Bankruptcies and price fluctuations
One of the most prevalent stories of 2016 concerned the spate of bankruptcies in oil and gas – particularly in North America. After reaching peak highs in 2014, oil prices descended into a two-year rout, persisting longer than anticipated. Indeed, the year opened with oil prices falling below $30 per barrel for the first time in 12 years. Natural gas also dropped to the lowest levels in 18 years – although prices for both rose as the year progressed.
With many companies overleveraged, interest payments on debt were causing a significant dent in profits. In the US, public company bankruptcy filings rose by more than 25 percent in 2016 – with oil and gas, energy, and mining companies accounting for 41 percent of those bankruptcies.
Despite the top petroleum companies’ efforts to manage risk, big names within the energy sector fell to Chapter 11, including: SunEdison, Inc – which also operates a renewable power plant; Peabody Energy Corporation; LINN Energy, LLC; Arch Coal, Inc; and Breitburn Energy Partners LP. The coal industry has struggled hugely and, as the world’s largest publicly traded coal company, Peabody Energy’s bankruptcy was particularly significant.
OPEC and production
The saga around OPEC (the Organization of the Petroleum Exporting Countries), production volumes and oil prices has persisted for some time. However, in November 2016 an agreement was finally reached when OPEC decided to reduce its output for the first time in eight years. While this raises hopes that oversupply will start to diminish and oil prices will increase, experts believe another year of low oil prices will persist before inventory reductions enable a price rise. According to the US Energy Information Administration, the monthly average spot price of Brent crude oil rose by $9 per barrel in December, reaching $53 per barrel to close the year.
The presidential elections
Following the election, the US is likely to undergo a significant shift in energy policies under President Trump, moving away from the Obama Administration’s more environmentally aware policies.
Indeed, Trump’s policy is entitled ‘An America First Energy Plan’ with a focus on boosting employment and self-dependence – advocating greater use of shale, oil and natural gas. His substantial shift away from addressing climate change issues has already caused widespread concern.
All eyes on the Dakota Access Pipeline
An issue that penetrated the national and international conscience was the $3.8 billion Dakota Access Pipeline. Planned to transport crude from North Dakota to Illinois, the pipeline was protested against by the Standing Rock Sioux and environmentalists, who claimed the pipeline would damage sacred sites and endanger water sources. While the Obama Administration put a stop to the project, Trump has since revived it, along with the Keystone XL pipeline, to the consternation of many. The timing was particularly significant, occurring just days after a pipeline 600km north of the site, in Canada, leaked 200,000 litres of oil on the lands of Ocean Man First Nation.
What to watch
OPEC and non-OPEC production levels will likely dominate the energy watch, as will the shift in energy policy in the US. How long these changes will take to impact oil prices, jobs volumes, economic stability and clean energy policy, however, remains to be seen.
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