BY G. ALLEN BROOKS, MANAGING DIRECTOR

 

Musings from the Oil Patch reflects an eclectic collection of stories and analyses dealing with issues and developments within the energy industry that have potentially significant implications for executives operating oilfield service companies. The newsletter is published on a semi-monthly schedule, but periodically the event and news flow may dictate a more frequent schedule. As always, we welcome your comments and observations.

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Energy Market Woes May Require Investment Thesis Rethink
The turmoil in the commodity and stock markets, driven by the trade tariffs and fears of slowing economic growth, reflect the world entering a low interest rate environment. What does this mean for energy?

Does The U.S. Have An Oil Demand Problem?
An analyst has focused on refinery inputs falling as a signal the U.S. demand is falling, caused, in his opinion, by electric cars. VMT growth has slowed, signaling a possible demand decline, but other factors are at work.

EV Sales Up; Will Battery Capacity Match Growth Plans?
Forecasts for EVs continue to grow, but growth continues to be driven by government subsidies and policies, and little by economics. The hidden risk is that battery material may not be sufficient for EV forecasts.

Pictures Reflecting The Reality Of Our Green Energy World
Small diesel engines to power EV chargers and towed range-extenders highlight the fallacy of green vehicles. The French solar road experiment came to an end; judged to be a disaster due to fundamental shortfalls.

Trade War And Outlook For The Oil And OFS Markets
Tariffs are signaling lower global economic activity, and creating oil price volatility that hurts activity.

Can We Address Climate Change Without Green New Deal?
Rather than dramatic programs, slow, incremental efforts may prove more successful, frustrating economists.

Everyone But The Buyers Is Crying The Natural Gas Blues
Natural gas prices are at record lows, while power use and LNG exports drive demand. A change coming?

IMO 2020 May Turn Out Differently Than Many Think
Indonesia is the first country to announce it will not comply with IMO 2020 requirements for ships
operating in its territorial waters. With oil demand falling, IMO 2020 may be as disruptive as thought.

Interesting Developments In Energy:
Indonesia Suffers From Subsidence Not Rising Seas
Get Ready For Flying Cars That Aren’t Cars

Correction:
Explaining an incorrect map from the last issue of the Musings.

Germans Accept CO2 Cost As Electricity Expense Rises
Germany is aggressively combating carbon emissions by ending coal-fired power generation and using more renewables. The result: serious electricity price rises and emissions trailing the target.

Nature And Market Cycles In The Energy Investment World
All asset classes experience cycles of investment over- and under-performance. Studying them is critical to know what drives them and when asset classes might switch from winners to losers.

The Personal Transportation Revolution May Take More Time
Self-driving vehicles are assumed to be the future of personal auto transportation. That has been the hype, but the reality is that their arrival will be much later than anyone thought as late as 2018.

Rhode Island Electricity Prices And The Region’s Gas Market
Winter electricity prices will be higher, despite falling gas prices. That is due to a lack of adequate supply in winter, plus the growth in expensive renewable power. This a New England-wide issue.

A Snapshot Of Energy Infrastructure Battles Nationwide
The great energy boom of the past decade has boosted oil and gas supplies, but they need to move to markets, something requiring new infrastructure. That is the point of attack for anti-energy forces.

Vehicles, Driving And The Future Of The Gasoline Market
June domestic auto sales were stronger than expected. Electric vehicle sales were particularly strong, suggesting that our vehicle fleet is in transition. It means gasoline and oil demand may be nearing a peak.

Ensco Rowan Name Change Marks New Offshore Drilling Era
The decision to rename the newly merged offshore driller Ensco Rowan sadly marks the end of two great names in the industry. We review many of the great names, led by giants in the industry, that no longer exist.

Climate Change Media Is Taken to Task For Lack Of Honesty
Only one climate model has successfully replicated global temperatures for the past 160 years. That model does not depend on CO2 to drive its outcome, but importantly, it projects the least temperature rise to 2100.

Oil Prices On The March Despite Demand Challenges
Large oil and gasoline inventory draws coupled with heightened geopolitical tensions in the Middle East are pushing oil prices higher. Tropical Storm Barry is also helping oil prices. Demand, however, remains at issue.

Natural Gas Struggles To Stay Afloat; Time For A Change?
Natural gas prices are at rock-bottom lows, not seen in three years, and only experienced a few times in the
past 25 years. Supply and demand determine prices, and there are numerous factors impacting both sides.

Climate Movement: Why Rebranding Is An Important Move
The next 16 months will bring us non-stop blather about climate change from politicians seeking offices. The
movement’s rebranding into “climate emergency” is a sign of issues within the movement and with the public.

Alice, The Electric Plane, Was A Hit At Paris Air Show
Air transportation’s carbon emissions are now a target of environmentalists, but with few solutions. An electric
plane was the star of the Paris air show, but is it the answer? A 9-seater won’t get us across the oceans.

Can America’s Team Score Big In The Natural Gas Market?
Jerry Jones, the owner of the Cowboys made his money in the oil and gas business with the assistance from
key friends. His genius in growing the Cowboys value is suddenly turning to natural gas – what does he see?

Is It Really Going To Be Different This Time?
The commodity index relative to stocks is at the lowest point it has been in 50-years, suggesting that
either there has been a significant disruption of commodity markets, or they may be set to soar.

Electric Cars: The Future Is Now Or Maybe In A Decade
BNEF says EVs will reach price parity with ICE vehicles in 2022, two years earlier than its forecast
last year. This requires cheaper batteries. Will it happen? The future of EVs remains a mystery.

Japan’s Demographics Highlight Energy’s Challenge
Japan’s ageing population is creating social and economic challenges for the country. It is also
opening a new market for robots, and may also impact the amount of energy Japan needs.

New England Offshore Wind Farm Reaches New Milestone
A new offshore wind farm power purchase contract won approval from the Rhode Island PUC even
though it wasn’t the cheapest option. The economic benefits will depend on the values of RECs.

Do We Need Another Government Energy Jobs Program?
Congress is considering establishing a new training grant program for offshore wind workers. Why?
We already have an underused offshore construction industry struggling in the Gulf of Mexico.

Understanding What Different Water Means For Energy
We think we understand what environment we are in at any time, but we must always be ready for it to change.
This may be extremely true for the energy sector given current events.

Electric Vehicles, Transportation And The Oil Market
The most aggressive forecaster of EV success has boosted its prediction, which will create
challenges for the transportation sector, and in turn, the oil market. We study these changes.

The Challenge Of Getting To Rhode Island
Our annual trip to our summer home seemed to be much slower than usual, but we weren’t sure why.
It may have been related to the challenges we faced traveling to Houston from Calgary the prior day.

Sorting Out The Confusing Forces Shaping Oil Prices
Oil prices have suddenly hit a speed bump. This comes from worry about demand as well as supply.
Those issues are disrupting discussions over continuing the output cut of OPEC+.

An Intriguing Solar Power Device
Smartflower, a stand-alone solar panel unit that opens and closes each day and tracks the sun’s
movement, is more efficient, but still can’t beat a fixed installation in North Carolina.

The next issue of Musings From the Oil Patch will not be delivered until Tuesday, June 18 due to
international travel.

Issues With The Energy Transition To Green Energy
The idea that we will easily and quickly transition the globe’s energy sources is an overestimation that ignores both the technical and financial challenges of renewables. This is an important consideration, and why we are examining these challenges.

Green Energy Support And Coal’s Power Output Demise
Renewable energy reportedly surpassed coal in supplying electricity in April according to some claims. The issue is the analysis is based on a forecast, which actually said it happened in March.

Shale 2.0, Global Oil Markets And O&G Business Models
The battle over the acquisition of Anadarko has highlighted the role the Permian Basin is playing in U.S. oil output growth. We explore how the shale revolution is changing E & P business models.

The Boring Natural Gas Market Remains Boring
Huge weekly gas storage injections, even with questionable growth in natural gas production, has kept gas prices depressed. What will it take for gas traders to focus on the problem of low prices?

Shifting Demographics A Challenge For Future Energy Demand
Energy companies considering long-term strategies should pay attention to demographic trends. Politicians establishing energy, environmental and population regulations should also pay attention.

The Dynamic State Of The U.S. Power Industry
Total electricity consumption has remained stable for the past few years, while on a per capita basis it has been trending downward. Is this due to the transition in lighting from incandescent to CFL and LED lights? When that shift is complete, what happens to power demand?

Why The Natural Gas Market Remains So Disappointing
After failing to rise in response to sharply falling gas storage volumes, prices are now under pressure as weekly storage injections are huge and portend a rapid replenishment of winter supplies. Is the gas market at risk of prices falling below historical price supports?

Weak Auto Sales Could Be A Sign Of An Energy Challenge
Auto manufacturers are keeping a stiff upper lip in the face of weak 1Q 2019 sales. Maybe delayed tax refunds hurt sales, but there are underlying trends raising questions about the future of car sales as the Gen Zers become a more significant population and economic force. Is the love-affair with autos over?

Alberta Makes Election History: New Energy Course?
The recent Alberta provincial election made Canadian history as, for the first time, a newly elected party has been unseated after only one term of service. For Alberta, will a more conservative government result in a changed outlook for the province’s energy business?

EVs And Wind Power Suffer Slings And Arrows Of Reality
Critical studies of EV carbon emissions and the math about wind power versus gas-fired combined cycle electricity generation facilities are driving home the issue of economic reality for these renewable electricity sources. Will economic arguments influence political pressures to address climate change?

Spring Has Sprung: What Does It Mean For Commodities?
As the last snows of winter blast parts of the U.S., the focus of energy markets are now paying more attention to geopolitical and supply/demand fundamentals. The crude oil market is mirroring the 2014-2015 price recovery, but our natural gas industry remains one of the more boring markets.

Pressure To Revamp Subsidies Questions EV Market Health
A debate is underway on how, or if, to revamp the tax credit scheme for electric vehicle purchases. The debate is being flamed by the poor sales of Tesla, the dominant EV manufacturer in the U.S., and as the Trump administration weighs freezing fuel-efficiency standards that push EVs forward.

Saudi Aramco And The Wild West, Emerald City and Oz
Saudi Aramco successfully raised $12 billion in a bond sale. To execute that sale, the company issued a prospectus that revealed information and data about the workings of Saudi Arabia’s oil and gas industry. We now know more about Aramco, which may help to understand its future actions.

It’s Hurricane Forecasting Season, But Should We Worry?
As spring arrives nationwide, those whose careers involving worrying about the upcoming hurricane season are revealing their forecasts. The forecasts are calling for a below-normal storm season, which is welcome news for people living on our coasts. What does it mean for the energy business?

Will Tesla Show The Need For More Subsidies For EV Success?
EV sales data for the first two months of 2019 shows sharply lower Tesla sales; even worse than would normally be expected. Car registration data shows similar trends. Will the company struggle as it loses federal tax credits for its buyers?

Oil Forecasts Risk Black Swans That Make Them Be Wrong
The impact of IMO 2020 on high-sulfur oil and fuel prices was a given – down. Low-sulfur prices would rise boosting exhaust scrubber economics. Sanctions and cutbacks have ruined the forecast.

Coal-to-Gas Power Plant Switch: Ticket To A Cleaner World?
Natural gas continues to eat into coal’s power generation market share. Would a move to convert more coal plants to natural gas be a less costly way of decarbonizing our electricity market?

The Clock Ticks For A Clearer Energy Picture In Canada
The Alberta election is off and running, and we will soon have an answer to the first of two critical elections weighing on the future of the Canadian oil and gas industry. What’s at stake in the votes?

Norway wants to sell all the oil exploration company stocks in its Oil Fund, not because it thinks oil prices are going to crash, but rather because those stocks are the most closely associated with the risk of climate change. The fund will keep the rest of its oil stocks. Importantly, Norway sees climate change as a risk for other, non-energy companies in its portfolio, and plans to examine whether they should be eliminated. The E&P sale announcement set off a debate about investing against the ratings of companies based on how they deal with environment, social and governance issues. These are topical issues now, but raise the specter of the late 1990s divestment movement for tobacco stocks. CalPERS found out a couple of years ago that the sale cost its pensioners over $3 billion in income. Could selling oil and gas companies lead to a similar experience for investors, or is the social pressure just too great to ignore?

Natural gas prices continue their Rodney Dangerfield act – getting no respect. The impact from record weekly storage withdrawals have been swamped by record gas production, keeping natural gas prices depressed. More demand can’t seem to drive prices up. This outlook suggests that until a gas consumer with a “What, me worry?” attitude gets burned, gas prices are likely to stay under $3/Mcf.

Venezuelans are bedeviled by their crumbling economy, social order and the growing humanitarian crisis. All that was magnified by the week-long power outage, the result of poor stewardship of the nation’s electrical system. With U.S. sanctions imposed on its oil business, the operational challenges for Venezuela have its industry on the road to irrelevance. The political struggle to salvage this once prosperous Latin American country cries out for a solution, but until one emerges, Venezuelan residents will bear the burden of poverty, disease, and even famine. It is sad to watch a proud people be forced to exit their homeland in order to survive.

Electric vehicles are hitting the roads in record numbers, helped by subsidies and mandates. The most conservative forecasts for EV fleet growth are being increased, but global sales are still not reaching levels suggested by the most optimistic predictions. However, fuel use in the global transportation sector is slowing, and its outlook appears challenging. The electric vs. internal combustion engine struggle is one of the great battles underway that will reshape our transportation and global energy market. How quickly it changes remains unknown.

The future of New England’s electric power market is becoming clearer, signaling operational and price volatility as significant risks. The regional grid is soon to lose a major nuclear power plant to retirement. It has struggled to keep other fossil fuel plants online for grid stability in the face of low natural gas prices and growing renewable power. With more New England states boosting clean energy mandates, the risk of grid stability increases. Clean energy mandates boosting renewable power lie beyond the scope of ISO-NE. Moreover, these new energy sources are given preferential access to the grid, adding more power intermittency to the system. New England is gradually returning to its prior regulated power structure, only this time it is the states rather than utilities dictating which power plants will be built and what their electricity will cost. With the loss of more fossil fuel and nuclear capacity, by 2024, it is projected that 57% of the region’s power will depend on natural gas, highlighting a significant risk if the region cannot access sufficient supply, and potentially higher prices in the future. The system may be heading for a cliff that few see.

The unfettered use of open-loop scrubbers by ships to meet the IMO 2020 low-sulfur fuel regulation coming into effect in 10 months is being restricted by various governments and ports who do not want the wash-water discharged in their waters. The European Commission has rushed a rule request before the IMO panel’s meeting in May so it may deal with the issue in hopes of gaining clarity. Exactly what their objective is remains unclear. Is it a standardization of how wash-water will be handled worldwide, or is it a backhanded attempt at discouraging the use of these systems? Scrubbers have been approved by the IMO following extensive review of the scientific evidence of their success in removing sulfur from exhaust gas while not creating environmental issues with the wash-water discharge. The May hearing will provide resolution of the uncertainty behind the EC request, and whether it become another hurdle for shipping companies to overcome in order to comply with IMO 2020.

The State of the Polar Bear Report 2018 says they are doing just fine, thank you. That is not the message environmentalists would like you to believe, which is why they pounced on a news story about 50 aggressive polar bears besieging a Russian town. The report, based on faulty reporting, said the bears were hungry due to climate change limiting their food supply. The reality is these bears were fat and healthy, but had discovered it was easier to scrounge food from three garbage pits located by the village than hunt for themselves. Susan Crockford, a zoologist and long-time student of polar bears, and someone we have communicated with in the past, wrote the new report for the Global Warming Policy Foundation. One thing she pointed out is how the Inuit, who co-exist with the two-thirds of the polar bear population living in the Canadian Arctic, are upset with the views of “scientists” who claim the population is shrinking. The Inuit believe these scientists value polar bear lives more than they do humans. Importantly, the Inuit, because of their political position, may change the regulation of polar bears in the Arctic, effectively changing the entire debate.

Canada continues to struggle with an oil industry seeking to grow, but lacking adequate pipeline and rail export capacity. This production/export imbalance weighed on oil prices in 2018, forcing Alberta to institute a mandatory output cut. The Trans Mountain pipeline expansion was once again approved by the NEB, but it still faces more of the regulatory process, and likely further legal challenges. This comes as Enbridge announces a year’s delay in its Line 3 expansion startup. More oil-by-rail capacity is coming, as Alberta has announced details about the startup of its new operation. All of this oil industry activity will be caught up in the upcoming election battles in Alberta and nationally this year. Add to the mix the current political scandal engulfing Prime Minister Justin Trudeau’s government over the criminal prosecution of SNC-Lavalin, a global energy engineering company headquartered in Montreal, for illegal acts. The turmoil that engulfed the Canadian oil industry last year is not about to end anytime soon.

Ridding the world of coal as a power source is considered critical for stopping climate change. The U.S. is working hard to achieve that goal, having cut the use of coal to generate the nation’s electricity from 50% to 30%. Natural gas is supplanting coal when economic conditions are right. Unfortunately, natural gas emits carbon, making it a target of environmentalists, too. The great hope for renewables was dashed when the Polar Vortex shut down wind generated electricity, forcing increased reliance on natural gas. The developed world is making progress in reducing its coal dependence, such is not the case in the large, rapidly developing economies of China and India. We examine the coal market in India, where the government just announced it had opened 52 new coal mines, and renewables only provide 9% of its electricity.

The nation is aflutter with the Democrat’s Green New Deal that plans to overhaul America’s energy and economic structure. Fundamental to this plan is the electrification of the nation’s total transportation system within the next 10 years. An offshoot of the electrification push is self-driving cars that will eliminate highway accidents and deaths. The only problem is that the autonomous vehicle technology cannot discern the difference between a snowflake and a solid obstacle, let alone know where the vehicle is positioned and heading when on snow-covered roads. Unless global warming totally eliminates snow, AVs will remain a niche driving solution. They will only be of universal value for those few regions of the country where it never snows. How many people will want to spend tens of thousands of dollars on a car they can only use on sunny days?

Securing sufficient low-sulfur fuel for the global shipping industry in light of the upcoming IMO 2020 regulation kick-off in January has become a critical issue for the oil business. There are many scary scenarios about how high crude oil prices might soar when the fuel switch-over occurs. A potential source of low-sulfur fuel to moderate this market disruption is the auto diesel fuel market in Europe and the U.S. With diesel car sales collapsing following the revelation of emissions testing cheating by German car manufacturers, along with governments banning these cars from central cities and eventually completely, prospects are high that meaningful volumes of currently consumed diesel fuel will be homeless. Germany and France, collectively, consume two million barrels per day of diesel. If merely a quarter of that volume shifts to the marine industry, most, if not all, of the anticipated low-sulfur fuel shortfall may be eliminated.

Owners of electric cars found out their vehicles’ limitations when the Polar Vortex descended into the Midwest and Northeast, recently. Drivers often couldn’t even get into their cars because the doors couldn’t be opened due to ice buildup, let alone open the doors allowing recharging of the batteries. A greater challenge was the loss of upwards of 40% of the vehicle’s battery charge, cutting how far the cars could drive. Turning on the heat to be comfortable in the car further cut the range. Once again, we are learning of the benefits of internal combustion engine powered cars.

The oil price collapse during 2018’s fourth quarter was a rout driven by concerns over a slowing global economy and weakening energy demand, coupled with the fear that OPEC had been suckered into boosting its exports just as the sanctions on Iran proved to be less substantial than anticipated. That set the world up for an oil supply glut. That prospect not only stopped the rally, expected to carry oil prices back to $100 a barrel, but sent prices down instead. As commodity speculators unwound their long futures positions and started building short ones, oil was beaten down severely. The chaos of that quarter obscured changes in fundamentals impacting the long-term outlook for the oil business. Disruption is coming from the changing role of OPEC in global oil markets and its pricing, as well as the American shale revolution. Under the climate change banner, the energy landscape is shifting. Carbon is the issue. Surprisingly, the oil industry may the best positioned to actually lead the decarbonization of the world’s energy system, but it will require executives to think differently about their business going forward. We explore some of the those issues.

Energy stocks were the worst performing sector last year, but crude oil turned out to be the worst performing commodity over the past decade. Palladium took the decade’s performance crown. The poor investment performance of crude oil is consistent with oil stocks seeing their role in the market decline to nearly a point of irrelevance. Oil had a strong January and is well-positioned to generate a solid return this year, largely because of where it started 2019. Past performance, however, is not a guarantee of future results.

A big oil market disruptor on the horizon is IMO 2020. The initial price spread between high-sulfur (current) and low-sulfur (mandated) fuel in Asia is narrower than expected. Admittedly, there is not a strong demand for IMO 2020 compliant fuel yet, but the progress shippers and refiners are making to ensure adequate compliant fuel is available in 2020 may undercut the scaring oil price scenarios that have been predicted as a result of IMO 2020. We’ve never embraced those scary price scenarios ($250 a barrel), but recognize that any time you force such a massive structural change on an industry, there will be an impact, and higher prices are likely.

Tesla has increased the price of its Powerwall home battery storage system, countering the supposed trend for all renewables and associated infrastructure costs to constantly fall. Lower costs are the key to our renewable energy nirvana arriving soon. An analysis of what battery storage costs will be for a newly proposed rail line in the UK to be powered by wind turbines shows the project to be uneconomic, let alone a landgrab and a visual eyesore. As Australia, who purchased the Tesla Powerwall, found out during its latest heat wave/power outage, the battery provided 80 minutes of power and without the backup diesel-powered generators (first time they were ever used) the 25,000 people without electricity for the night would also have been without power the following day. We are always skeptical of “happy talk.”

While not the same as our past two oil industry cycle articles, in this issue we examine what has happened to the energy sector in the stock market and how its fortunes have been related to industry developments and trends. Using the energy sector weighting of the S&P 500 Index, we tracked it from 1979 to the end of 2018. Energy has gone from 29% to barely over 5% over that period. After falling to about 5.8% in 2000, energy increased in importance to slightly over 16% shortly before the 2008 financial crisis hot and when a period when oil prices were well above $100 a barrel and expectations called for them to go higher. The global recession and American shale changed energy’s outlook. After weathering the dot.com boom in 1999 and 2000, this time it had to battle the rise of the FANG stocks. So far, not so good. What is impacting energy stocks and company valuations today are not the same forces that depressed them in the 1980s and 1990s. These new forces have the potential to inflict substantial damage to the investment thesis for energy in the future. While energy in the stock market and energy in the real world appear disconnected, much like oil prices and energy stocks have been for the past decade, failing to understand the investment dynamics surrounding energy could prove to be a huge mistake.

Electric vehicles are thought to be the dream solution for a carbon-free transportation system. Sales of EVs soared in 2018, helped by the success of Tesla in the U.S. and subsidies, both here and around the world. The ending of the generous subsidy for Tesla may explain its success in the fourth quarter of 2018. It shipped a lot of cars while the full-subsidy was in effect. We will see what happens to demand with only a fraction of the full subsidy available this year. The company’s price cut and now 7% labor force cut suggest it knows is has a challenge this year. Despite Tesla’s success, EVs represented only 2% of U.S. auto sales last year, but EVs are well on their way to disrupting the oil business. The winds of change are sweeping through the global auto industry, as well as the energy and utility industries. Ignoring these trends may be dangerous for all the companies being impacted or about to be impacted, as well as investors and even corporate lenders. One of the big potential losers may be governments who will have to rethink both their carbon emissions and transportation policies, as well as figure out where their tax revenues will be coming from in the future. It’s a long road to a carbonless world, and the road will have many twists and turns. Chronicling and analyzing this journey is going to be a fun experience.

Canadian oil prices are on the rise, but the political landscape is becoming more muddled. A recent survey shows that building new oil and gas pipelines is popular in every one of Canada’s provinces but Quebec, where the Liberal Party reigns. With energy policy – pipelines and carbon taxes being the central features – already the key battle issue in the upcoming Canadian federal election, Americans should watch this theatre north of the border as a possible forerunner of the 2020 presidential election in the United States.

We continue our examination of oil industry cycles. In Part 2, we consider issues such as the value of the U.S. dollar and interest rates on oil prices, as well as transportation fuel dynamics and the trading performance of energy stocks. Halliburton’s history as a public company provides us with a long record of its share price and EBITDA – 46 and 24 years, respectively. Its share price performance and earnings results confirm how much energy stocks trade on future expectations. We also looked at the push for clean energy vehicles and their cost on energy’s macro outlook. Transportation fuel demand is key to the future of the oil business, especially in developed economies. Whether the transportation market is radically altered, or only evolves slowly will impact global oil consumption, especially as the dynamics of energy varies in economies around the world. History offers an important perspective for looking into the future, which is why we examine past cycles to better understand what drove them and what lessons we may learn for understanding future cycles.

The enigma of natural gas prices in the face of historically low gas storage volumes and surging output continues. Have gas traders bought into the global warming scenario that would reduce our need for large gas storage volumes to meet winter demand, especially given the continuing surge in associated natural gas output from the Permian Basin? The global warming thesis will receive a test this winter, as outlooks are split between those predicting a warm winter and those calling for a cooler-than-normal to a bone-chilling one. With gas prices having dropped below $3/Mcf at year-end due to an expected warm January, the question becomes: What happens if the warmth fails to materialize?

The energy market in Alberta is feeling better about its 2019 outlook – at least that is the message from oil prices. The price differential between WTI and WCS has contracted significantly following the province’s move to mandate a production cutback. This OPEC-like move, not employed since the 1980s oil price crash, will reduce supply by 8.7%, or 325,000 barrels per day. Hopefully, the cut will bring down bloated oil storage volumes quickly, allowing oil prices to rise. The price battle reflects the problems of the Canadian government’s energy policy and its failure to get several critical oil export pipelines built, while pushing for a nationwide carbon tax. The struggle also reflects the battle over oil company business strategies to either become fully integrated or remain merely a seller of oil production. Energy’s travails, hurting the largest industry in Alberta and in Canada, are playing out against the political backdrop of a growing “separatism” movement in the province and the upcoming re-election effort of liberal Rachel Notley. A shrinking price differential will ease Alberta’s pain, but maybe not end its war.

The Dallas Federal Reserve Bank’s survey of the local Texas energy economy shows it hit a huge pothole in the fourth quarter. Driven by the collapse of oil prices and the growing uncertainty about the price in 2019 and thereafter, energy job losses are mounting with many more jobs at risk. Should we worry, or is oil about to experience a huge rebound?