Five energy surprises for 2016: The possible and the improbable

Many energy analysts like to make predictions at the end of the year for the coming year. Instead, I'll point to five possible surprises in energy--surprises because few people expect them to happen. I am not predicting that any of the following will happen, only that there is an outside chance that one or more will occur. Naturally, these surprises would move markets and policy debates in unexpected directions.

1. Crude oil ends 2016 below $30 per barrel. With oil hovering in the mid-$30 range it doesn't seem implausible that at some point in the not-to-distant future, crude oil will dip below $30 per barrel, if only briefly. What would surprise most people is if the crude oil price finished next year below $30 per barrel. The conventional wisdom is that cheap oil is giving a boost to the economy that will lift worldwide economic growth and thus demand for oil. There is also a belief that high-cost producers will simply have to stop drilling new money-losing wells after more than a year of financial Armageddon in the oil markets. This will bring down supply just as economic growth is rising, sending prices much higher as the year progresses.

The alternate view is that oil in the mid-$30 range is a reflection of an economy that has been weakening since the middle of 2014 and foreshadows a worldwide recession which should hit in full force by the end of 2016. In addition, with Iran almost certain to add to the current oversupply as sanctions are lifted and with the continued determination of OPEC to destroy the viability of tight oil deposits in the United States, the oil price could surprise on the downside, even testing $20 per barrel.

2. U.S. natural gas production declines. Despite persistent low U.S. natural gas prices, U.S. production has continued to grow. Most of the growth has been coming from two places: the Marcellus Shale where ample deposits continued to be economical in the range of $3 to $4 per thousand cubic feet (mcf) and Texas where furious fracking for oil locked in deep shale deposits also produced associated natural gas without concern for the price of that gas.

With oil drilling across the United States in precipitous decline because of low oil prices, we won't see nearly as much new natural gas associated with oil drilling as we saw in 2014 and 2015. With natural gas now hovering around $2, even the very sweetest of the sweet spots in the Marcellus are unlikely to be profitable to exploit.

Having said all this, U.S. natural gas production growth has continually defied predictions that it would dip in the face of low prices. Part of this had to do with desperate drillers carrying heavy debt loads who had to produce gas at any price in order to pay interest on that debt.

Who's right, commodities or the Fed?

As the U.S. Federal Reserve Bank raised interest rates last week for the first time in 10 years in response to what it said was strength in the U.S. economy, economically sensitive commodities such as industrial metals and crude oil continued to plumb new cycle lows.

Either these commodities are about the turn the corner as renewed strength in the United States--the biggest buyer of commodities next to China--revives industrial metal and crude oil demand--or the Federal Reserve is misreading the tea leaves and crashing commodity prices signal a world and U.S. economy in distress.

Market analysts like to say that copper is the metal with a Ph.D. in economics. Because of copper's central role in the modern economy, it often reliably forecasts the direction of the economy. Since copper reached its peak at the beginning of 2011 above $4.50 per pound, it has swooned to near $3 in 2011 coinciding with a crisis in Europe, bounced back to near $4 once the crisis passed and then settled above $3 by the middle of 2013 where it essentially traded sideways until this year. After trending down since May copper hit $2.05 a pound last week, only three cents above the low for the year registered on November 23.

And, it wasn't just copper. Nickel started the year above $7 a pound and finished last week at $3.90 a pound. Aluminum began the year above 90 cents a pound and settled last week at 67 cents. Zinc peaked near $1.10 a pound in May and now sells for 66 cents. Iron ore prices, which dropped almost 50 percent last year, this year dropped from $68 per ton to $47 as of last week, another 31 percent decline.

The zombie apocalypse in oil: Why it's a bad sign for all of us

The dramatic drop in oil prices has created what are called "zombie" companies, oil companies which can still afford to pay interest on huge debts, but little else. If oil prices stay low, the problem is likely to spread and become an economic zombie apocalypse for much of the industry and the communities and countries that depend on it.

Meanwhile, consumers have rejoiced as cheap oil prices have led to cheap gasoline, diesel, heating oil and jet fuel. Both households and businesses are finally getting their revenge on the oil companies after a decade of high and rising prices.

But should those consumers be so sanguine? Can the low prices we are experiencing today be extrapolated far into the future? The conventional wisdom says yes. It claims that the American fracking boom of recent years has unleashed a flood of oil that will keep prices down for many years to come. Combine that with an undisciplined OPEC that pumps flat out and you get not a temporary dip in prices, but a new era of low-cost oil and oil products.

Taking a short break--no post this week

I'm taking a short break and expect to post again on Sunday, December 13.

Climate change is our grand narrative now

There is the story of our personal lives: our family, our friends, our jobs, our hobbies. There is the story of our communities: our civic, religious, business, artistic and recreational lives. There is the story of our nations: their internal political struggles and their struggles with each other.

But now, there is one grand narrative which ties us all together, whether we want to be connected or not, whether we are preoccupied with our personal, community or national narratives or not. That is the narrative of our changing climate and the resulting threat to the continuity of our world civilization. The climate talks in Paris are but one expression of this new reality.

Even people who oppose doing anything about climate change are forced to talk about it. Even people who somehow have convinced themselves that climate change is not happening and oddly, in the same breath, claim that humans have nothing to do with this thing that is not happening--even those people confirm by their very framing of the issue that they are firmly situated inside this narrative.

Genetically engineered salmon: What could possibly go wrong?

As U.S. regulators cleared genetically engineered salmon for sale in the United States last week, they opened the door to what many scientists already feel is inevitable: The escape and reproduction of GE salmon in the wild and the possible destruction of competing wild species.

Under the U.S. Food and Drug Administration-approved application, the company behind the so-called AquAdvantage Salmon, Aqua Bounty, can only raise such salmon in land-based tanks with "multiple and redundant levels of physical barriers to prevent eggs and fish from escaping." These barriers are described in detail and suggest that it will be very difficult for any eggs or fish to escape into waterways.

The FDA said it considered four interrelated questions about confinement of the fish:

1. What is the likelihood that AquAdvantage Salmon will escape the conditions of confinement?
2. What is the likelihood that AquAdvantage Salmon will survive and disperse if they escape the conditions of confinement?
3. What is the likelihood that AquAdvantage Salmon will reproduce and establish if they escape the conditions of confinement?
4. What are the likely consequences to, or effects on, the environment of the United States should AquAdvantage Salmon escape the conditions of confinement?
   

Syria, climate change and the horror in Paris

As the world mourns those who died in Paris last week in a killing spree for which the Islamic State in Iraq and Syria (ISIS) has claimed responsibility, reporters and commentators have been discussing the motivations behind the attacks. I'm not sure that any so far has considered whether one can draw a straight line from a severe drought in Syria to these mass killings. My own answer is that if the line is there--and I think it is--then it has taken many twists and turns before arriving in Paris.

Even so, it might be worthwhile for those who will soon be gathering in this bereaved city in order to negotiate a new worldwide climate treaty to understand any such connection. For in the background behind these events, there is a Syria starved of water almost surely because of climate change.

A study released earlier this year suggested that the first link in the causal chain that led to the current conflict in Syria was a severe drought lasting from 2006 through 2009, a drought that yielded some of the strongest evidence yet for the link between climate change and increasingly extreme droughts.

Getting it wrong on recycling

Let's see what those disparaging America's rate of recycling as "too high" either get completely wrong or fail to understand. You can read recent commentary suggesting that the recycling rate is too high here, here and here.

The number one complaint is that it costs more to recycle some categories of waste than to put them into a landfill. What the critics fail to comprehend is that unlike a couple of generations ago when most landfills were owned and run by local governments, today most are run by profit-making enterprises such as Waste Management Inc. and Republic Services Inc. which haul some 80 percent of the nation's refuse. Those enterprises developed their large centralized landfills for the purpose of keeping down their disposal costs.

Since the private waste disposal industry has organized its infrastructure around cheap landfill disposal, it's no wonder that landfilling seems like the most cost-effective option. It follows that if we Americans had built a waste infrastructure with the goal of zero waste as Germany did, our infrastructure would naturally have delivered lower costs for recycling than it does.

Exxon: We knew climate change was a real threat (but we didn't want you to)

One of the big complaints about climate change deniers is that they don't fund any genuine primary scientific research into climate change.

We are used to deniers extracting out-of-context passages from existing legitimate climate research and pretending those passages support the denialist position. But wait...we now know, thanks to recent coverage by Inside Climate News and the Los Angeles Times, that at least one climate change denier did fund a great deal of legitimate climate research.

And, what did that research show? It showed that climate change is real, is caused in great measure by human activities and has the potential to disrupt human society significantly. To be fair, when Exxon Corp. (now Exxon Mobil Corp., the world's largest publicly traded oil company) engaged in this research in the 1970s and 1980s, it was genuinely trying to understand the relationship between carbon dioxide emissions and climate change. During that time Exxon scientists collaborated openly with prominent academic and government researchers and were even praised for their commitment and professionalism.

Public health, endocrine disruption and the precautionary principle

Several years ago over lunch a medical researcher I know told me that industrial chemicals were disrupting the human endocrine system leading to widespread obesity and diabetes. He said his research had revealed an important cause--the decline in the production of testosterone in both men and women (yes, women produce a little testosterone) due to this disruption. When this deficiency was reversed, patients experienced significant improvement in both obesity and diabetes.

That's not all. He explained that most people believe that poor diet and little exercise are the central cause of obesity and diabetes. No doubt poor diet and exercise are important contributing factors. But when the body's signaling system fails to indicate when it has had enough to eat, it's hard for most people to recognize that they need to stop eating. How many of us know people who say that they are hungry all the time? A normal human being with a normal endocrine system should not feel "hungry all the time."

The link between what has become a sweeping twin epidemic and man-made chemicals is getting wider notice these days. But the link between endocrine disruption, obesity and diabetes is still absent from popular medical accounts such as those found on WebMD for obesity or on official sites such as that of the World Health Organization.