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

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


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

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

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

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

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

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

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

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