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.