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Musings From The Oil Patch - Dec. 19, 2017

A little bit of Christmas cheer was delivered last week when several Wall Street firms announced the results of their preliminary surveys of oil and gas company capital spending plans for 2018.  They show increases of 7%-8%, which is about double the expected increase for this year.  For the second year of a recovery, however, these increases are below the traditional double-digit gains, suggesting managements either don’t believe oil prices will remain as high as they are currently, or they have embraced “capital discipline.”  We will see what companies say about their budgets when they report 4Q17 results early next year, as that gives them another 60 days to assess the market outlook and the impact of the latest tax overhaul legislation.  Still, a spending increase for 2018 has to be considered good news for the industry.  The long-term outlook for oil prices is subject to growing debate with spectacularly different outlooks bookmarking the range.  At one end is a view that the growing shortage of oil in the near-future will push prices into the $80-$100 a barrel range for the next few years before demand begins to ebb, taking prices down.  At the other end, TaaS, (Transportation as a Service) will end car ownership as a philosophy and shift all driving to autonomous electric vehicles that are hailed by consumers whenever needed.  That shift will destroy oil demand and send prices crashing to $25 a barrel by 2030!  We suspect both forecasts are wrong, but which end of the spectrum proves more accurate needs monitoring in order to understand the amount of future oil industry work that will be available.

California’s governor Jerry Brown is touting how well his state is doing in curbing carbon emissions, but the reality is that Mother Nature is the real hero.  Last year’s heavy spring rains and winter snows boosted hydropower, allowing utilities to cut their power from fossil fuels.  That explains the state’s emissions success, as transportation emissions actually rose for a second straight year.  California’s emissions problem is that all its clean cars aren’t helping offset the increased pollution from longer commutes residents must make due to expensive housing in the state.  The new National Security Risk Assessment has been released.  The latest draft removed “climate change” as a key risk from the outlook.  That doesn’t diminish the military’s consideration of the impact of climate change, but it is no longer a driving force in how we plan for our defense.  We take another look at electric vehicle forecasts, but also what they mean for battery demand on global rare earth minerals.  There also are some interesting estimates about what an all-EV fleet could mean for electricity demand.  Can we ever be ready for the load?


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