Just a few years back, there were many articles discussing “Peak Oil” and whether the world had already passed the peak. A typical headline was one in Fortune Magazine in 2008 with a headline predicting a dramatic increase in oil prices – “Here comes $500 oil.”
At the recent HIS CERA Week, it was reported that “Peak Oil” was already a distant thought for most presenters, and that much of the talk was about growth in natural gas and oil from unconventional shale resources in the U.S.
According to the U.S. Energy Information Administration (EIA), crude oil production in the U.S. exceeded an average seven million barrels per day (bbl/d) in November and December of 2012, the highest volume since December 1992.
The International Energy Agency (IEA) predicts that the United States will overtake Saudi Arabia and Russia to become the world’s leading oil producer by 2017.
The WSJ MarketBeat Blog notes we are only at the beginning. “U.S. tinkerers discovered a way to extract oil and gas from shale, the source rock for oil and gas that was previously deemed uneconomical. That has boosted U.S. production to levels not seen in two decades, and that’s only the beginning: shale recovery factors could improve, and vast shale formations in Argentina, China, Russia and other countries are yet to be tapped. If technology ever allows the industry to recover 70% of oil from conventional reservoirs and to double or triple the current recovery rate from unconventional resources, the world could almost quadruple the reserves of global liquids.”
In addition, Iraq passed a critical milestone last year by producing three million barrels a day of crude oil for the first time since before the Persian Gulf War, reaching a high of 3.4 million bbl/d in December. Given its access to vast reserves at low costs, Iraq could play a significant role in the growth of energy supply. Of course, in Iraq there is much geopolitical risk attached to supply.
Even with increased production, there was still not enough oil to meet demand in the beginning of 2013. The EIA estimates a 1.3 million bbl/d average draw-down in global oil stocks for January and February.
There are numerous uncertainties as we move forward including the rate of technology advancements, geopolitical risk in many energy rich nations, growth in demand as the world continues its economic recovery, etc. Perhaps the only certainty is continued volatility and the need for oil trading risk management software to manage the volatility.
As Jim Rogers, Chairman, President, and CEO of Duke Energy has been known to express in speeches, “Ben Franklin said there are two certainties in life: death and taxes. To that, I would add the price volatility of natural gas.”
The future of energy is going to be quite interesting!
Uncertainty looms large in the European Gas and Power markets. What could cause the next big shock? Are you confident you are prepared for the next crisis? Policy developments and structural changes, such as the Electricity Market Reform (EMR) initiative in the UK, may drive extreme price volatility and uncertainty.
Triple Point recently hosted a webinar on How to Survive and Thrive in Volatile European Gas and Power Markets. One of Baringa’s European Energy Market experts, Nick Tallantyre, shared the key issues driving volatility in the European Gas and Power Markets –– and how to protect against them. Triple Point’s Mark Earthey provided an in-depth overview of Triple Point’s European Gas and Power Solution.
It was a very interesting event full of valuable ideas on how to gain clarity in today’s uncertain world. Attendees learned:
- Key market implications arising from the structural and policy changes to the energy markets e.g. the Electricity Market Reform (EMR) programme in the UK
- What European market participants must do to prepare for growing global market connectivity
- Proven strategies to protect against market volatility
- How to optimize portfolios and improve trading operations
- How Commodity XL provides a real-time view of exposure, manages enterprise risk, and handles scheduling — all on an integrated platform
The 2,000 page Dodd-Frank Act is the US government’s response to the financial crisis. While it was signed into law well over a year ago, the finer points are still being negotiated, clarified by lawyers, and challenged by Wall Street players.
For energy and commodity firms operating in Europe, this is a cautionary tale – the European Union (EU) is introducing an alphabet soup of directives and legislation affecting the financial and commodity markets including the Regulation of Energy Market Integrity and Transparency (REMIT), the Market Abuse Directive (MAD), the second Market in Financial Instruments Directive (MiFID II), the European Market Infrastructure Regulation (EMIR), and the Capital Requirements Directive (CRD).
The EU’s objective is to have all legislation in force by the end of 2013. The exact provisions aren’t fully baked, but it’s clear that all companies trading over-the-counter derivatives will be impacted across the whole value chain from front office sales through to back office reporting and all points in between.
Not sure how to prepare your company for the impending regulatory avalanche? Mike Zadoroznyj, Triple Point’s Vice President, Treasury and Regulatory Compliance, has written an article for FX-MM magazine about what you need to do in order to ensure that your systems are compliant. Read it now