Exploring Hydrocarbon Depletion
Page added on January 1, 2017
A lot happened in the energy sector in 2016, with two major stories leading the way. Both the surprising election of Donald Trump to the presidency, and OPEC’s November announcement to curtail production vied for the top spot on my list, as they will both likely impact the energy markets for years to come.
But in 2016 there were also huge wildfires that curtailed oil sands production in Canada, a major new pipeline protest that erupted in North Dakota, high profile bankruptcies in the coal sector, and several important stories on hydraulic fracturing in the U.S.
Here is a list of what I believe were the year’s major energy stories. First the Top 5:
1. Donald Trump wins the presidency
Had Hillary Clinton won, it wouldn’t have been the top story, because it would have meant a continuation of President Obama’s policies. But given the picks so far that will make up Trump’s key energy team, it seems overwhelmingly likely that his term will mark a huge shift from the policies of the past eight years. Unlike the next story, this one will impact every segment of the U.S. energy sector.
2. OPEC agrees to production cuts
Some would not rank this story this high, but OPEC’s decision in November to reduce output is the first such decision in eight years. Saudi Arabia will bear ~40 percent of the cuts, and within OPEC Saudi Arabia usually gets what it wants. This takes a lot of downside risk out of the oil market, and should end talk of oil falling back to the $20s or lower. Yes, some OPEC members are likely to cheat on the quotas, and shale oil producers are likely to rush in and fill the gap from these cuts. But this is a strategy shift that will last for years.
3. The Dakota Access Pipeline saga
The $3.8 billion Dakota Access Pipeline (DAPL) that is meant to carry crude from North Dakota to Illinois became the latest high-profile pipeline project to be targeted by protesters. The Standing Rock Sioux and their environmentalist allies protested plans to cross the Missouri River just north of the reservation, claiming the pipeline would harm historical and sacred sites and endanger the tribe’s drinking water source. Protesters from across the country flocked to the area, and there were a number of clashes with authorities. Although the courts sided with DAPL, the Obama Administration intervened on behalf of the protesters to at least temporarily halt the project. Expect this controversy to heat up again in 2017, as Donald Trump has promised to swiftly approve stalled pipeline projects.
4. Coal bankruptcies
The coal industry has suffered tremendously as utilities have shifted toward natural gas and renewables, and 2016 saw two major coal producers declare bankruptcy. Peabody Energy, the world’s largest publicly traded coal company, and Arch Coal Inc both filed for Chapter 11 bankruptcy protection.
5. Oil and natural gas prices bottomed
Oil prices fell below $30/bbl for the first time in 12 years, while natural gas prices dipped to the lowest levels in 18 years. But prices for both commodities rose substantially off of those first quarter lows by year-end.
It was difficult to narrow the rest of the list down to 10 (see my Top 30 Energy Stories at Forbes for a fuller list). But here are five more that defined the energy sector in 2016:
6. Oil production in the U.S. fell by 600,000 barrels per day through September
7. The EIA reported that the U.S. had become a net exporter of natural gas for the first time in nearly 60 years
8. President Obama “indefinitely” banned drilling in the Arctic and Atlantic oceans
9. After 44 years of sporadic construction, America’s first new nuclear reactor in 20 years came online in Tennessee
10. Major forest fires in Alberta idled over 1 million bpd of output from Canada’s oil sands
Beyond that Top 10, there were several important news stories that involved hydraulic fracturing, and many moves by the Obama Administration to cement his environmental legacy. And some court challenges to that legacy. A sampling of these stories included:
– The Supreme Court temporarily blocked the Obama Administration’s plan to limit greenhouse gas emissions from power plants while the rule is challenged in court
– Despite testimony in court that there was no evidence of fracking contaminating the plaintiffs’ water wells, a jury awarded $4.2 million to two Pennsylvania families on the grounds that drilling by Cabot Oil and Gas had created a private nuisance
– Results of a three-year investigation by the University of Cincinnati revealed zero impact from hydraulic fracturing on local water supplies
– Following a major earthquake in Oklahoma, state regulators ordered oil and gas companies to shut down all (hydraulic fracturing) wastewater disposal wells near the quake’s epicenter
– A two-year study by the Wyoming Department of Environmental Quality concluded that bacteria, not hydraulic fracturing, were the likely cause of well water contamination in Pavillion, Wyoming — contradicting claims made in the anti-fracking movie “Gasland”
– President Obama barred oil and gas drilling on 40,300 square miles of the Outer Continental Shelf off western Alaska
– EPA released the final report from a multi-year study, “Hydraulic Fracturing for Oil and Gas: Impacts from the Hydraulic Fracturing Water Cycle on Drinking Water Resources”
What did I miss? Feel free to add your suggestions in the comments.
In the next article, I will grade my 2016 energy predictions. Despite the high-profile miss on the presidential election, most of the rest of the list was spot on.