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Peter Tertzakian

Peter Tertzakian

Peter Tertzakian is Chief Energy Economist and Managing Director at ARC Financial Corp., Canada’s largest energy-focused private equity firm. His career began as a geophysicist…

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10 Energy Surprises In 2017

Oil tank farm

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, U.S. 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?

(Click to enlarge)

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 U.S. 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. Related: Musk’s Space X: Down But Not Out

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. Related: U.S. Shale Is Now Cash Flow Neutral

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.

By Peter Tertzakian for Oilprice.com

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  • citymoments on December 21 2016 said:
    All Readers, allow me to pass on my last comment for the 2016 . It is regarding those who still try to promote the idea that fossil fuels will become a thing of the past.

    Without fossil fuel now, (1) there will be no internet, I will not be able to post this comment as we speak. (2) there will be no airplanes, so those green promoters need to swim to Paris to attend their climate change conferences. (3) All cable TV stations will stop broadcasting, so all those elite colleges graduated talking hosts need start to look for a real jobs to make a living. (4) there will be no industrial machined powered agriculture, I suppose all highly paid parasites in both public and private sectors ( PhDs, professors, Hollywood actors ) will have to learn farming to feed themselves.

    Good luck for all in 2017. Hopefully it will be a less insane world in 2017.
  • R. L. Hails Sr. P. E. (ret.) on December 27 2016 said:
    There is only one epic energy technical process which will dominate 2017. It will be the purge, reformation, pogrom (your choice of words) in the EPA, DOE, and NRC. We will learn things that will be jaw dropping disclosures. Rivers of money will dry up. Rice bowls will shatter. What comes out the other end is anybody's guess, but the survival of our nation will depend on it.

    Happy New Year to all Americans.
  • citymoments on December 28 2016 said:
    Right now, if we stop disposing any amount of man made CO2 into our atmosphere, is the climate on this earth going to stop change?

    The earth climate has been changing since the time of earth formation - about 4 billion years ago. Human, as homo sapient species, only appeared on this planet about one million years ago. The earliest land plants appeared around 450 million years ago; the oldest multi-organ animal, jellyfish have roamed the sea for at least 500 million years.

    As Man must inhabit on land, under very fixed condition of air atmosphere, humidity and temperature. Without some significant climate changes pre - human existence
  • Bill Simpson on December 28 2016 said:
    You have to wonder how the world would change if they could ever perfect fusion. Aluminum would be everywhere, since only the electricity needed to make it is why it is so expensive. It is one of the most abundant metals in the Earth's crust. A hydrogen economy might be possible, since water could be split with electricity to make hydrogen. The deserts could be farmed with former seawater. You could put heating cables under all the highways and under your roof. Electrify all the railroads with aluminum poles supporting the wires. Electric poles could be all aluminum, lasting for hundreds of years. Aluminum roofs and studs for most homes, no rot or termites. Electric tunneling machines could drill thousands of miles of tunnels for roads, railroads, and water transfer. Hydrogen fueled rockets could go get asteroids which are nickel, iron, platinum, and other goodies. Waste could be vaporized and the elements reused. You could make chemicals by using elements from the atmosphere, coal, and oceans.
    Nearly free electricity would transform the world as much as the invention of the wheel and movable type. Fusion would do it, if the machines were cheap enough to build and operate.
  • citymoments on December 29 2016 said:
    Just finish off my previous comment: The earth climate has been changing since the time of earth formation - about 4 billion years ago. The earliest land plants appeared around 450 million years ago; the oldest multi-organ animal, jellyfish have roamed the sea for at least 500 million years. Human, as the homo sapient species, can only inhabit on land, under very fixed condition of air atmosphere, humidity and temperature. That is why we humans , only emerged as very late animal species on this planet, about one million years ago.

    Without some significant climate changes taken place pre-human existence, there would have been no a such species called homo sapient on this planet.

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