1. Permian getting gassier
- As drilling slows down, Permian wells are becoming gassier. “The oil ratio is no longer sufficient to offset gas in older wells, so we’re seeing some increase in basin-wide” gas-to-oil ratios,” said Artem Abramov, head of shale research at Rystad Energy.
- In the Permian, the average well produces 2,000 cubic feet of gas for every barrel of oil. Gas is much less lucrative than oil. Later on in the lifetime of that well, the gas-to-oil ratio can climb to 5,000 cubic feet.
- The ratio grows worse when wells are drilled too close together. But the ratio is also higher in the Delaware sub-basin of the Permian, where recent drilling has been concentrated.
- The higher-than-expected gas-to-oil ratio has undercut the finances of some drillers, while also contributing to the region’s worsening flaring problem.
2. Shale equity sales plunge
- The amount of equity issued in 2019 from the shale industry fell to its lowest level in 13 years.
- “It seems to be fairly unloved as a sector,” Andy Brogan, Global Oil & Gas Sector Leader for Ernst & Young LLP, told Bloomberg.
- The value of shares issued in 2019 fell to $1.3 billion, the lowest level since 2006. In 2016, the industry issued $34 billion in shares.
- Debt issuance was flat at $44.5 billion in 2019, still at elevated levels compared to earlier this decade.
- There is little sign…
1. Permian getting gassier

- As drilling slows down, Permian wells are becoming gassier. “The oil ratio is no longer sufficient to offset gas in older wells, so we’re seeing some increase in basin-wide” gas-to-oil ratios,” said Artem Abramov, head of shale research at Rystad Energy.
- In the Permian, the average well produces 2,000 cubic feet of gas for every barrel of oil. Gas is much less lucrative than oil. Later on in the lifetime of that well, the gas-to-oil ratio can climb to 5,000 cubic feet.
- The ratio grows worse when wells are drilled too close together. But the ratio is also higher in the Delaware sub-basin of the Permian, where recent drilling has been concentrated.
- The higher-than-expected gas-to-oil ratio has undercut the finances of some drillers, while also contributing to the region’s worsening flaring problem.
2. Shale equity sales plunge

- The amount of equity issued in 2019 from the shale industry fell to its lowest level in 13 years.
- “It seems to be fairly unloved as a sector,” Andy Brogan, Global Oil & Gas Sector Leader for Ernst & Young LLP, told Bloomberg.
- The value of shares issued in 2019 fell to $1.3 billion, the lowest level since 2006. In 2016, the industry issued $34 billion in shares.
- Debt issuance was flat at $44.5 billion in 2019, still at elevated levels compared to earlier this decade.
- There is little sign of a major rebound. “Few fundamental catalysts will likely emerge in 2020 to sustain sentiment for crude and U.S. oil-exposed E&Ps, as resilient production collides with concerns about a maturing economic cycle,” said Vincent Piazza, a senior analyst at Bloomberg Intelligence.
3. China turns back to coal

- Coal consumption in China seemingly hit a peak back in 2013, showing slight declines in the years since then.
- However, China has made a strategic pivot back to coal, worried about rising oil and gas import dependence. China’s import dependence for oil reached 72 percent last year, the highest in 50 years.
- Coal consumption ticked up in 2018, and the increases are expected to continue in 2019 and 2020.
- Analysts say the trend has also been influenced by the U.S.-China trade war, and the U.S.’ abandonment of climate goals.
4. Nord Stream 2 nearing completion

- Last-minute U.S. sanctions could delay the completion of the Nord Stream 2 pipeline, but the project is expected to reach the finish line.
- The 55-bcm/y pipeline will allow Russia to increase gas flows into Europe. Goldman Sachs remained cautious, predicting mostly flat gas shipments from Russia to Europe next year, but noted that Nord Stream 2 presented “upside risk” to that forecast
- “With no significant changes so far to our NW European gas flow expectations for 2020, we maintain our view that the market is going to remain over supplied and that, as a result, TTF prices will be pressured below $4/mmBtu to incentivize Norway to cut exports to the region,” Goldman said. TTF prices are an important hub price in northwest Europe.
- “We maintain our summer 2020 TTF and JKM forecasts at $3.90/MMBtu and $4.60/MMBtu, respectively, below current forwards at $4.75/MMBtu and $5.03/MMBtu,” Goldman said.
- In other words, natural gas prices in Europe could fall in 2020, which would have knock-on effects globally.
5. Energy sector outperforms other commodities

- While energy equities were savaged this year, as investors lost interest in struggling shale companies, the underlying commodity performed really well. Brent crude gained 20 percent in 2019, and the energy sector outperformed other commodities.
- “This seems almost absurd given that US production is still surging from one record high to the next, especially as growth in global oil demand has slowed noticeably amid general economic weakness,” Commerzbank wrote in a note.
- Investors have OPEC+ to thank. The group helped to tighten up the market.
- “The weaker demand coupled with sharply rising supply made much more of a mark on the other energy markets: gas prices on the spot market fell significantly on both sides of the Atlantic, proving at the same time that gas markets have become more closely allied due to the pronounced growth in LNG supply,” Commerzbank said.
6. The massive offshore wind opportunity

- Offshore wind is still a marginal source of electricity production, but it is set to become a $1 trillion business, according to the IEA.
- The total offshore wind potential could be around 420,000 TWh per year worldwide, which is more than 18 times existing electricity demand.
- Europe is where much of this potential is concentrated – due to shallow water, high quality wind, and large markets near the North Sea. Europe already has 20 GW of offshore wind.
- Even on a business-as-usual trajectory, existing policies are set to grow Europe’s offshore wind market by four-fold over the next decade.
7. Global trade contracts

- Global trade took a hit in 2020. The U.S.-China trade war was the largest culprit, but other conflicts also arose – Japan and Korea have seen their trade relations deteriorate, and the upcoming Brexit could disrupt trade flows.
- Global trade volumes contracted in 2019. Crucially, trade flows between the U.S. and China went negative.
- The two sides have de-escalated the trade war, but analysts fear that the U.S. may target the European Union next.
- Meanwhile, more recently global industrial activity has also fallen into negative territory, the first time that has occurred since the financial crisis a decade ago.