Oil will break 100. Energy companies will battle with federal regulators over drilling and emissions. Natural gas prices will remain low but natural gas shale projects will continue unabated.
Those are among predictions for energy in the New Year, according to a survey of FuelFix’s guest writers.
The 2010 energy news narrative was dominated by the Gulf of Mexico oil spill, the shale boom and legislative battles over climate change, topics that will continue to shape events in the New Year. But the 2011 issues will likely change as the global economy enters a new phase of recovery.
Amy Myers Jaffe, a senior fellow with Rice University’s Baker Institute, said the many predictions of $100 oil in 2011 appear to be a self-fulfilling prophecy.
“Wall Street is betting on $100 oil, so it happens from their trading of it,” Jaffe said.
Yet the current fundamentals of supply and demand don’t support $100, Jaffe argues, and sustained trading above $100 could derail a fragile economic recovery.
“I do not see how $100 oil is sustainable given the fact that it would curb growth and given that Saudi Arabia has so much spare capacity to lower prices and declares $75 to be its target price,” Jaffe said.
Jaffe will also be watching how much Iraq is able to increase its oil production over the next year, and if the price for offshore drilling rigs falls as both a wave of new rigs come on line and new drilling in U.S. waters remains in question.
Bill O’Keefe, president of the George C. Marshall Institute and a past chief operating officer of the American Petroleum Institute, says 2011 will see energy issues affected most through the Executive Branch, not Congress.
The Interior Department’s ocean energy bureau will determine whether exploration and production is renewed in the Gulf, O’Keefe said, while the Environmental Protection Agency will have huge impacts on energy with its efforts to reduce emissions from stationary sources, push through an increase in the percentage of ethanol in gasoline and study of the potential threats of hydraulic fracturing.
“Next year will show whether the administration is going to pursue an off-fossil energy policy or one that is based on energy and economic realities,” O’Keefe said.
Our experts weigh in on other top issues in 2011:
Victor Flatt: University of North Carolina Environmental law professor
- EPA regulation of greenhouse gases: The battle lines are drawn, particularly in Texas, as the regulators plan to put in place rules discussed over the past two years.
- Continued delays in further offshore drilling: This could get particularly heated in Alaska if there continues to be significant resistance.
- Alternative energy: The Dept. of Interior and Bureau of Land Management will continue to fast-track permitting of alternative energy projects, particularly solar.
- Continued technological advancement and regulatory advancement of bio-fuels.
Dan Pickering: co-president, head of securities, Tudor Pickering & Holt
- Global economic recovery: Without demand growth, high oil prices will fall.
- Oil exploration: Over half of U.S. activity will be drilling for oil or liquids. Areas to watch include Iraq, deep-water West Africa, Saudi Arabia, Asian demand and geopolitical angst — most notably Iran.
- Post-Macondo drilling: The ongoing struggle with new permitting requirements for deepwater drilling.
- Industry consolidation: 2011 will likely see more joint ventures and asset purchases by foreign companies and oil majors, but with an emphasis on non-natural gas assets and companies.
- Another year of soft gas prices: Low gas prices have not led producers to back off from a relatively high rate of drilling for more gas. Will 2001 finally see some slowdown?
- Horizontal drilling: The technology continues to revolutionize U.S. drilling activity and will see ongoing growth and developments in 2011.
- EPA: Likely the only entity at the national level that will influence the oil patch meaningfully. The rest of the government too tied up with economy and impending 2012 elections.
- Liquefied natural gas exports: With the U.S. gas glut, projects are popping up to move gas out of country via LNG.
Michael Economides: Author, consultant and University of Houston Engineering Professor
- Oil will hit $100 dollars very soon, maybe in January. All the reasons that took it to near $150 are still there, except U.S. economic growth.
- Natural gas shale will continue to grow fast in 2011.
Matt Smith: Analyst with Summit Energy
- Oil breaks $100: OPEC blitzes the media with tales of shock and horror, but still won’t raise official quotas until their next meeting in June.
- The oil-to-gas price ratio: The price of oil per barrel divided by the natural gas price per mm/btu spends the majority of the year above 20, as crude prices show more strength relative to natural gas.
- Global coal prices: Coal will show more upside than oil or natural gas due to emerging market demand, led by China.
- European defaults: The U.S. economy still wobbles due to ongoing housing and unemployment, but Europe faces further sovereign debt default. Next stop: Spain and Italy.
- U.S. natural gas production still grows: Gas output goes up year-on-year despite expectations to the contrary. Strong supply and a high storage level exiting winter keeps a lid on prompt month prices throughout the year.
