OILPRICE looks at The Top 8 Unknowns In 2018’s Energy Markets

Last week, investment banker Goldman Sachs suggested that the global crude oil surplus could come to an end much sooner than expected forcing OPEC to end the production cap sometime around mid-year 2018. Bank analyst Jeffrey Currie said: “Global inventories will have re-balanced by mid-2018, leading to a gradual exit from the cuts.”

The global oil industry has discovered less than seven billion barrels of oil equivalent so far, this year—a sharp drop from the 8 billion discovered last year. Last year’s total was the lowest since the 1940s. The 2017 figure is down by more than half from the 15 billion discovered in 2014-2015, and down dramatically from the 30 billion discovered in 2012.

Many experts believe Norway is about to embark upon a long period of structural decline as its crude oil fields inch closer to depletion and its reserves disappear. It is looking more like a future that is much more Arctic oriented, smaller-scale and natural gas-based.

The natural gas shortage is the big energy story in China. New gas-fired boilers have been installed across much of northern China as part of an ambitious gasification program under which millions of households, and some industrial users, are switching from coal to natural gas for heating as the city of Beijing tries to clean its polluted air. The problem is that there is still not enough natural gas to fire all the new furnaces and many are going cold. Gas producers said they are struggling to construct more storage facilities, which take millions of dollars and five to six years to build. Where there is gas supply, it cannot reach homes in some cases as the required gas transportation and storage infrastructure has not been installed.  Chinese authorities have commandeered supplies of natural gas to heat homes, disrupting supplies to industry. Utility companies in areas throughout China have reduced or cut off gas supplies to factories and other industrial customers. China is the third largest consumer of natural gas in the world, behind the US and Russia, and is expected to show the strongest demand growth over the coming decades.

Energy relations between Moscow and Beijing continue to strengthen.  Russia has large reserves of energy resources. As Russian geopolitical behaviour in Europe and the Middle East have damaged its trade relations with the West, it has increasingly turned to China for markets and badly needed investments. As China’s crude oil production falters, and its need to reduce coal burning is becoming critical, the Asian country is willing to take as much natural gas and oil, along with other minerals from Siberia, as it can get.

With Venezuela undergoing economic collapse, Russia is taking advantage of the dire situation to get hold of a piece of its crude oil and natural gas reserves. The Chinese, who are owed billions by the South American country, are doing likewise. Tom Whipple observes:

“It is difficult to see how the country can continue in its current direction during the coming year. The likelihood that the country will be exporting very little oil by the end of 2018 seems very high.”

The share of crude oil and natural gas in Germany’s energy mix increased this past year. Compared with 2016, the consumption of gasoline and diesel increased by 2%, kerosene use rose by 0.7%, light heating oil use went up 2%, and the use of naphtha in the chemical industry increased 7%.

Japan’s LPG (liquefied petroleum gas) imports from the US are expected to double in 2017 as the Asian country displaces LPG from the Middle East.

Latin America is becoming a steadily growing market for US LNG (liquefied natural gas) exports. Since the US started exporting LNG in 2016, half of the cargoes have gone to Latin America. Brazil is increasing its LNG regasification capacity with three terminals running and three more planned. (Regasification is a process of converting liquefied natural gas at −162 °C (−260 °F) temperature back to natural gas at atmospheric temperature.)

Global coal consumption fell last year by 1.9% to 5.4 billion tons from a year earlier as lower natural gas prices, a surge in renewable energy sources, and efficiency improvements lessened demand. The International Energy Agency projects that over the next five years, coal demand will grow at just 0.5% a year, due to lower consumption in China.

 

with h/t Tom Whipple

 

 

Tags: , , , , , , , , , , , , , ,

Leave a Reply