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Page added on December 28, 2014

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Five energy surprises for 2015: The possible and the improbable

General Ideas

The coming year is likely to be as full of surprises in the field of energy as 2014 was. We just don’t know which surprises! I am not predicting that any of the following will happen, and they will be surprises to most people if they do. But, I think there is an outside chance that one or more will occur, and this would move markets and policy debates in unexpected directions.

1. U.S. crude oil and natural gas production decline for the first time since 2008 and 2005, respectively. The colossal markdown in world oil prices has belatedly been followed by a slightly smaller, but nevertheless dramatic markdown in U.S. natural gas prices. The drop in prices has already resulted in announcements from U.S. drillers that they will curtail their drilling operations significantly next year.

But drilling that is already contracted for will likely go forward, and wells waiting for completion will be completed. It can be costly to pull out of drilling contracts. And, failing to complete already successful wells and bring them into production is downright foolish since the costs incurred in drilling the wells including future debt payments remain. In those circumstances, some revenue at lower prices is preferable to no revenue at all.

Having said all that, scaled-down drilling plans when combined with what’s left in drillers’ immediate inventory both to drill and complete may not be enough to overcome the prodigious production decline rates from existing wells in deep shale deposits of oil and gas which have provided almost all the recent growth in U.S. production. The decline rates are 60 to 91 over three years for tight oil plays and 74 to 88 percent over three years for shale natural gas plays.

If low prices continue for a second year, the cheers for “Saudi” America will disappear. It was never to be anyway. What America has left is high-cost oil and natural gas. And, even at high prices both were likely to peak and decline in the next 5 years. Now, low prices may bring peak production rates in the coming year for both U.S. oil and natural gas–peaks that may never be seen again.

2. World crude oil closes below $30 per barrel. I think that such a price would only last a short time unless the world is in the throes of the next Great Depression. But since OPEC has reaffirmed that it will continue to pump oil at current rates until non-OPEC production declines, look for this game of chicken to create increasing inventories of oil worldwide for several months. The underlying cause for rising oil inventories is slowing economic growth in much of Asia, especially China, and economic stagnation in Europe and Japan. Any pickup in worldwide growth would send oil significantly higher than where it is today as oil demand increases.

3. Developments in solar thermal energy show that it can solve the storage problem for electricity from renewable energy. The difficulty with renewable energy supplying electricity is that electricity is very expensive to store (and so we do very little of this). Storage is important because renewable energy production comes when the wind blows and the sun shines, but not always when we need it. A breakthrough in solar thermal may be in the offing that would overcome previous limits on temperatures generated by solar thermal capture devices and make it possible to store heat cheaply enough to run solar electric generating plants around the clock at high output.

4. A climate agreement in Paris calls for binding greenhouse gas emissions limits. Expectations are exceedingly low for next summer’s international climate conference to be held in Paris. The aim is to agree on binding limits for carbon emissions for the world’s nations. Few people think that will happen no matter what the urgency of the matter.

But we cannot know what climate events might occur between now and the Paris conference that would change the outcome. It would have to be big, on the order of an ice shelf plopping into the ocean, dissolving and raising sea-level enough to notice. Nevertheless, I would say that such a disturbing event becomes more likely with time and might be necessary to move the world’s nations to a binding emissions agreement.

Even some progress in the direction of a binding agreement will have the world’s energy analysts talking about stranded assets, a reference to the oil, natural gas and coal that would have to be left in the ground in order to avoid breaching agreed limits on carbon emissions. That would have significant consequences for the companies whose work is extracting and refining hydrocarbons.

5. Oil prices reach $100 per barrel before December 31, 2015. This is the other extreme from surprise No. 3. Almost all analysts expect oil prices to remain low, and many believe we are now entering a new era of cheap oil. (I, of course, don’t buy it.) An earlier and more dramatic drop in production than anticipated and a greater rise in demand than anticipated could easily bring prices back above $100. I think this is more likely to happen later in 2016. But the timetable for a return to prices above $100 could be accelerated by many factors not now apparent.

I regard none of these events as likely which is why they would be surprises. But even one of these surprises would result in large financial gains or losses for many. And, either of two of them–binding greenhouse gas emissions limits or a breakthrough in renewable energy storage–would have giant consequences for the entire world.

Resource Insights



10 Comments on "Five energy surprises for 2015: The possible and the improbable"

  1. J-Gav on Sun, 28th Dec 2014 2:49 pm 

    I like Cobb. And Ronald Ace seems to be a sincere researcher.

    Nevertheless, my innate skepticism does lead me to ask a few questions: even supposing it does (or could) work, what about scalability? What about real cost calculations? What about the possibility that vested interests might buy it out and squash it? or even resort to more radical means if the scientist in question is reticent to sell out?

    But hey, sure, a nice surprise would be a nice surprise so I guess it shouldn’t be dumped on before the fat lady sings. .. I can almost hear her tuning up already.

  2. Nony on Sun, 28th Dec 2014 2:49 pm 

    1. a (US oil down): OK

    1. b (US gas down): makes no sense. Supply is robust, at low prices, and demand increasing because of the war on coal. There’s no offshore competition. Actually there may be exports via Sabine Pass at the end of the year.

    2. crude below 30. Well, maybe. Could have a price war. Hard to predict. If SA dropped their 2 MM bpd it would happen. I don’t think they will though. 55 is enough pain for them. They know they can’t prop price to 100 with US LTO, but they don’t want to be idiots and go to 30.

    3. Solar thermal breakthrough: why?

    4. climate treaty: do you really see the politics headed that way (regardless of if the author likes it, does he really see it likely to happen?)

    5. oil at 100: eh…could happen with a war or something. Seems crazy to predict it from fundamentals of demand (China down) or from supply (US LTO capable).

  3. rockman on Sun, 28th Dec 2014 4:16 pm 

    “US gas down: makes no sense.” I’ll have go along with that. The Marcellus has been doing just fine with the lower prices so far. Conventional NG slipped into the crappie years ago so no change there. The only “ifs”, which are very likely IMHO, is IF they are about to run out of the sweet spots or IF enough of the M players are so hurt by lower oil prices it impacts the NG drilling.

    Oil prices? That will depend on the global economy as much or more then any other factor Adjusted for inflation it went down to a yearly average under $20/bbl not that long ago in the late 90’s. And that was before the world was “flooded” with oil from the US shale plays. LOL.

  4. Nony on Sun, 28th Dec 2014 4:28 pm 

    Marcellus gas has dropped to under a dollar in NE PENN. We really do need more pipelines. 🙁

    http://www.naturalgasintel.com/data/data_products/daily?location_id=NEALEIDYT&region_id=northeast

  5. Plantagenet on Sun, 28th Dec 2014 4:42 pm 

    Libya is going to be knocked out of the oil biz by the Islamists again—that will help support the price of oil.

    Going forward, Russia, Venezuela, Nigeria, the North Sea and US shale and Gulf oil will all be in $60—-I just don’t see oil going down to $30.

  6. Harquebus on Sun, 28th Dec 2014 5:37 pm 

    The world’s economy runs on credit. Future generations will pay one way or another for the energy that we are using today.
    When the credit cards stop working, everything stops.

  7. Bloomer on Sun, 28th Dec 2014 8:35 pm 

    The Global economy will gain traction early in the year heightening demand for crude. At the same time, marginal producers will shut some oil production.

    Oil prices will firm up around the same time the Fed decides to raise interest rates. This could be the catalyst to pop the stock market bubble and sent prices to lower lows. Deflation still remains undefeated and the Global economy still fragile.

  8. steve on Sun, 28th Dec 2014 10:15 pm 

    It is interesting to watch at how fast the world scaled up to electricity when Tesla invented A/C ….so I think a lot is possible but will it happen… I don’t think so…Also there is no way the FED can raise interest rates without collapsing the world economies and they are fearful of that….but they do have to pretend….

  9. Kenz300 on Mon, 29th Dec 2014 5:30 am 

    A transition away from fossil fuels is needed if we are to have any hope of dealing with Climate Change……..

    Pope Francis’s edict on climate change will anger deniers and US churches | World news | The Guardian

    http://www.theguardian.com/world/2014/dec/27/pope-francis-edict-climate-change-us-rightwing

  10. Kenz00 on Tue, 30th Dec 2014 9:34 am 

    The transition to safer, cleaner and cheaper alternative energy sources continues…….

    —————-

    Dizzying Renewable Energy Price Declines Can Help States Meet Ambitious Carbon Targets Under The EPA’s Clean Power Plan

    http://www.renewableenergyworld.com/rea/news/article/2014/12/dizzying-renewable-energy-price-declines-can-help-states-meet-ambitious-carbon-targets-under-the-epas-clean-power-plan

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