There’s less than two weeks left before the 2016 calendar gets tossed. So for the pundit community it’s time to publish the obligatory list of, “What to Watch For in in the New Year”.
It’s pointless to list the obvious. For oil and gas, pundits know that things like OPEC compliance, US rig counts, pipeline angst, and Chinese consumption are on a long list of standard items that are obligatory to parse from our cluttered news feeds.
But what are the nascent items that could lead to unforgiving surprises? “When everyone looks to the right, it’s time to look left,” is an adage I always go by. So for 2017 here is a 10-item listicle that won’t be in the mainstream, but may be worthy of the left shoulder.
1. Sales of the Chevy Bolt – GM’s mass market, pure battery electric vehicle made its debut late this year. Reviews have been positive. Early sales figures in ‘17 will be a litmus test for the potential displacement of pistons, valves and gears – and also whether the long-term outlook for crude oil is acid or base.
2. Growth in African Energy Demand – If you build it they will come: Top line energy consumption on the continent is growing by about 2% per annum as infrastructure spending multiplies. A growing middle class is buying wheels and appliances. We’ve seen this movie before. The billion people living in the sub-Sahara are embracing joules generated by oil and gas in greater quantities than any other primary source (Figure 1). Is Africa the new China-and-India?
3. Fracking Goes Viral – Multi-stage hydraulic fracturing as applied to horizontal wells has been the hottest oil and gas innovation in 100 years. Technology genies never stay in a bottle, so proliferation beyond the US and Canada is inevitable. Start counting rigs in places like Argentina, Russia and Saudi Arabia; they are trying to put the genie to work too.
4. Will Standing Rock Start Walking? – Pipeline protesters in North Dakota demonstrated their ability to block construction of the Dakota Access oil pipeline. With environmental groups losing influence at the high altitude of the White House, the ground-level Standing Rock playbook could spread to other US oil and gas fields. And it’s not so cold in the Southern States.
5. Escalating Oilfield Service Costs – Oil producers have been smug about how they have cut their costs by 20 to 30% over the past two years. But much of that has been accomplished by crippling the margins of the oilfield service sector. Rising rig counts are already germinating the first hints of oilfield inflation. If costs escalate again, $60/B may not be the new $90 (see past blog “$60 is in Style…For Now”).
6. The Next Boomtown – Alberta has a history of creating resource boomtowns. Drumheller was the province’s coal capital 100 years ago. Black Diamond and Turner Valley kicked off the oil boom. Medicine Hat made history with shallow gas. And of course Fort Mac is synonymous with oil sands. Next up? Watch Grande Prairie, ground zero for the next wave of oil and gas extraction.
7. Lithium, Cobalt and Graphite Prices – Lithium-ion batteries continue to fall in price and increase in utility. That’s why we’re scaling up from watch batteries, to iPhones, to electric vehicles, to home storage units and beyond. But key battery ingredients are lithium, cobalt and graphite. Commodity prices are likely to rise. All energy systems trace their baggage back to natural resource extraction; just ask anyone in the fossil fuel business.
8. Follow the Money – Oil prices should firm up into 2017, leading to a modest rise in global upstream investment. But where will the money go? Hang the theoretical cost curves. Capital allocations by leading oil companies will be a real-time test of which jurisdictions, and which methods of oil extraction are economic at oil prices above $55/B.
9. Natural Gas Market Access – In Canada, oil pipelines (or the lack thereof) have dominated talk of “market access.” But natural gas reserves are more prolific than oil in Western Canada, and of higher potential value if transportation access and costs improve. West Coast LNG terminals won’t be harbouring tankers anytime soon. Following tolling deals on pipes like the TransCanada Mainline are going to be more meaningful in the near term.
10. Nuclear Fusion – The running joke for 60 years is that nuclear fusion for unlimited power generation is always 20 years away from reality. Time lines are still long, but technological advancements and a recent shift to focus on smaller scale, faster development could cut REM-sleep dreaming to five-year increments. Companies like Lockheed Martin think they’re not far from creating a compact sun on our planet.
Next year, 2017, will be no less remarkable than the calendar we are about to close. Whatever energy system your business fancies, fossil fuels or renewables, nobody should be in denial about how disruptive change can surprise the wisest of us all, whichever way we look.