10 Key Energy Trends To Watch For In 2016

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Submitted by Nick Cunningham via OilPrice.com,

Energy investors got clobbered in 2015, and are hoping for things to turn positive as we head into the New Year.

What can we expect in 2016? Here is a rundown of some key trends to watch for:

1. U.S. oil production contracts. Oil output in the U.S. has declined by about 300,000 barrels per day to 9.3 million barrels per day (mb/d). Most energy prognosticators, including the EIA and the IEA, see U.S. production falling by around 0.5 mb/d in 2016. The decline could be steeper than that, however, given the plunging rig count, high depletion rates, and extraordinary capex cuts. Time will tell.

2. LNG supply up, prices down. While the oil market could be reaching for a bottom, LNG’s downturn could just be getting started. JKM prices, a maker for delivery in Asia, have fallen by two-thirds since the 2014 peak. February 2016 delivery cargoes are going for $7 per million Btu (MMBtu). But more global liquefaction and export capacity is set to hit the market in 2016, exacerbating the glut. The first export facility in the U.S. – Cheniere Energy’s Sabine Pass – will start up soon. Australia will see several large projects startup as well, including Chevron’s Gorgon and Wheatstone LNG facilities as well as Inpex’s Ichthys LNG terminal. China is not buying LNG at the rate that developers expected. With supply set to jump faster than demand, prices will remain low and could fall even further.

3. Dividends on the rocks. For oil and gas companies, dividends are sacrosanct. Companies have drastically reduced spending on new projects and severely culled payrolls in order to stop the bleeding. But how long can they hold out before cutting dividends? Are dividends worth protecting if it means sacrificing future production growth? Eni already slashed its dividend in 2015, the largest company to do so. Marathon Oil recently cut its dividend as well. Could the oil supermajors be next?

4. Renewables gain ground. 2015 was the best year yet for solar power, with over 7 GW of installations in the U.S., a record high. But the next few years could dwarf those numbers. The extension of the solar investment tax credit will lead to cumulative installations in the U.S. quadrupling to 100 GW by 2020. Wind and solar now routinely capture most of the new electricity generation capacity installed in the U.S., and are rapidly becoming mainstream options for electricity in many parts of the world.

5. Iran returns. The historic nuclear agreement in 2015 will allow Iran to come back to the oil markets after over four years of isolation. Iran plans on bringing back 500,000 barrels per day almost immediately after sanctions are lifted, which could come as soon as January. Within a few months, Iran says it could bring another 500,000 barrels per day back. The extra supply will bring OPEC’s output above 32 mb/d, and will add to the giant global pool of oil.

6. Natural gas levels off. Natural gas production continued to hit new record highs in 2015. But with storage levels rapidly filling up, having topped 4 trillion cubic feet in November, prices have dropped to their lowest levels in over 15 years. That is forcing some wells to be shut in, and the prolific Marcellus shale could already be in decline as a result. Absent a cold winter (with 70-degrees seen in New York City on Christmas Eve, the winter has gotten off to a warm start), storage levels could remain elevated next year, weighing on prices. There is a growing consensus that Henry Hub natural gas prices could stay below $3/MMBtu for the next few years.

7. Geopolitical unrest. The fall in oil prices are sapping governments of much needed revenue. That, in turn, could destabilize certain places. Venezuela tops the list, with a default not out of the question in 2016. Foreign exchange is running low, and debt payments will come due. Iraq is another country in which low oil prices have affected its security situation. Looking across the global landscape at this point, it is hard to see governments falling because of oil revenues drying up, but the price collapse has weakened some especially oil-dependent governments.

8. Defaults and bankruptcies. Through mid-November, 36 oil and gas companies filed for Chapter 11 bankruptcy, encompassing $13 billion worth of debt. That figure will rise in 2016. Reuters reported on a rising incidence of forced bankruptcies, in which creditors take delinquent oil and gas companies to court over failed payments. With the additional negative effects from the recent downturn into the mid-$30s per barrel still to be sorted out, the default rate should accelerate in the next few months.

9. M&A. Royal Dutch Shell may have jumped the gun on purchasing BG Group in April, as it tried to get ahead of an oil price rebound. With a bit of hindsight, shareholders are now wondering if Shell overpaid. In any event, as the market bottoms out and starts to rebound, there will likely be a flurry of consolidation as stronger players scoop up weaker ones. Many expected that to occur in 2015, but aside from Shell’s landmark purchase of BG, there were only a handful of others. That will change in 2016.

10. Prices rise. While everyone was wrong about the price rebound in 2015, all eyes are on late 2016 for the correction. IEA says that crude oil demand increased by 1.8 mb/d in 2015. The world will add another 1.2 mb/d next year, helping to erase most of the supply overhang. Rising demand will come as supplies fall. That could allow prices to rise to $60 per barrel by late 2016.

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Wed, 01/06/2016 - 13:04 | 7005587 Lumberjack
Lumberjack's picture

SUNE  (TERP and GLBL) should be toast. Who or WTF is propping them up?

Wed, 01/06/2016 - 13:25 | 7005676 Muddy1
Muddy1's picture

And not a mention of coal.

Wed, 01/06/2016 - 13:29 | 7005698 boattrash
boattrash's picture

What's coal?

Nevermind. I looked it up online, it's the barbaric relic that fueled this nation prior to the Obama years.

Wed, 01/06/2016 - 13:59 | 7005826 AchtungAffen
AchtungAffen's picture

It is a barbaric relic that supplanted cow dung as fuel, who turned cities black with sooth, killed uncountables from disease and heavy metal poisoning; and technologically is closer to the stone age than today. Yeah, that coal. And yeah, you needed to blow the tops of a bunch of mountains to get that. Better go back to cow dung I guess.

Wed, 01/06/2016 - 14:02 | 7005837 boattrash
boattrash's picture

I'll just call it what it is, bullshit.

Wed, 01/06/2016 - 14:05 | 7005846 Lumberjack
Lumberjack's picture

It's something that a few of us get every christmas. 

Wed, 01/06/2016 - 14:28 | 7005966 Lumberjack
Lumberjack's picture
Terra Nova Renewable Partners, A Partnership Between SunEdison And Clients Advised By J.P. Morgan Asset Management - Global Real Assets, Buys 33 Percent Stake in 336 Megawatt DC Solar Portfolio from Dominion

 

http://www.prnewswire.com/news-releases/terra-nova-renewable-partners-a-...

Wed, 01/06/2016 - 22:11 | 7008562 nidaar
nidaar's picture

umm, don't think so. I heard oil is abiotic and if that is the case why not coal too? I'd say more like comet-shit...

Wed, 01/06/2016 - 15:21 | 7006261 AGuy
AGuy's picture

About ~18GW of coal plants shutdown on 12-31-2015. That production needs to be displaced with NatGas. I think US electricity prices will be going up about 9% in 2016 due to the closures. The prices increases are likely to result in lower consumption. Plus the US Manufacturing is collapsing so I am not sure if NatGas demand will go up much.

Wed, 01/06/2016 - 13:41 | 7005686 KnuckleDragger-X
KnuckleDragger-X's picture

They are being propped up by the markets for now, but that's ending. This year, any commodity that comes out of the ground is well and truly screwed.......

Wed, 01/06/2016 - 13:09 | 7005609 Wulfkind
Wulfkind's picture

Aaannd.....it begins

"S.O.S." Calls for SAVE OUR SHALE industry bailouts 

A number of things should be considered:

• Pay producers not to produce, but require them to keep their wells intact and ready to go, when prices invariably rise, just like we do to protect our farmers and agriculture industry.

• Provide other direct price supports for oil and gas producers for the proper capping of wells and laying down of rigs that preserves and ensures their future ability to return to service quickly.

• Provide loan guarantees to banks and other lenders, so that they can continue to fund the industry to help keep these strategically important businesses afloat.

• Amend the bankruptcy code to allow for expedited and special treatment of oil-producing assets, enabling them to be kept as whole as possible, so that their producing power and future potential is not lost for another generation.

• Give oil-patch workers enhanced unemployment benefits or temporary government jobs as caretakers of the oil fields, so that they do not lose their skill set and remain at-the-ready to fire up fallowed production.

• Enable the Interior or Energy Department to purchase parcels containing so-called drilled-but-uncompleted wells , so-called DUCs, which could act as a secondary Strategic Petroleum Reserve.

 

http://www.cnbc.com/2016/01/06/kilduff-time-for-an-oil-and-gas-industry-...

Wed, 01/06/2016 - 13:25 | 7005677 Lumberjack
Lumberjack's picture

Just like the useless scum fuck section 8's that are paid to sit home, watch big screen tv, post idiotic spam coments here with free internet and computers while smoking dope and become morbidly obese with free medical care that pays for the dope too...

 

 

Wed, 01/06/2016 - 13:28 | 7005691 Lumberjack
Lumberjack's picture

While living in a section 8 house/apartment owned by a democrat who gets more money per month rent then a comparable rent elsewhere.

Wed, 01/06/2016 - 13:28 | 7005695 Lumberjack
Lumberjack's picture

Should I keep on?

Wed, 01/06/2016 - 13:35 | 7005708 Lumberjack
Lumberjack's picture

That goes for solar too...

 

http://www.foxnews.com/politics/2014/11/08/world-largest-solar-plant-app...

 

Background:http://dailybail.com/home/green-corruption-the-five-circles-of-carbon-ta...

 

At the end of each article is a link to the previous ones that I personally wrote. I added lots of material in the comments too. Enjoy! 

 

LJ aka john

 

 

Wed, 01/06/2016 - 13:34 | 7005725 SmedleyButlersGhost
SmedleyButlersGhost's picture

Absolutely. But if you would, can you put the rant into one post. I'll go grab a beer and some pop corn - looking forward to it

Wed, 01/06/2016 - 14:03 | 7005841 Lumberjack
Wed, 01/06/2016 - 14:32 | 7005985 Lumberjack
Lumberjack's picture

Bonus (Boner) video:

Paula DiPerna, Carbon Disclosure Project at Clinton Global Initiative and Climate Week NYC 2012

https://www.youtube.com/watch?v=_Ulo24yBk3E

Wed, 01/06/2016 - 14:53 | 7006091 Lumberjack
Lumberjack's picture

And free solar panels too...

Wed, 01/06/2016 - 13:59 | 7005824 crossroaddemon
crossroaddemon's picture

They're smarter than you. They are withholding their labor from a parasitic wage-slave system, and sucking as much as they can from said system. You can't possibly take back as much from the system as has been stolen from you from birth. This is one of the very few viable forms of resistance we have.

I get that most of these people aren't thinking in those terms, and most of them aren't using it in the best way. Take as much as you can from the system, and use the resultant free time to build useful skills and fucking raise your own kids instead of outsourcing the job so you can waste your life in pursuit of FRNs.

Wed, 01/06/2016 - 13:21 | 7005661 boattrash
boattrash's picture

So, a 3.2% drop in demand = a 60%-80% drop in price...

Wed, 01/06/2016 - 15:27 | 7006293 AGuy
AGuy's picture

"While everyone was wrong about the price rebound in 2015, all eyes are on late 2016 for the correction. IEA says that crude oil demand increased by 1.8 mb/d in 2015. The world will add another 1.2 mb/d next year, helping to erase most of the supply overhang. Rising demand will come as supplies fall. That could allow prices to rise to $60 per barrel by late 2016."

 

Unlikely, since the global is moving in to deep recession. Demand for Oil will fall. The only way I see Oil back up in the $80+ range in 2016, is war with Iran (via Israel or KSA).

Wed, 01/06/2016 - 15:33 | 7006338 Lumberjack
Lumberjack's picture

Guess who bombs first. Hint: watch for who flees first and to where.

Wed, 01/06/2016 - 17:16 | 7006989 AGuy
AGuy's picture

"Guess who bombs first. Hint: watch for who flees first and to where."

My guess is that it starts with infiltration, by blowing stuff up behind enemy lines, using small territorist groups. Oil & Gas Pipelines make easy targets. Once that runs it course then it may turn to direct confrontation. That said, I think its very difficult to see when it will begin. Perhaps next week, or next year.

if Iran starts bombing first, I don't they will flee anywhere except to their own bunkers. Iran seems to be planning for a full nuclear confrontation (with ballistic missles, bunkers, etc). KSA just plans to reach heaven with a skyscraper:

Saudi Arabia plans to build the world's tallest skyscraper:

http://www.chicagotribune.com/news/nationworld/ct-saudia-arabia-tallest-...

Wed, 01/06/2016 - 17:21 | 7007003 Lumberjack
Lumberjack's picture

My bet is KSA and one other get hit first. There will be a short lull then all hell breaks loose. I might have it backwards too except for the hell breaking loose.

Wed, 01/06/2016 - 17:55 | 7007207 AGuy
AGuy's picture

"I might have it backwards too except for the hell breaking loose."

Yup. I wholeheartedly endorse that "all hell will breakout" no matter who shoots first!

 

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