As we close out 2014, with crude oil down to under $53 per barrel and natural gas under $3, we wanted to briefly touch on the outlook for 2015 and beyond. The cure for low energy prices has ironically always been low energy prices. Producers spurn investments in developing new supply, while consumers of energy make investments to capture the benefits of lower input costs or increase usage of energy. On the supply front, producers have announced significant reductions in capital budgets for 2015. Since early November, we have seen announcements from 26 oil & gas producers in North America updating capital budgets for 2015.
Those companies represent approximately $40 billion in capital expenditures in 2014 and to date they have announced reductions for 2015 of more than 21% in aggregate. While we do not believe these cuts alone are enough to stem the tide of growth in 2015 (See December Upstream Outlook ), we do believe additional cuts are looming in the 1Q2015 that will further pressure the growth in supply of both natural gas and crude oil.
On the demand front, a multitude of new methanol plants, fertilizer, petrochemical plants, LNG export facilities, power plants, and pipelines to Mexico are expected to begin operation over the next 3 years boosting demand. The new petrochemical plants will also boost the demand for ethane, propane and butane helping to support natural gas liquids prices. The construction boom is well known and has been counted on for the last 4 years to be the savior for gas, but what about the American consumer?
A former colleague of mine sent me a photo this morning from her father’s garage. Temperatures here in Denver reached over night lows below -8⁰ F. This consumer of propane thus grabbed the propane heater and left it running all night to keep the tires warm.
Are other American’s responding to low energy prices? If they aren’t yet, I for one will bet they will be shortly and the economic ripple affects of that response will spur additional demand for infrastructure ultimately growing the demand for coal, natural gas, natural gas liquids, and crude oil.
