didn’t seem to be any surprises forthcoming.  We also look at the GHP’s outlook for the Houston job market in 2016, but they probably wished they waited a couple of weeks to issue their projections in light of what’s happened to crude oil prices.  Lastly, we forced ourselves to read Democratic presidential candidate Sen. Bernie Sanders’ energy plan.  We wanted to see if he missed any of the items on the liberal, progressives’ wish-list.  He didn’t.

Musings from the Oil Patch for December 1, 2015

We were shocked recently to read comments from the new president of the Dallas Federal Reserve Bank suggesting that oil company CEOs shouldn’t concern themselves with Fed monetary policy given all the other issues they are dealing with.  The remarks demonstrated his lack of understanding of what cheap money has meant for the energy business and the damage the long-standing policy has done to the industry.  As the Paris climate change conference opens we examine two new studies challenging the economics of renewables, the recommended environmental solution for our warming planet.  The recent downturn in energy prices has finally forced energy executives to confront the changed economics of their business and to begin the massive industry restructuring that is costing thousands of employees their jobs.  We look at how this scenario is playing out in the oil hubs of North America – Houston and Calgary.

We offer some additional thoughts about the policy struggles that will haunt the Paris climate conference.  As a prelude to COP21, Alberta unveiled its long-anticipated environmental policy that will cost all province residents, or at least those who use oil, gas or electricity.  The oil sands came off lightly compared to what they could have been hit with.  The imposition of a broader-based carbon tax in Alberta to control carbon emissions will resonate well in Paris, which helped guide the timing of the announcement.  We have additional comments about William Ruckelshaus, the EPA and the scientific method, along with updates on the bull market call for energy stocks.

Musings from the Oil Patch for November 17, 2015

Third quarter earnings reports for energy and oilfield service companies were awful and the business outlooks presented were not encouraging.  What one would not have expected was that the stocks of the energy sector have moved into a bull market phase.  The disconnect for most people examining the industry’s fundamental data is understanding that the stock market is forward looking.  Could it be seeing a more rapid rebalancing of global oil supply and demand?  That may not mean a return to $100 a barrel oil prices, but is could be signaling a more profitable industry environment.  The political decision to kill the Keystone XL pipeline permit may actually be a sign of that improvement as there will likely be slightly less oil coming to the market long-term, a condition needed for a rebalancing of supply and demand.

Texas’ wind power growth has set up an experiment in shifting electricity loads and thus opening the door for increased use of renewable energy.  Another potential positive for higher oil prices in 2016 may be a reversal of the value of the U.S. dollar – quite a surprise as expectations are for further strengthening that would depress oil prices.  A research group in Cambridge, England has announced a breakthrough in lithium-ion battery technology.  More power and lighter weight are the keys, but it may take up to ten years to commercialize this new technology.  Global oil inventories are growing in concert with weakening economic activity.  Until those inventories start shrinking it will be hard for oil prices to make significant headway to higher levels.  In concert with this challenge are the Internet stories about the large number of oil tankers sitting off the Texas coast because there may be a little storage room available.  In the past, tankers offshore would have been associated with calls for investigations of oil companies for collusion to raise oil prices.  My how times have changed!

Musings from the Oil Patch for November 3, 2015

A decision recently released by the U.S. Department of the Interior’s Bureau of Land Appeals upheld the expansion of BSEE’s authority to regulate the operations of offshore oilfield service contractors, and thus fine them for any mistakes or accidents.  This decision, not surprising, officially acknowledges that offshore service companies are regulated as never before.  Moreover, it radically changes the historical regulation of offshore operations.  We wonder how many service company managements understand the significance of this change.  We also examine how the corruption of the “scientific method” began, which has evolved into all-out war between believers and doubters of any science.  It is an interesting history, but explains how science is used selectively by the government.

We examine what impact the growth in the autonomous vehicle fleet could have on our personal transportation options, energy and materials demand, along with the potential for changing ancillary businesses.  As we warned in our last Musings, the third quarter earnings season for energy companies – now fully underway – is generating significant doom and gloom about the current and future outlook.  Weak revenues and profits due to low oil and gas prices is leading to lower capital spending in 2016, employee and contractor layoffs, increased asset sales and evolving business models.  We also look at how Texas wind power generators sold power recently at negative prices.  The government can be your friend.  Lastly, the election of Justin Trudeau’s Liberal Party to a majority position in Canada’s legislature has created concern in the Canadian oil patch that it may experience a second National Energy Policy, the energy policy that dominated the politics of Trudeau’s father’s term as prime minister.  We give you a little history on that era and what has Albertans worried.

Musings from the Oil Patch for October 20, 2015

Schlumberger’s third quarter earnings, while in line with Wall Street’s expectations, brought a new realism to this cyclical downturn.  It will last longer than thought and it means more pain (layoffs) and adjustments for how companies will run their businesses in the future.  The fourth quarter and first quarter of 2016 will also be buffeted by the forces of El Niño, which likely means less cold weather and thus weak demand for natural gas.  Current natural gas prices suggest the market is anticipating just such a scenario, which we analyze.  If El Niño isn’t enough for the energy industry to worry about, the rhetoric leading up to the Paris climate change conference is beginning to become even more extreme.  A new study, however, points out how climate change believers fail to embrace a critical conclusion about global warming pronounced by the founder of climate science.  Of course it is probably for agenda reasons.

We, and now the media, take a deeper look into what has made Norway the world’s leader in embracing electric vehicles.  The question now confronting the government, as well as other green EU economies, is whether the cost of this clean energy embrace is too great.  Good news for the U.S. economy is that a new study says Americans are spending 80% of their gasoline pump price savings on other goods and services.  The bad news is that there is little cushion to offset economic weakness should gasoline prices rise anytime soon.

Musings from the Oil Patch for October 6, 2015

Speculating on the demise of Saudi Arabia is becoming a focus of energy analysts.  Will the country’s oil pricing strategy change under economic pressure?  There are new developments emerging from the royal family that may influence the oil pricing policy.  These developments suggest a possible revolt within the family over oil and other current policies that could lead to new leadership.  Just as we see momentum building for the Paris climate change conference, green energy problems are emerging in Germany and Denmark.  One of the two is reversing its green policies while the other is facing cost pressures for renewables.  Oil prices will be shaped by future demand and supply.  New oil sands technology unveiled by Imperial Oil might concern Saudi Arabia as it looks to rebuild its market share for the long haul.  .

We make some comments and observations about a number of current energy matters – the impact of migrants on Germany’s energy demand, safety concerns about the Rhode Island wind farm construction along with new fees for producers of clean energy, capital flows into the energy industry and the possible fate of the diesel market due to the Volkswagen scandal.  Lastly, we have some final observations from our recent drive from Rhode Island to Houston.

Musings from the Oil Patch for September 22, 2015

In just over 60 days a monumental environmental meeting will commence in Paris.  Its goal is a legally binding agreement for all the nations of the world to reduce carbon emissions in an attempt to keep future global temperatures from soaring more than 2oC.  If you haven’t noticed the deluge in articles proclaiming the apocalyptic outcome of not killing fossil fuel use, we’d be surprised.  All the good carbon fuels have done in building our economies and improving our society doesn’t mean anything to climate change zealots.  We examine the upcoming conference and the problem for renewables to power the world’s economy.  The Dog Days of Summer have seen increased volatility for oil prices and the stock market.  The oil price volatility has translated into new, lower 2015 and 2016 oil price forecasts, which means more challenges for the oil and gas business.  The victims are the employees.  We offer some insights to the layoff picture.

For the past few years, the oil and gas industry has increasingly run on other people’s money.  Those days may be ending.  While the industry’s cash crunch may be improving that could change after the bank redeterminations of E&P company borrowing bases.  The cash crunch has been eased by sharply lower service company costs, while managements are also slowly cutting and restructuring their operations.  We look at what role the billions in private equity capital sitting on the sidelines may play in the industry’s revival.  Lastly, we asked whether the oil price war is over?  We examined the issue through the prism of historical oil prices and activity, which yields perspective on the industry’s long-term cycles.  In that context, we examine whether one key driver behind service industry survival in the 1980s and 1990s is absent in this cycle.  Finally, we offer some observations from our drive to Houston with more to come in the next Musings.

Musings from the Oil Patch for September 08, 2015

China is being singled out for creating the turbulence underway in oil prices and global stock markets.  The problem is that no one really knows how good or bad their economy is performing, which means we have no feel for its real energy consumption and future trend.  We look at one of the better economic measures available.  Italy’s Eni recently made a significant natural gas find offshore Egypt, which will change that country’s future gas consumption pattern and potentially upend the global LNG market.

Clean energy is a hot topic, especially in New England where natural gas is battling renewable fuels for new supply opportunities.  A new gas-fired power plant has been proposed for Rhode Island just off the Algonquin pipeline passing through the state.  In a radical change in the local utility market, this plant is offering to sign a long-term supply agreement, which includes paying for some of the pipeline expansion costs.  The plant is being fought by environmentalists employing extremely weak arguments.  We also reflect on Shell drilling in the Arctic, who’s drilling exploration wells worldwide and China’s lower emissions measurements.  Lastly, Rhode Island is trumpeting the success its clean energy industry has had for employment in the state, but it is questionable just how successful it is when all the costs of the plan are considered.

Musings from the Oil Patch for August 25, 2015

Events in the energy market are moving quicker than our fingers can move across the keyboard.  We start this Musings with a review of the industry’s recent history and conditions, which suggests we are entering the capitulation phase of the cycle.  That doesn’t mean we will bounce back up to nirvana, as we remain unsure of what the will look like – something we will comment on in the future.  Just as economists are seeking the missing productivity figures for today’s economy, we are searching to determine the state of drilling and producing efficiency.  This will be the first of several articles we plan to address that question as we examine the maturity of factors impacting oil patch efficiency and future industry profitability.

The AP conducted a study of the green energy plan in California that shows less money has been raised, almost half of it has been spent on auditors and planners, and that the plan has only created a fraction of the green jobs targeted to be created after three years in operation.  Other studies of green energy plans show a similar lack of performance but cost substantial sums of money. Finally, we looked at the impact of a super El Nino on this winter’s weather forecast, especially as the Old Farmer’s Almanac predicts another snowy and cold season.

Musings from the Oil Patch for August 11, 2015

Take a ride in our time machine to 2025 to see how the oil and gas and oilfield service industries have changed.  It has been quite a revolution!  We will need more trips to investigate and understand all that transpired in the past decade.  Send us your comments on what you want us to investigate about your industry’s future as we set out on these trips to the future.

Renewables are the big winner in the Obama EPA Clean Power Plan.  Natural gas, once a favorite of Mr. Obama and the environmentalists, suffers a body-blow to its outlook, assuming the plan goes forward as presented.  We question whether it will, and importantly, whether it will adhere to the proposed timeline.  We examine the implications of the plan for our power generating future.  July marked the worst monthly decline for crude oil prices since 2008.  With the drop in oil’s price and that of the rest of the commodity complex, the stock market also suffered.  Some investment pros say that for the stock market to perform from here (stay high/go higher) we need commodity prices, including oil, to begin going back up.  Rhode Island saw its first “steel in water” as the initial Deepwater Wind turbine platform was installed.  The problem remains the cost of offshore wind, something the sponsors of this project hope to change.  We examine the implications of replacing all our coal-fired power generation capacity with either wind or solar.  Despite the industry claims about cost reductions and how they will be cost-competitive in ten years, they remain very expensive alternatives.  The analysis shows how we will become like Denmark and Germany with some of the most expensive electricity in the world.  That will create a serious and irreversible drag on future American economic growth.

Musings from the Oil Patch for July 28, 2015

What is the future for oil prices in light of them falling below $48 a barrel?  We weigh the bull and bear outlooks, which becomes a challenge since the current price collapse may make them appear quite different from when they were initially issued.  Crude oil storage is growing again, possibly in response to weakening demand.  We look at the mixed picture for gasoline and distillate inventories.  We were surprised to learn that crude oil was the best performing commodity for the first half of 2015.  That’s the first time since 2006 that oil has been ranked as the best performing commodity.  The record demonstrates how cyclical oil’s price performance has been in recent years.  The correct message may be just how challenged commodities have been this year due to weak global economies, especially China, and the strength of the U.S. dollar that hurts commodity prices.

We revisited our forecasting model for the amount of natural gas that may be in storage at the start of the winter heating season.  Everything looks good for consumers.  However, slowing year-over-year gas output growth may be signaling that consumers remain alert for the potential of a sharp supply reversal, and thus a jump in the price of gas.  A recent set of interviews by Shell Oil execs and strategic actions by ConocoPhillips prompted us to revisit our theme of the strategic changes underway in the global petroleum industry in response to the current oil price downturn and those changes will lead to a significantly different industry in the future.

Musings from the Oil Patch for July 14, 2015

Are you confused by the multitude of energy forecasts?  We are, too, at times.  Our current frustration is matching the EIA’s quarterly oil production predictions with its weekly estimates and the agency’s recent statement that U.S. oil output fell by 50,000 b/d between April and May.  The nation’s first offshore wind farm near Block Island will soon receive from the Gulf of Mexico the first two of its eventual five platforms to hold wind turbines that will be installed next year.  Rhode Island once again become an historical leader for the nation even though studies continue demonstrating how expensive this power supply is and why European governments are cutting back on this green energy.

If you are invested in oil or other commodities, and the stocks dependent upon them, you will dismal reading of the investment performance for these commodities for periods of five years and less.  European oil storage volumes have established record highs, further highlighting the weakness of global oil demand.  We look at the data.  The problems reported for two billion-dollar, energy-focused private equity funds managed by First Reserve highlight the challenges of investing these large pools of capital in this sector.  We review the risks confronting energy private equity investors.  Lastly, energy demand is tied closely to global GDP growth, but the IMF continues to reduce its forecast for growth, presenting a headwind for oil prices.

Musings from the Oil Patch for June 30, 2015

While Saudi Arabia is reportedly targeting North America’s shale producers by lowering global oil prices, recent news of delayed and canceled plans for new oil sands mines and in situ projects is translating into a meaningful reduction in Canada’s long-term oil output.  That revision follows on the growing list of offshore projects being delayed, which will cut offshore output.  Does this mean Saudi Arabia has won the oil price war?  The natural gas industry continues growing production and large volumes are landing in storage caverns weekly.  We are on the road to 4+ Tcf of gas storage for the winter heating season leaving buyers comfortable and prices low.  The latest Texas gas production data suggests output is falling, which could mean an upcoming change in the gas market is near.

America’s shale success have been attributed to the successful marriage of technologies.  Often overlooked has been the flood of cheap capital that fueled the revolution.  Despite low oil and gas prices the cheap capital flood continues funding the industry, which is bad news for any meaningful reduction in oil output and higher prices.  A recent E&P industry capital spending survey for 2015 sees the business getting worse.  Buried in the survey was optimism for a substantial rebound in 2016 spending.  We question whether the oil price trend behind this optimism will prove to be as optimistic as suggested by the surveying firm.  Trucks are now targeted for improved fuel-efficiency regulations and reduced carbon emissions goals.  The reality is that trucks have made meaningful fuel-efficiency improvements when one considers they still haul the same size loads as years ago in contrast to cars that improved their fuel-efficiency by becoming lighter.

Musings from the Oil Patch for June 16, 2015

We wonder whether others feel as we do and are tired of jumping to analyze each weekly petroleum industry data point release.  They have become quite confusing, offering support for almost any scenario experts want to focus on, yet they truly provide little guidance.  It feels much like watching for a sunrise or sunset – you stare at the horizon and then suddenly it happens.  We give you our take on the latest weekly data, but don’t expect an inspired analysis.  Why is that after every industry downturn, producers yell at service companies to cut their prices, yet many of the producers continue to run their businesses just as they did in boom times?  Why should every project be considered unique and require one-off solutions?  Maybe it’s time for greater standardization to reduce costs on a more sustained basis.

Bill McKibben and Anthony Watts, leaders on each side of the climate debate, met for the first time over a beer.  It turns out after 2 ½ hours that they agree about more of the issue than anyone would have thought.  It is clear from the meeting notes that McKibben, the climate change proponent, views the issue emotionally and has a poor understanding of the physics of climate science.  Google is touting the safety record of its self-driving vehicles, but it turns out their record is worse than human drivers overall, and they only beat the records of America’s youngest and oldest drivers.  NYC cab drivers are 40% safer than Google’s cars!  As a tropical disturbance roils the GOM, the lack of US hurricane activity and landfalls have scientists focusing on how lucky we have been and how exposed many coastal cities are.  We look at hurricane landfalls and the factors causing them.  Too many people may be too complacent!

Musings from the Oil Patch for June 2, 2015

Other than predicting when U.S. oil production will collapse, there isn’t a more burning topic at the moment than climate change.  Ranging from religious fervor to questioning skepticism the sides doing battle over climate change are highly engaged.  From President Obama and Pope Francis to Alex Epstein and Rex Tillerson, the moral case for fossil fuels is being debated while the climate change science remains questionable.  We examine Europe’s great anti-fossil fuel experiment.  So far, it has been very costly for residents, has driven industry off the continent and may possibly be contributing to the continent’s weak economic recovery.  We hope America’s politicians and bureaucrats are watching.

A funny thing happened on the way to a drop in oil output – the EIA reported a surge in last week’s estimated production.  A mistake or a signal that oil prices are at a point where producers can step up activity?  We look at some of the issue.  The recent agreement between British Columbia and Pacific Northwest LNG may indicate that Canada’s effort to boost oil and gas export opportunities has finally gotten off dead center – an important development for Canada’s economy.  We also examine the argument that the fall in oil prices with its corresponding decline in gasoline prices will translate into a consumer spending spree.  Maybe the historical relationship isn’t that strong – and possibly higher consumer costs are derailing the spending spree.  After years of gasoline demand tracking vehicle miles traveled, the relationship diverged for about six years.  VMT is now rising and it looks like gasoline consumption is climbing also, possibly helped by more SUV purchases.  Those trends may be subject to change if oil prices continue to climb.

Musings from the Oil Patch for May 19, 2015

We have just arrived in Rhode Island, so we offer observations about how light the traffic along our route was in addition to other economic impressions from our trip.  We examine the state of offshore wind industry in the U.S. given the halt to the offshore Virginia pilot project and the demise of Cape Wind.  From our upstairs office in Rhode Island we will provide construction status updates on the Block Island offshore wind farm project underway.  Two surprising elections – Alberta and Great Britain – offer new challenges for the energy business.  It’s too early to know exactly how they will impact, but the uncertainty is not positive for energy market momentum in 2015.

EV owners have been trading in their used vehicles for conventionally-powered SUVs at record rates.  EV supporters have the least loyalty to this technology in history.  None of this is good news for manufacturers of EV and hybrid vehicles and certainly not positive for the Obama administration’s environmental strategy.  Since the end of March, oil prices have rallied by 25%.  Has the bottom been established?  Will the industry soon be going back to work?  We take a look at the conundrum of rising prices and deteriorating energy industry fundamentals.

Musings from the Oil Patch for May 5, 2015

Recent presentations by Doug Lawler of Chesapeake Energy and Steve Mueller of Southwestern Energy focused on issues specific to their companies, but the insights are helpful in forming views of the future for the petroleum industry.  We can begin thinking about how the industry will look and how the participants may act.  We dissect their insights as we continue our exploration of the future petroleum industry being shaped by the current industry downturn.  We also explore another shaping influence by examining the recent leadership overhaul in Saudi Arabia announced by King Salman in the wee hours of the morning last Wednesday.

A new study points to slowing growth in every OECD country due to ageing populations.  Demographic forces will help dictate where oil demand is likely to grow the fastest in the future.  We also look at some of the conflicting market signals for future oil prices being sent by crude oil traders.  The current oil price decline has been the quickest since the 1970s.  Lastly, we look at the implication for the natural gas market suggested by a new retail electricity marketing plan in Houston.  The message from the sponsor appears to be that there won’t be a heat wave this summer and that natural gas prices will remain very low for the next 12 months.

Musings from the Oil Patch for April 21, 2015

A series of speeches and interviews by Saudi Arabian oil officials provide an opportunity to plumb the depths of their thinking about the country’s oil policy, which will be key to the future of oil prices and the pace of the industry recovery.  We examine these thoughts.  We also look at the recently revised reduced outlook for global economic growth that has implications for long-term energy demand, and the debate over whether this is the “new normal.”  The energy business was rocked by Shell’s purchase of BG Group for $70 billion.  While management said this deal wasn’t about oil prices, it certainly is about natural gas and the future of the global LNG business.  Shell will strengthen its hand in that market, which says a lot about how it views the long-term relative of crude oil versus natural gas.  Is this the start of the next significant restructuring of the global oil industry?

The shale revolution has been facilitated by private equity money.  These funds are chocked full of freshly-raised money seeking investment opportunities.  Recent presentations by PE managers provide insight into how this money will impact the recovery of the energy business.  Oil patch layoffs continue to grow, and the shale oil states represent the epicenter.  We look at the latest oil industry unemployment statistics.  Good news!  The first hurricane forecast for 2015 says this will be one of the “least active” storm seasons since the middle of the last century.

Musings from the Oil Patch for April 7, 2015

Last week the oil market’s spirits were lifted by the EIA’s weekly data showing that domestic oil production had declined.  That followed a week when the production increase was nearly flat.  Crude oil futures prices jumped by over 5% in response to the news.  The pace of the rig count decline, which has been steeper than the 2008-2009 drop, has also slowed.  Trends for these two data sets has many believing we are nearing the bottom in this cycle, which raises hopes that a recovery will soon begin.  We examine the data seeking answers.

The head of the EPA made a statement about the Keystone pipeline that sounds at odds with her department’s view.  We look at the future for Canada’s oil exports.  We recently spoke at a meeting where we offered multiple scenarios for when this down-cycle might end.  Since we only had 10 minutes to present the scenarios to the audience, we are taking advantage of the Musings to elaborate on them.  A new paper from a renowned Russian climate scientist who has successfully called the global warming pause says the planet is entering its next Ice Age, which will last for at least the next 50 years!  Lastly, we chronicle some of the attacks being waged on oil company shareholders over concerns about their fossil fuel extraction business and climate change policies that increase project risk returns and the possibility of stranded assets.

Musings from the Oil Patch for March 24, 2015

While many people remain focused on calling the bottom for oil prices and where they will rebound to, we have been spending our time considering what the industry may look like when it does recover.  The past 40 years of history and the many missed forecasts about the future may provide a useful guide for what may happen over the next 40 years.  We were spurred into this thought exercise by a friend’s email.  He is a long-time oilfield service executive and his perspective on what he was told when he entered the business is instructive.  This discussion is just another installment in what is becoming an ongoing dialogue about our industry’s future.  Environmental protests are ramping up in the Northeast to fight efforts to expand natural gas pipelines that would improve the region’s economic condition by reducing utility costs.  We take a look at what is involved.  We also look at the impact of winter’s end and the future for natural gas prices.  It will likely be another year of disappointing prices for gas producers.

One of the major factors impacting the outlook for oil prices is shifting value of the U.S. dollar as it has ended an extended period of weakness and is now strengthening.  We look at past trends in the dollar’s value and oil prices.  We also examine the issue of the continued flow of low-cost capital to the energy business despite low oil prices and natural gas prices firmly anchored below $3/Mcf.  Will this new capital merely prolong the low-price commodity environment to the detriment of the industry, or does it represent a rewarding investment opportunity?

Musings from the Oil Patch for March 10, 2015

As oil prices seem to be stabilizing at around $50 a barrel for WTI, the rig count continues falling as oil production grows and storage tanks fill up.  Although we don’t know whether we have hit bottom in oil prices, we are turning our attention to thoughts about how the industry will restructure.  After looking at current fundamentals and how this rig downturn compares with 2008-2009, we turn our attention to thoughts from Jeremy Grantham and Louis-Vincent Gave about the challenges facing the oil business.  They force us to confront some different ideas, which may provide insight into how the industry will change.  There are no firm answers, so we anticipate revisiting this topic frequently in the future.

The recent deal between Lithuania and Statoil to buy LNG from the U.S. in 2016 signals the opening of a new chapter in the global LNG business.  We examine how that business has changed in light of the drop in Asian LNG prices.  LNG may not be the bonanza sponsors originally thought.  The fall in oil prices is stressing many E&P and oilfield service companies, setting them up for attacks from activist investors, and maybe private equity buyers.  These may be the players who reshape the industry this time as opposed to bankruptcy judges or corporate acquirers.  Lastly, as you adjust your clocks to the new time, we look at the history of DST and whether it actually saves any energy.  The short answer appears to be no.

Musings from the Oil Patch for February 24, 2015

Oil prices continue bobbing up and down much like fishing bobs when fish are checking out the attached bait.  Will it be $80 or $10 a barrel?  That seems to be the question of the day.  The low-price forecasters rely on the history of natural gas production versus the gas rig count during the past five years as the analog for predicting years of unrelenting oil supply growth.  We examine trends in the sources of gas supply and whether they provide any guidance for the oil supply outlook, and oil prices.  For those who believe the oil price collapse is all about too much supply might, we remind you about the deteriorating global economy that has prompted central banks around the world to engage in currency wars try to rescue their economies.  We look at the evidence including the all-time low for the Baltic Dry Index, a measure of raw material demand globally.  Asian LNG demand is also falling due to weak economies, leaving LNG tankers idling.  Other than the bright spots of the U.S. and a few developing Asian economies, the world’s economy is projected to shrink this year when measured in nominal dollars.  This is the root of the problem for oil demand.

The failure of the federal government to comply with the arcane Administrative Procedures Act has derailed President Obama’s proposed immigration law changes.  The Act’s provisions were also ignored by the Department of the Interior in 2011 when it extended government regulation to the operations of offshore service companies.  The industry failed to challenge the move then.  Might learning more about the power of the APA motivate the industry to challenge the regulatory over-reach?  Maybe it’s too late, but who knows.  One cannot ignore the legal efforts of a New Hampshire police department to arrest Punxsutawney Phil for fraud in his six-weeks of winter forecast by failing to tell New Englanders about the avalanche of snow they should expect during this time.  We examine their efforts and an asylum offer.

Musings from the Oil Patch for February 10, 2015

Oil prices, along the stocks of companies involved in the business, rallied over the past ten days driven by the sharp decline in oil well drilling.  A report, two weeks ago, marking the largest weekly oil rig decline since at least 1987 sent commodity traders scurrying to cover their shorts and equity buyers to buying oil and oil service company shares as investor sentiment shifted in a heartbeat from further oil supply growth and lower oil prices to projections that the end of oil output growth was on the horizon.  We examine the fundamentals to see if the sentiment change is warranted.  We also look at Punxsutawney Phil’s spring forecast and its implications for natural gas demand and gas prices during the balance of this winter.

President Obama proclaimed that the U.S. is number one in wind power.  We look at that claim, and the cost of achieving it, as demonstrated by trends within the German economy and its electricity costs.  Does Germany provide a road map that is being ignored by U.S. policy makers?  We examine the composition of the rig count decline since late November and its implications for future drilling activity and oil and gas output.  Lastly, we discuss the EPA’s letter to the State Department voicing concerns about the Keystone pipeline.  There was no drama in their opinion, but it took some gymnastics to make their point.  Contrary to popular opinion, we believe Keystone is just over half way to final approval meaning many more years of political and legal battling.

Musings from the Oil Patch for January 27, 2015

The most significant event for oil’s near-term outlook was the death of King Abdullah of Saudi Arabia and the ascension of Crown Prince Salman to the throne.  King Salman made two important moves – re-appointing Ali al-Naimi as Oil Minister and selecting Interior Minister Prince Mohammed bin Naif as Deputy Crown Prince and second in line of succession.  Prince Mohammed becomes the first of the third generation of males in the Al Saud family to be designated as a future king.  We examine this transition of power and its possible impact on the oil market.  We also look at all the latest twists and turns in the Keystone XL pipeline approval saga from the latest Nebraska lawsuit to the State Department’s timeline, which now looks set for another time-out.

We also examine some of the drivers for oil prices in an effort to understand the forces that brought oil prices to the low $40’s a barrel and what might lead to higher prices in the future.  Another interesting subject is the growing recognition of the shortage of parking spaces along Interstate highways for long-haul truck drivers to stop in order to comply with the new federal rest rules.  This is a condition we have pointed out repeatedly in the past couple of years whenever we discussed our economic and travel observations during our trips back and forth to our summer home in Rhode Island.  A bright spot on the U.S. energy horizon is the pickup in vehicle miles driven and weekly gasoline sales.  We look at whether these trends are likely to continue and the implications for U.S. oil demand.

Musings from the Oil Patch for January 13, 2015

The big news last week was the Nebraska Supreme Court’s ruling that the Keystone XL pipeline route was constitutional.  The court threw out the suit saying the claimants lacked standing, meaning they were not harmed so they had no basis to sue.  Now the ball is in the State Department’s court, heading toward Obama’s.  He is also facing legislation mandating his approval of the permit.  Obama says he will veto the bill, so the saga goes on.  We also take a look at the potential of a struggle over royal succession if and when Saudi Arabian King Abdullah departs.  The dynamics at work in Saudi suggest a succession drama might become an important 2015 oil news story.

The trend in natural gas prices this year depends a lot on how winter supplies end up.  We examine where we could end the withdrawal season depending on which path – the coldest, warmest or an average winter – nature takes.   Some investment strategists are recommending loading up on energy stocks betting they won’t be the worst investment segment two years in a row.  The problem is that since 1974 there have been two times when one sector was the worst performer for two years running.  We also look at several weather forecasts for this winter as they will drive natural gas prices.  Lastly, hedge fund manager Doug Kass’ 2015 surprises include several that impact energy and energy stocks.  His surprises have negative implications.