Trump’s Not Winning This Poll
As with so many other fields, 2016 certainly proved an eventful year in the energy sector. Today I rank the top energy stories of the year.
1. OPEC agrees to production cuts
I know some would not rank this story this high, but OPEC’s decision in November to reduce output is the first such action in eight years. Saudi Arabia will bear some 40% of the cuts, and that’s a big deal because it is OPEC’s biggest producer. The Saudis are leading by example, and within OPEC they usually get what they want. OPEC also secured agreements from non-OPEC members. Russia led this group of rivals by agreeing in principle to cut production by about 300,000 barrels per day (bpd).
This takes a lot of downside risk out of the oil market, and should end talk of oil falling back to the $20s or lower. Yes, some OPEC members are likely to cheat on the quotas, and shale oil producers are likely to rush in and fill the gap from these cuts. But this is a strategy shift that will last for years. It’s hard to see anything but upside from this move for America’s shale oil industry.
2. Donald Trump wins the presidency
This was the other main contender for the top story of the year, and if this list was just for U.S. energy stories, it would have been #1. Had Hillary Clinton won, it wouldn’t have been nearly as big a story, because it would have meant a continuation of President Obama’s policies. Given the tilt of Trump’s key cabinet picks in favor of fossil fuels, it seems overwhelmingly likely that his team will attempt to reverse many of the policies of the past eight years. Unlike the OPEC decision, this story will impact every segment of the U.S. energy sector.
3. The Dakota Access Pipeline saga
The $3.8 billion Dakota Access Pipeline (DAPL) is meant to carry crude from North Dakota to Illinois, and it became the latest high-profile pipeline project to be targeted by protesters. The Standing Rock Sioux and their environmentalist allies protested plans to bury the pipeline below the Missouri River just north of the reservation, claiming doing so would harm historical and sacred sites and endanger the tribe’s drinking water source. Protesters from across the country flocked to the area, and there were a number of clashes with authorities. Although the courts sided with DAPL, the Obama Administration intervened on behalf of the protesters to at least temporarily halt the project. With Trump vowing swift action to permit the completion of the Dakota Access, expect this controversy to heat up again in the first few months of 2017.
4. Coal bankruptcies
The coal industry has suffered tremendously as utilities have shifted to natural gas and renewables, and 2016 saw two major coal producers declare bankruptcy. Peabody Energy (OTCMKTS: BTUUQ), the world’s largest publicly traded coal company, and Arch Coal (NYSE: ARCH) both filed for Chapter 11 bankruptcy protection, with Arch quickly emerging from the restructuring.
5. Oil and natural gas prices bottomed
Oil prices fell below $30/bbl for the first time in 12 years, while natural gas prices dipped to the lowest levels in 18 years. But prices for both commodities rose substantially off of those first quarter lows by year-end.
There were numerous contenders for rounding out the Top 10, but I tried to make it geographically comprehensive, with news from several segments of the energy sector:
6. Major forest fires in Alberta briefly idled over 1 million bpd of output from Canada’s oil sands.
7. Tesla Motors (NASDAQ: TSLA) acquired solar power marketer SolarCity in an all-stock $2.6 billion merger.
8. Saudi Arabia replaced its powerful oil minister Ali al-Naimi after more than 20 years of service.
9. After 44 years of sporadic construction, America’s first new nuclear reactor in 20 years came online in Tennessee.
10. Volkswagen agreed to pay $10.2 billion to settle some U.S. claims stemming from its emissions cheating scandal.
In the next issue I will grade the predictions I made a year ago.