Greetings from London.
This is our last newsletter for 2012, so along with wishing you Happy Holidays, we’d like to leave you with a few notes on what we expect for the New Year—a year full of risk and fuller still of opportunities. A New Year and a New Era for energy.
Two key issues to be addressed in the US for 2013 will be whether to export natural gas and whether to go ahead with the Keystone XL pipeline.
There are some who think it imprudent to export US natural gas; others who think we have a lot to lose if we don’t. Here, we will square things off with a few snippets from across the dividing line.
According to Michael Lynch, president and director of global petroleum service at Strategic Energy & Economic Research
, “while there are projections that liquefied natural gas exports could become quite large, the reality is that they will almost certainly be minimal for the next several years, and unlikely to affect prices any time soon.”
Then we have economist Chris Martenson, whom we had the privilege to interview
earlier this week. Martenson is categorically opposed to exporting US natural gas. Why? Martenson believes we should use our remaining natural gas as “a bridge fuel to get us to a new energy future that's durable and provides us with a high quality of life.”
Exporting, he says, is a massive waste
of resources: “Fully 25% or more of the energy contained within the natural gas is expended just in the process of liquefying it. That's what you get to do with 25% of the units of work. You get to turn the gas into a liquid.”
And then we have Keystone XL--that beleaguered behemoth of a pipeline project that is becoming a widening frontline in America’s proxy energy war. We cover this extensively because it is symptomatic of the underlying question of US energy strategy—even if it is not so important in and of itself. In Texas, the situation continues to intensify, most recently with another round of arrests of activists. But in Montana, there is forward movement. On Monday, Montana approved easements to let the Keystone XL pipeline cross state-owned land, including the Missouri and Yellowstone rivers. Keystone will have to be decided on once and for in 2013.
Against the backdrop of these issues, the chatter in DC is who will be the next figures to assume the energy-driving posts of Secretary of Energy and Secretary of the Interior. Rumor has it that Energy Secretary Steven Chu and Security of the Interior Ken Salazar have one foot out the door. Over the past four years, these two figures have played key roles in reshaping US energy strategy, so everyone’s wondering who (and what) will replace them.
For now, all we have is a short-list. Former Colorado Governor Bill Ritter and California hedge-fund manager Tom Stever are two names being bandied about for Chu’s potential replacement. Other names on the shortlist include former North Dakota Sen. Byron Dorgan; Susan Tierney, a former assistant energy secretary; and Steve Westley, a California businessman.
There seems to be a great deal of focus on Ritter, director of the Center for the New Energy Economy at Colorado State University. He also is a member of the board of directors of the Energy Foundation and is a senior fellow and board member of the Advanced Energy Economy Institute. He’s a big name in “new energy”—at least in Colorado.
Beyond the “issues”, we have opportunities. For 2013, East Africa is the place to be. The New Year will finally let us know if those massive oil finds in Kenya earlier this year are actually commercially viable. If they prove to be so, and on the scale that everyone is predicting, we should see a major restructuring of the playing field as juniors give way to majors. If you want to play around with stocks here, you have to watch this restructuring closely. In the meantime, the discoveries just keep coming …
For gas, Algeria is set to rival Tanzania and Mozambique as the hottest new venue. Europe is eyeing it greedily, thanks to its massive reserves, existing pipeline infrastructure, relative stability and closer proximity to the European market.
Turkey, too, is a worth keeping an eye on for 2013. While it doesn’t have impressive proven reserves, its unexplored Black Sea territory is highly promising. This territory adjoins some major discoveries by Israel and the industry is hedging its bets that there’s a black gold mine under those waters. Plus, everyone likes working with the Turkish government, while the country itself is poised to become a major energy hub at an important crossroads.
And then we have the Bakken and Eagle Ford shale plays in the US, which contain impressive proven reserves and plenty of untapped acreage. For 2013, these plays will remain very active.
On a geopolitical level, the most visible energy-related conflict of 2013 will be that between the Iraqi Kurds and the Iraqi central government. More than any other in recent times, this conflict demonstrates how oil drives geopolitics. Oil = Kurdish independence. And that equation won’t be calculated without bloodshed. But you can read all about this in our new premium newsletter, which launches on 11 January 2013.
For investors, this week we take an in-depth look at solar EOR—which is gaining ground as a cheaper and more effective method of coaxing heavy crude from played-out wells. In the next three years, EOR is set to go from a $3 billion market to a trillion-dollar market. Solar was given the boost it needed last week to win a significant share of this market. Most of the world’s current oil production comes from played out wells—so it’s no small thing. On a broader level, it’s a brilliant marriage of fossil fuels and renewable energy, which is a good start for a New Energy Era.