From sluggish to slumped to slightly on the mend, energy prices have taken the industry on a harrowing ride the past couple of years.
What will 2017 bring? With evidence that US shale producers beat OPEC at its own game – outlasting the cartel after it refused to cut production during a worldwide glut, a position it recently reversed to remedy member nations’ financial woes – a drawdown of inventories is expected. Of course, fluctuations in global demand and the possibility that OPEC will cheat on its promise to cap output may mean excess supplies won’t completely disappear. But still, I believe the outlook for the domestic energy sector is bright.
I’m not alone in my assessment: in its mid-December report, the Energy Information Administration (EIA) forecast that Brent crude oil prices, the international benchmark, will average $52 per barrel in 2017, with West Texas Intermediate (WTI) crude – the U.S. reference point – being about a dollar lower. That’s roughly a 24 percent rise over the 2016 average. Interestingly, on December 30, Brent traded above $56 and WTI closed around $53 – outstripping EIA predictions for the new year and, perhaps, a harbinger that the new administration will have to adjust its figures moving forward.
Despite low prices, domestic energy production continued to grow in 2016 thanks to the innovation and determination of American drillers. US oil reserves are at an historic high, according to BP, and futures are up nearly 45 percent (incidentally, that’s the first time futures rose year-over-year since 2013).
And now, with prices up, those trends are likely to continue even stronger. I’m confident the rig count will continue its uphill climb – Baker Hughes reports that at year-end 2016 there were 658 rigs in service in the US, up from a low of 404 in May – and, as optimism turns to confidence, there will be a return to capital spending, more asset acquisitions, and additional investment in oil and gas. I also see increased dollars spent on pipeline maintenance, although that may be linked more closely to regulatory actions than anything else.
And, speaking of pipelines, I’m certain we’ll see the Keystone XL back on the table – if not even a done deal sometime early in 2017. TransCanada has said it remains, “fully committed to building Keystone XL,” and on Christmas Eve, a phone call between Canadian Prime Minister Justin Trudeau and President-elect Donald Trump included a favorable discussion about the project. (6) Trudeau’s Liberal government recently greenlighted two pipeline projects – Kinder Morgan’s TransMountain Expansion, which will deliver more oil to the Pacific tidewater terminal in Burrard Inlet, B.C, and Enbridge’s Line 3 through Saskatchewan and Manitoba – and Trudeau has made public his intention to get the northern leg of Keystone XL authorized.
For his part, Trump is clearly in the pro-Keystone camp, saying on the campaign trail that he would, “absolutely approve it, 100 percent.” Trump has hinted that move may come soon after inauguration day, and, as president, he may take similar action on the highly contested Dakota Access pipeline.
Trump, of course, is considered almost diametrically opposed to President Obama’s energy policy. Trump feels that American energy security is achievable by around 2022, but that can happen only by dismantling many Obama-era policies. Trump promotes increasing oil leases on public lands and rolling back environmental and legal regulations that currently prevent American energy companies from taking advantage of domestic own resources. One look at Trump’s cabinet picks – including former Texas Governor Rick Perry for Energy, energy independence advocate Ryan Zinke for Interior and oilman Rex Tillerson for Secretary of State – and it’s easy to anticipate that the next four years will be pro-fracking, pro trade, and very, very good for the oil and natural gas industry.
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