Ticket to ride: Energy outlooks and the few who benefit

If you’ve been involved in any conversations about energy in 2015, there’s very much a sense the industry is gritting its teeth and just trying to get through this period of sustained low prices. And if you’ve looked at any forecasts about prices, supply, demand and production into the near future, it’s clear why there’s a prevailing sense of grim determination.

The Platts Global Energy Outlook Forum was held today in New York, and while there was still a feeling of caution about what the future will bring, there were also glimmers of hope for growing energy consumption to support producers. Well, glimmers of hope for some countries, anyhow.

The recent OPEC meeting in Vienna and the United Nations-sponsored climate talks in Paris (you can see some headlines here) have thrown the spotlight on a few countries that have the most sway on the future of energy. The various forum panelists and speakers added to that view.

The forum, in its ninth year, drew about 150 attendees and preceded the 17th annual Platts Global Energy Awards program. The year's title was "Money Talks: Shifting Energy Landscape Calls New Players."

Paul Sheard, executive vice president and chief economist at McGraw Hill Financial, spoke at length about China and India as two counties crucial in determining the future of energy. When economists talk about outlook, it can quickly devolve into a list of worries, he said, when a more appropriate response is to look at likely outcomes.

It’s likely that China will continue to see its growth slow, he said. Many, especially in the energy industry, had hoped that China would be a continued source of growing consumption long into the future, but it’s no longer going to be as big of a consumer as previously thought.

Seven or eight years ago there was discussion of whether China or India would be that powerhouse of growth, and the stage is now set for India to provide some hope for the energy industry. The country’s demographics are positive, it’s at an earlier stage of economic development with lots of growth ahead, and there’s good hope for political reforms to support consumption, Sheard said.

But while China’s role as a consumer-savior may be changing, there’s a new place for it to take a leading role when it comes to climate change, said Helima Croft, global head of commodity strategy at RBC Capital Markets. At the same time, India’s role takes on a more double-edged quality.

In talking with US officials, Croft said she learned that the US sees cooperation on climate change as one of the best ways to work with China. The choking smog that envelops Beijing and other cities is recognized as a national security risk, she said, and the country is committed to tackling it. That challenge would involve changing the economy from being based on industry/infrastructure (which in turn buoyed consumption) to a more consumer/service economy.

But India, she said, is in the position of wanting as much energy as possible, regardless of commodity, to lift its population. And that, in turn, means that curbing climate effects is not as high on the list of priorities, she said. (Platts’ Vandana Hari talked of India’s own smog problem earlier this week.)

Besides India and China, the US will also continue to have a position of power when it comes to energy. John Kingston, president of the McGraw Hill Financial Global Institute (and former editor of The Barrel), opened the forum and mentioned the link between emissions and economics, seen in the US’ case in the natural gas revolution displacing coal. Later, he spoke with Sheard about how oil is not as stimulative to the US economy as it used to be; the US’ success with shale is part of the reason why oil prices are so low.

But that doesn’t mean the US is hindered. Even with restrictions on US crude oil exports — panelist Wouter van Kempen, chairman, president and CEO of DCP Midstream, called it a “complete missed opportunity” — the US is in a power position in part due to quibbling within OPEC and economic pressure on some members.

For example, Croft pointed out that subsidy reforms in various countries, including the United Arab Emirates and Saudi Arabia, could influence energy consumption and more. Saudi Arabia’s population expects cheap or free and abundant energy, she said, and there have been contentious moves to try to cut down on domestic demand in order to preserve the country’s hefty exports.

Then there are the OPEC members that want production cuts to boost oil prices.

The various panelists touched on many, many more topics, ranging from more straight economics to borderline inside-baseball energy talk. But it was clear that while the energy industry has been on a bit of a roller coaster over the past year or so, there have been some who have – and still can – enjoy the ride.