As we begin a new year, it’s prudent to look back and see what things have changed during the past year so we can look ahead with hope. The energy industry was full of change, as low oil prices, new regulations, increased renewable energy production, a new President, and new innovative processes all changed how the industry conducted business. However, a few topics stand out, ones that really dominated as important issues within the industry. Based on popularity by our readers as well as those that will continue to play out in the upcoming year, EMG has chosen five of the most important topics that shaped 2016.
1. Pipelines, pipelines, pipelines…more than just the Dakota Access hit headlines
The Dakota Access Pipeline (DAPL) construction and the protests against it have been one of the most hotly debated topics of the year. It seemed there wasn’t a week in which Bakken.com didn’t post at least a handful of stories following the conflict over the construction of the $3.8 billion pipeline that would move oil from North Dakota to Illinois.
But let’s back up for a minute to what might seem like old news. In June of 2015, the North Dakota Public Service Commission voted in unanimous support of a crude oil pipeline which would run beneath Lake Sakakawea. The $105 million pipeline project, owned by Hess Corp., would convert an existing 8-inch gas pipeline to transfer crude oil produced in the Bakken. The section of pipeline runs for 2.4 miles and was buried six feet beneath the lake bottom in 1992. The span of the completed system will have the capacity to transfer up to 76,000 barrels of oil per day. However, the pipeline was eventually vetoed by the MHA Nation (Mandan, Hidatsa, Arikara Nation) because it did not go underneath bedrock like the DAPL does.
Several other pipelines that route under the lake have been proposed. A meeting to discuss the pipelines was held in March. 75 people attended, with some expressing concern about the pipeline going under the lake. The argument by Kelly Morgan, tribal archaeologist for the Standing Rock Sioux Tribe, sounds very similar to the DAPL chant, “Water is Life,” that we’ve all come to know so well.
Standing Rock Sioux Tribe is against any and all pipelines going across the water,” she said. “We can live without oil, but we cannot live without our water .… We know that pipelines break; we know there’s spills.
In July of this year, work was halted on a separate project, this time involving Paradigm Energy Partners, a company that is installing two pipelines under Lake Sakakawea that will be owned by Sacagawea Pipeline Co. The project, filled with messy lawsuits and cease and desist orders, has lacked the publicity of the DAPL, despite the fact that it deals with the same river system.
Then, the DAPL protests heated up. Arguments over water and eminent domain, and much worse–erupting violence–became the biggest discussions of the year. In November, we posted this on the Bakken.com Facebook page:
News involving the Dakota Access pipeline isn’t limited to local coverage. One story from a Louisiana man who witnessed the protests firsthand. Greg Champagne’s firsthand account of helping law enforcement near Cannonball received hundreds of shares and several comments from those both for and against the construction of the Dakota Access Pipeline.
One reader commented, “People need to read this because it is the real story, not the crap the protesters are spewing.”
Another, in contradiction, wrote, “These are peaceful protesters that have had their constitutional rights violated by illegal search and seizure of individuals not involved in the protests. Along with other infractions by law enforcement and private security companies. Its all documented on video and when the lawsuits start you’ll see the truth.”
Some hope that the new Trump Administration will help infrastructure projects like the Dakota Access to find their way to completion. Even hopes to revive the Keystone XL have been mentioned, as in the article we posted on Dec. 1 that got lots of reader attention: Trump’s “Contract” promises to lift roadblocks to allow Keystone XL, other pipelines. For now, the pipeline is at a standstill as we wait to see if if we can find a viable alternate route.
The price of oil almost always comes up in conversation when people discuss what’s going on in oil and gas. But why oil goes up and down is sometimes considered a mystery. However, the Organization of the Petroleum Exporting Countries (OPEC) and its resolutions and policies have had a significant impact on the price of oil in 2016 and will continue to influence whether growth continues in 2017. The huge global oil glut that occurred during most of 2016 drove prices down, yet oil keeps flowing like water. While U.S. producers began to cut back and lay off employees, production in OPEC member countries continued to increase.
In June, OPEC countries failed to agree on measures to influence crude supplies and prices, in a missed opportunity to show the resolve that for decades let them set how much consumers and industries worldwide would pay for gasoline, heating and related necessities. The hope for a quick deal that would curb OPEC production vanished, and oil prices remained low. Iran, with sanctions recently lifted, refused to participate, and Saudi Arabia just didn’t want to be outproduced by another OPEC country.
In October, the International Energy Agency (IEA) urged OPEC countries to swiftly deliver on promised production cuts in order to see a sustained increase in oil prices that would also help shore up their economies. Most OPEC countries were beginning to feel the price pinch. They began to bend. A November 30 meeting in Vienna resulted in the deal everyone was praying for: it led members of the oil producers’ cartel in a pledge to remove 1.2m barrels a day (b/d) from global oil production, if non-OPEC countries such as Russia chip in with a further 600,000 b/d. That would amount to almost 2% of global production, far more than markets expected, reported The Economist. Whether or not Russia will hold up its end of the deal is yet to be determined.
Today, just barely a month after the deal was made, Bloomberg News reported that it’s now time to follow up and see if OPEC is actually going to adhere to the production cuts they promised. Some believe that they will continue to produce, hiding their actual productivity in an attempt to squash the U.S. shale producers and remove their market share. However, Bloomberg cites several ways to check on OPEC’s productivity, despite the difficulty in measuring barrels of oil. One measure is the oil glut, which has been slowly disappearing in the last month. However, just as in measuring barrels per day, the effect of lower inventories doesn’t usually show up in the market for a month or two. So we could wait a bit while prices slowly increase–as long as everyone does their part.
Even if OPEC delivers the cuts promised, there’s still the risk of backsliding if their competitors in the U.S. respond by ramping up drilling, said Chip Hodge, who oversees a $12 billion natural-resource bond portfolio as senior managing director at John Hancock in Boston, reported Bloomberg.
If activity picks up dramatically here, it might push other producers into cheating because of what that means for prices, said Hodge.
It’s a delicate balance between price, production, supply and demand, complicated by international relations and fear. As we can see, the chess moves made over the last year haven’t exactly helped anyone except consumers, who have enjoyed gasoline for below $2/gallon for most of the year, thanks to the low oil prices.
3. Donald Trump’s election boosts industry optimism
From Dec. 16: The Presidential election was another hot topic throughout the course of the year. As one candidate after another dropped out, and Donald Trump became our new President-elect, many in the oil industry cheered. Trump doesn’t seem afraid to endorse the extraction of fossil fuels, and since his election, rig counts have increased, fracking crews are hiring, and several prominent businessmen with ties to the oil fields emerged as prospective members of the new Trump Administration.
Names like Harold Hamm and even North Dakota Senator Heidi Heitkamp were thrown out there as possibilities for Energy Secretary. Yet, Trump finally settled on former Texas governor Rick Perry, a name synonymous with Texas oil. Plus, we saw Trump nominate other oil-friendly businessmen to his administration, including ExxonMobil CEO Rex Tillerson for the position of Secretary of State and Scott Pruitt to head up the EPA. It will be an interesting year in oil and gas with faces who are friendly to the industry. Even coal, that fossil fuel that was on its way out, may see some resurgence under Trump.
However, these same appointments stirred quite a bit of opposition from many Democrats and others who oppose an increase in fossil fuel development. Many believe more regulation will help mitigate climate change, a global problem Mr. Trump doesn’t seem too worried about.
4. Apache discovers huge oil field in the Permian Basin
No matter whether in the Bakken, Marcellus, or down south in a Texas oil field, our readers found this story about the Permian Basin exciting. On Sept. 7, EMG reported that Apache Corp. had discovered a huge new oil and gas field in West Texas. The company believes there could be 3 billion barrels of oil and 75 trillion cubic feet of natural gas in an area it calls Alpine High. This might account for at least some of the increased rig counts in 2016.
Hiring in the Permian, however, doesn’t seem to alleviate those who are still hunting for work in oil & gas since the bottom dropped out over a year ago. In January last year, Bakken.com published one of its most read stories of the year: 5 oilfield jobs still in demand in 2016. Even though we witnessed company after company cut their staff one after another, some jobs remained as staples. The number one job still in demand? Drivers. So don’t think about it. Get your CDL.
5. Rig Counts: Low numbers early on slowly increased
Which brings us to rig counts. Most weeks, EMG posts the Baker Hughes rig count update, and that story gets tons of traffic. Since oil prices and rig counts have both been in a serious slump for much of 2015 and a good chunk of 2016, it’s no wonder people in the oil fields and other oil-related careers cheered when the numbers slowly began to increase.
According to Baker Hughes, the U.S. rig count on December 31, 2016 was 698, with 536 rigs exploring for oil and 162 for natural gas. May 27, 2016 was the rock bottom low oil rig count for the year, with 316. Gas rigs bottomed at 81 on August 5. Numbers began to slowly increase after that, and the year ended with 525 oil rigs and 132 gas, many of those rigs popping up in the Permian Basin. Interestingly enough, on May 26, Bakken.com reported that oil hit $50 per barrel for the first time in 2016, even though rig counts were low. The following week, Baker Hughes reported the first significant jump in the total domestic rig count for the year.
Looking ahead in 2017
Looking into the future of energy is like trying to use a crystal ball to figure out when your true love will show up at your door. There are so many factors that affect what oil and gas will do, what the price will be, and whether or not jobs will come back to support the local economies in the shale plays that saw great booms in our recent past. While we have all realized that oil and gas isn’t likely to see another boom in the near future like we saw up until 2014, it’s safe to say that the oil and gas industry is still alive–and well.
The Longview News-Journal reported activity in the Eagle Ford Shale is increasing, but “it would take tremendous and unexpected increase in global demand to get up to over $100 a barrel,” says economist Mark Ingham from Amarillo firm InghamEcon. I think we can all agree on this. In fact, most experts predict the price of oil to top out at around $60 per barrel in 2017, which still makes drilling profitable in most areas. The Short-Term Energy Outlook, published by the Energy Information Administration (EIA) predicted on Dec. 6 that oil might even exceed that projection, although the outlook is still decidedly uncertain.
EIA forecasts Brent crude oil prices to average $43 per barrel (b) in 2016 and $52/b in 2017. West Texas Intermediate (WTI) crude oil prices are forecast to average about $1/b less than Brent prices in 2017. The values of futures and options contracts indicate significant uncertainty in the price outlook. The NYMEX contract values for March 2017 delivery traded during the five-day period ending December 1 suggest that a range from $34/b to $71/b encompasses the market expectation of WTI prices in March 2017 at the 95% confidence level.
In the Permian Basin (West Texas and New Mexico), drilling is profitable at around $45-50 per barrel. Evidence of the viability of drilling in the Permian shows in its significant share of the rig count and a recent increase in hiring. Many other areas are optimistic that they will also see hiring increases and put people back to work.