A few days after Christmas I appeared on CNBC Asia’s Squawk Box to discuss the volatility in the oil market. Bernie Lo asked a question about OPEC’s strategy, and I characterized their decision to defend market share as “a big, costly mistake” that had already cost the group over $500 billion in 2015 and would likely cost them that much again in 2016.
I followed that appearance up with an article for Forbes called OPEC’s Trillion-Dollar Miscalculation (which went viral and received more than 100 times the traffic of their typical energy article). In that article I detailed the numbers behind my assertion.
Two weeks later, Continental Resources CEO and shale drilling pioneer Harold Hamm went on CNBC and reiterated my argument. He called OPEC’s strategy “a monumental mistake for them, I might add, a trillion-dollar mistake.” While there were a number of responses to Hamm’s comments that displayed varying degrees of schadenfreude over the huge decline in his net worth, I didn’t see much acknowledgement that the point is correct. So let’s review. CONTINUE»
When I made my annual energy predictions a year ago, I noted that I foresaw a “lot of uncertainty in the energy markets” and indicated that “the direction on several fronts is unclear.” That certainly proved to be the case as numerous pundits – including me – missed on oil price predictions.
Unfortunately, the market uncertainty is carrying over into 2016. This has implications for several predictions so, as I cautioned last year, it will be a challenge to repeat 2014′s record. But as always, the context is more important than the prediction itself, because context allows one to adjust one’s own views as events play out during the year. I may predict an oil price, but I also try to provide context as to what could go wrong with a prediction, so that readers can adjust their own expectations as the year unfolds.
As a reminder, I strive to make predictions that are specific, measurable, and preferably actionable. If forecasts are broad and vague, one can almost always declare victory. CONTINUE»
“It’s tough to make predictions, especially about the future.” ― Yogi Berra
I haven’t looked forward to this post since about mid-year, when it became clear that I wasn’t going to have a repeat of 2014’s perfect record. I recall a year ago wondering whether I would ever have a year the exact opposite of 2014 where I would end up with none of my predictions coming true. While I did a little better than that in 2015, there is no question that the year defied my expectations on many fronts. I did indicate at the time that rising uncertainty in the markets defied easy prediction. That certainly turned out to be true.
The funny thing about predictions is that things are always obvious in hindsight. I rarely have people suggest that any of my predictions are either “no-brainers” or “impossible” when I make them. But when it’s time to grade them, I hear that a lot. “You predicted lower oil prices for 2014. Of course oil prices were bound to fall.” Those are the sorts of comments that tend to be made following six months of oil price collapse hindsight.
The hardest predictions to get right are those that require a certain condition to be true all year long. A lot can happen in a year. Oil prices have skyrocketed and plummeted in the course of a year. One of my predictions was in that category. It was correct for most of the year, but enough eventually happened to prove it false. It was clear to me by mid-2015 that conditions were starting to tilt in that direction, but I don’t make predictions in six-month increments.
The Good, the Bad, and the Ugly
So, with that lead in, here is a rundown of how my predictions for the year fared, as well as an explanation in some cases for why things ended up differently than I thought they would. My predictions were initially made in My 2015 Energy Predictions. Here they are, the good, the bad, and the ugly — in the order I made them. CONTINUE»
As I have done for several years now, I like to close out the year by highlighting the top stories in the energy sector.
The 2015 list was challenging, because so many of the stories are interrelated. Commodity prices continued to plummet, but oil, natural gas, and coal prices fell for somewhat different reasons. This of course resulted in the lowest gasoline prices in years, which was itself a big story.
A crude oil export ban that I believed would stick around for years was repealed, yet it’s part of a spending bill that also extended tax credits for renewable energy. So is the story the spending bill, or its particular provisions? These were the challenges I had to sort out.
The rankings are somewhat arbitrary. This year there wasn’t an energy news event as dramatic as the Deepwater Horizon oil spill of 2010, or the Fukushima Daiichi nuclear disaster of 2011. Here is the list I settled on. CONTINUE»
With world leaders meeting in Paris this week and next to formulate plans for tackling carbon emissions, I believe it’s critical to understand the source of those emissions. After all, if you are going to solve a problem, you better make sure you have a good understanding of the problem. Otherwise, as the great philosopher Yogi Berra might say, your solution to the problem won’t necessarily solve the problem.
In today’s column, I want to cover three items. First is the present and past geographical breakdown of carbon dioxide emissions. Second is the breakdown by type of fossil fuel. Third is the breakdown of potential future emissions given the world’s current oil, gas, and coal resources.
The Current Geographical Emissions Profile
In my previous article, I showed that the world’s carbon dioxide emissions had historically come from the world’s developed countries (as defined by membership in the Organization for Economic Co-operation and Development), but since 2005 emissions in developing countries have outstripped those in developed countries. Of the 35.5 billion metric tons of carbon dioxide emitted in 2014, developing countries were responsible for 21.7 billion tons — 61% of the total: CONTINUE»
Energy on the Edge
Along with the OPEC meeting that takes place late this week, the biggest story in the world of energy is the Paris Climate Change Conference (Conference of Parties 21, or COP21) that runs through the end of next week. This conference is put on by the United Nations with the goal of producing a global agreement that will lead to a reduction in greenhouse gas emissions. Implementation of strategies that will help mitigate potential impacts of climate change are also on the agenda.
Decarbonizing our energy systems by encouraging greater usage of alternative energy — a frequent topic of this column — is one of the common themes in the fight against rising greenhouse gas emissions. Next weekend a new episode of National Geographic Channel’s Breakthrough series covers progress being made on this front. “Breakthrough: Energy on the Edge” debuts Sunday, December 6, at 9 pm ET on National Geographic Channel and covers some of the latest advances in alternative energy.
Ahead of the premiere, National Geographic Channel contacted me and extended an invitation to join the conversation by answering the question “Do you think that by tapping into the new alternative energy sources we can reverse most of the damage we have done to our environment?” But first I think we need to step back and make sure we understand the problem. Failure to correctly characterize a problem makes it much more difficult to address that problem. So let me first offer some context on the question. CONTINUE»
A Long-Awaited Decision
Earlier this month, after a debate that spanned nearly the entire duration of his presidency, President Obama finally rejected the proposed Keystone XL pipeline project. He had been heavily criticized on this issue from many angles, including by me, for his long-running failure to make a decision on this issue. For the record, my position on the pipeline wasn’t that it should be built. Nor that it shouldn’t. But rather that it was a distraction that garnered far more attention than it deserved, while more important issues desperately warranted attention.
Today, in the last Keystone XL article that I plan to write, I want to review the controversy, explain why I feel it took on a symbolic meaning far beyond what it deserved, and describe some of the other things that were taking place while an environmental movement mobilized to stop the pipeline. In a nutshell, I am going to strip the symbolism and wishful thinking and address things we actually know to be true. CONTINUE»
It’s Not That Simple
In my previous article Why the Bakken Boomed, I discussed the shale oil boom that has had such a dramatic impact in North Dakota’s Williston Basin over the past decade. But throughout the U.S. shale boom there have been those who doubted that the production gains would prove anything other than fleeting. Those doubts were grounded in the fact that shale oil production is more complex and expensive than conventional oil production, and the fact that cash flow has been consistently negative for virtually all shale oil producers.
While the doubts are based on fact, the story is more complex than it may appear. Isn’t that always the case though? Things are never quite as simple as they seem. Superficially, the narrative for many has been “Shale oil isn’t economical. The wells deplete too quickly. Just look at the negative cash flow.” But it’s just not quite that simple. Let’s dig a little deeper to gain a better understanding of what has happened, what is happening, and what is likely to happen moving forward.
The Boom-Bust Cycle for Dummies
First it’s important to understand that the oil industry is cyclical, and more importantly to understand the reason that it is cyclical. The long history of the oil industry has been one of boom and bust cycles. During the booms we hear about windfall profits, but during the downward part of the cycle, oil companies lose a lot of money and many people lose their jobs. CONTINUE»
A Williston Basin Primer
In my previous article Addressing the World’s Flare Gas Problem, I discussed my current project, which recently took me to the Williston Basin in North Dakota and Montana. Today, I will discuss the region’s shale oil boom in greater detail. In Part 3 of this series, I will conclude by delving into the economics of shale oil production.
The Williston Basin underlies parts of North and South Dakota, Montana, southern Saskatchewan, and southwestern Manitoba. Within the Williston Basin is the Bakken Formation, which first produced oil over 60 years ago. It was on North Dakota farmer Henry Bakken’s farm in 1953 that Amerada Petroleum — later acquired by Hess (NYSE: HES) — discovered oil at a depth of about 10,000 feet. The Bakken Formation is to date the source of most of North Dakota’s rapid oil production growth, but underneath the Bakken Formation is the Three Forks Formation, which has also begun to produce oil:
Source: US Geological Survey CONTINUE»
I don’t generally use this column to discuss the projects that I am working on. In fact, it’s been more than 2 years since I did. But I often get inquiries about where I am and what I am doing, so in today’s column I thought I would update readers who may be interested.
Since I graduated from Texas A&M in 1995 with my master’s degree in chemical engineering, I have worked for 5 companies in 10 different locations — including 3 foreign countries. Most of my work has been on energy projects. I am not going to run through my entire career here, but I will explain what brought me to my current job. If you want a full accounting, please refer to my CV.
From 2009 to 2014, I worked for a company in Hawaii called Merica International. Merica was essentially a holding company for a German entrepreneur who lived in Hawaii and invested in energy companies and technologies. Most of the published biographies for me still list Merica as my employer. In my role as Chief Technology Officer for Merica, I had the responsibility for conducting due diligence and making investment recommendations. When I joined the company, one of the major holdings was the German company Choren, which produced diesel from biomass. I first wrote about Choren back in 2008 before joining Merica. Long story short, as is often the case with new technology, startup issues dragged on and on and we finally made the decision to shut the plant down. I documented the timeline for these events in What Happened at Choren? CONTINUE»