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OPEC intrigue and rising gasoline prices will ensure 2018 isn’t boring

An important year in the energy sector lies ahead, with pipeline disputes, OPEC trying to keep a grip on oil prices and a lot of U.S. natural gas about to flood the market. While many stories will be unfolding in the coming months, here are five that are sure to be making headlines.

Fuel prices

Consumers can expect to pay more to fill up in 2018, according to Dan McTeague, senior petroleum analyst at GasBuddy.com.

McTeague anticipates gasoline prices will rise in the second half of the year as the U.S. economy strengthens and demand spikes. It’s likely, he says, Canadians will see, on average, about a five-cent-per-litre increase in 2018 versus averages in 2017.

“The whole issue of demand in the United States continues to drive prices up for Canadians, whether we like it or not,” he says. “We are price takers, not price makers.” 

A strengthening U.S. dollar and provincial carbon taxes may also add to the pump price.

Pipelines

Don’t expect an end to the pipeline drama as three major energy infrastructure projects remain in the spotlight in 2018: Trans Mountain, Keystone XL and Line 3.

Pipeline supporters, including Alberta’s NDP government, believe the multibillion-dollar projects are needed to ease a transportation squeeze resulting from growing production and limited shipping options. It’s one factor in why Canadian heavy oil sells at a discount to U.S. crude. New pipe would help.

TransCanada Keystone Decision 20171120

Pipelines will continue to be a lightning rod for protesters in 2018. (Nati Harnik/Canadian Press)

But opponents — whether they are jurisdictions, environmentalists or indigenous groups — remain determined to stop the pipelines. Their concerns are often both intensely local, like the direct impact on the landscape, and also part of the broader climate change issue.

Despite controversy, observers expect progress on Line 3 and Trans Mountain in the coming year. TransCanada expects to secure final federal U.S. permits for Keystone XL in early 2018.

Meanwhile, Canadian natural gas producers will be watching what happens next year when new pipelines start to move a lot more Appalachian gas out of Pennsylvania, West Virginia and Ohio and into the continental market.

“So it’s just a question as to how quickly some of that gas will come on, and what it will do to gas prices,” said Samir Kayande, director at industry research firm RS Energy Group in Calgary.

“It is just a tremendous success story from a productivity standpoint — and it’s frankly a disaster from a gas market standpoint, because it’s a lot of cheap gas that’s hitting the market,” he said. 

OPEC

OPEC and its non-OPEC allies, including Russia, surprised observers last year when they agreed to oil production cuts — and then stuck to them. With time running out on the pact, they agreed in the fall to maintain the cuts for all of 2018.

AUSTRIA OPEC

OPEC agreed to extend production cuts through 2018, but the cartel will evaluate market conditions at its June 2018 meeting. (Akos Stiller/Bloomberg)

The agreement is aimed drawing down the surplus oil inventories that have dampened crude prices.

“We have seen very good compliance numbers from the OPEC members as well as Russia,” said Dinara Millington, vice-president of research at the Canadian Energy Research Institute. “Whether that will hold or not remains to be seen.”

The cartel will reassess target production levels according to market conditions at their June 2018 meeting. In the meantime, OPEC and others will be watching to see if their efforts will be undermined by oil production increases from U.S. shale.

U.S. shale

What will U.S. shale producers do in 2018? The answer is critical, and even the most informed prognosticators at OPEC and the International Energy Agency (IEA) can’t agree on what will happen.

USA-SHALE/PERMIAN

One of the big questions in 2018 is how much shale oil will the U.S. produce. (Ernest Scheyder/Reuters)

Prolific shale production has reshaped the energy landscape in recent years. It’s also a vital component of U.S. President Donald Trump’s “America First” energy plan, with the potential to turn the world’s largest oil-consuming nation into a net exporter of oil by the middle of the next decade.

But the more pressing issue is whether there’s a big wave of shale production coming next year.

OPEC doesn’t think it will be big enough to harm the cartel’s efforts to erase the oil glut. The IEA, meanwhile, thinks U.S. crude production will be strong and keep the overhang in place.  

“The big macro question in this industry right now, on the liquids side, is which one of those is the right one,” said Ian Nieboer, also of RS Energy Group. “Both can’t be [right].”

Renewable energy  

No discussion about energy in 2018 can ignore the role of renewables.

solar panels

Experts expect more advances in solar panel development in 2018. (Robert Jones/CBC)

“This is a sector that’s growing faster than any of the other energy sectors out there,” says Warren Mabee, Canada research chair in renewable energy development and implementation at Queen`s University in Kingston, Ont.

“It’s going to continue moving forward.”

Decisions made this year will ring into 2018, including fallout from B.C.’s decision to proceed with the Site C hydroelectric dam, and Alberta’s aggressive plan to build 600 megawatts of new wind generation by 2019.

But Mabee is also looking for 2018 to provide key advances in solar panel development as the industry inches closer to grid parity — the point at which it might be cheaper for people to generate electrons on their roof than to buy electrons from a utility.

“It might not happen next year, but we’re moving closer and closer,” he said. “That’s going to be a hugely disruptive moment in the Canadian power industry.” 

CBC | Business News