Five Crucial Energy Predictions for 2016
The Effects of the Past Year's Volatile Market Conditions...
We are closing the door on a year of high volatility in almost every part of the energy market. Some, myself included, will be glad to see it go.
But more importantly, I'll be glad to see what changes come of all that volatility.
Oil especially is in a rough patch right now, and we can't hope to predict exactly what will happen there. But here are a few things I think are pretty likely given the events of the past year...
1. Natural gas will recover more quickly than oil.
Those of you who have read my report on Hackberry, Louisiana will know where this is coming from. For those who haven't, let me give you a quick run-down of the situation...
The U.S. shale boom brought oil and gas production to new highs; we were even out-producing Saudi Arabia for a time.
This year, five approved construction projects worked to bring liquefaction plants online so that the U.S. could start exporting LNG. The country has been a net importer for years, but the sudden boom in supply made exports viable.
The first U.S. LNG export is slated to go out in January 2016, and it's been estimated that the U.S. will be the third-largest LNG exporter by 2020.
One of the first contracts for this supply went to France, and it's likely that future contracts will also be in Europe. Why?
They need an out from Russia. Several countries in Europe are trying to diversify away from Russian natural gas, which is sold at as much as 500% of U.S. prices by a bully of a country.
What's more, natural gas is the best choice of fuel for a world working to transition into cleaner energy sources. Fossil fuels will still be a staple for a while, until solar and wind power become more ubiquitous.
Speaking of which...
2. Solar and wind will continue to grow — and fast!
Recently, a bill was signed into law that allowed for the gradual phase-out of the ITC for solar energy and the PTC for wind energy.
Both were supposed to go out the window at the end of this year, which meant any projects that wanted to qualify had to be under construction before then.
Instead, both will now be slowly reduced over the next five years. That means projects have a little more time to start up, and those that were started in haste this year have room to grow.
It's interesting to note that renewable companies such as SunEdison and NextEra didn't believe the loss of these tax credits would stop development anyway. And so with the extension of the credits, that development will be seen even faster than anticipated.
Of course, people will still want to get the best credits they can. This means the rapid deployment of new projects will continue while the credits are at their highest.
This can only mean good things for the U.S. Clean Power Plan, right?
3. The Clean Power Plan won't have much of an impact.
The agreements made at the COP21 climate change conference in Paris and the recently adopted U.S. Clean Power Plan have one major thing in common: They are not guaranteed to change anything.
From the very beginning, the CPP had its opposition. And now that it's been passed into law, more and more people are coming forward accusing the plan of being unconstitutional.
This opposition comes from the idea that forcing states to comply with federal emissions standards is illegal. From my point of view, it doesn't matter if it's illegal; it's simply unnecessary.
True, the world's emissions levels need to be cut. That's an issue the world has to tackle together. However, what may be stronger than legislation is simple market mechanics.
If you'll glance back up a section, you can see that renewable energy companies believe the same thing. Even without government-approved tax credits, they were confident that solar and wind technologies would keep right on growing.
So while the intention behind the CPP was good, the best that will likely come of it is the ability to trade clean energy credits between the states and a bit with approved Canadian companies.
There is one sector that could use some support, however...
4. Energy storage technologies will continue to spread.
Earlier in the year, we brought up stories about utility-scale lithium battery projects from a few different countries, but there hasn't been much news to that effect since.
But I know this is still a growing trend. Especially as we move away from our reliable but dirty base-load energy sources, storage technology will be a necessity.
According to a report by GTM Research earlier in December, 108 megawatts of new energy storage were deployed in the first three quarters of this year and may add up to as much as 192 installed megawatts by the end of 2015.
That's triple the installations of 2014. And all of that happened without extra credits from the government.
A lot of innovation in this field was driven by Tesla and its Powerwall and Powerpack batteries.
Tesla's innovations are expected to bring the cost of energy storage down by half, and the company's battery systems will make energy storage more easily deployable at any scale.
This is not only going to help the growth of renewable projects — which are intermittent and will need storage options — but it will also continue to boost the market on lithium, our booming Metal Oil.
Which brings us back, just for a moment, to the subject of real oil...
5. Oil will make a slow recovery.
Oil bull that I am, even I would be shocked to see anything near $100 oil again this coming year. Short of Saudi Arabia falling off the face of the Earth — or getting bombed off of it, which is more likely given the current political climate — the glut will continue.
In fact, it will only be exacerbated by the return of Iran to the market and the entrance of the U.S. as a crude exporter.
However, I do believe that prices will begin recovery. Countries like Saudi Arabia and Russia, whose economies rely heavily on oil exports, literally cannot afford to face these kinds of prices for much longer.
And, of course, there's the upcoming shale boom in the UK to look forward to. The Weald Basin has some of the cheapest break-even prices in the world, and I believe investments there will be extremely lucrative, even in the current market.
Good investing in the New Year!
Until next time,
A true insider in the energy markets, Keith is one of few financial reporters to have visited the Alberta oil sands. His research has helped thousands of investors capitalize from the rapidly changing face of energy. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital as well as Investment Director of Angel Publishing's Energy Investor. For years, Keith has been providing in-depth coverage of the Bakken, the Haynesville Shale, and the Marcellus natural gas formations — all ahead of the mainstream media. For more on Keith, go to his editor's page.
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