Daily Management Review

Winners of the energy industry in 2016


12/27/2016


Oil prices have risen by almost half since the last year, and Russia and China keep rejoicing. However, other countries have much less reasons for celebration.



Jasper Morse
Jasper Morse
First place: United States

This year, American producers of oil and gas reached the first place thanks to victory of Donald Trump, the supporter of domestic production of fossil fuels and renewable energy sources. His choice of ministers for the Cabinet, particularly Rex Tillerson (CEO of ExxonMobil), Rick Perry (former governor of Texas) and Scott Pruitt (Attorney General of Oklahoma), clearly shows future growth of support for domestic energy.

In addition, OPEC and Russia are preparing to restrict oil production. Therefore, analytics expect that the world market will spare room for American companies, especially given the fact that in 2016 the United States finally lifted its 40-year ban on oil exports. It is not surprising that US energy companies, having suffered from open hostility on the part of Obama’s administration and having survived two years of low oil prices, feel optimistic about the future.

Second place: China

China popped up among the winners of the raw race after advantage of record low oil prices to replenish their strategic stocks of fuel. In addition, the country’s authorities have allowed semi-private refineries to buy oil not only through state contracts. As a result, the world’s oil producers are competing for the Chinese market now. Despite the high cost of transportation, Iran and Saudi Arabia this year lowered oil prices for Asian clients. Russia is also trying to lure Chinese buyers since it started to accept the yuan as a tool for calculations on oil contracts. Perhaps China will have to pay more in the next year, but the country managed to milk the situation.

Third place: Russia and Saudi Arabia

Both Russia, and Saudi Arabia can be called winners since they finally managed to negotiate a reduction in oil production after a year of intense negotiations. Most likely, this will limit the fall in prices in the next six months. However, the question remains whether large producers really wanted to get some benefit already in 2016, or whether they are interested in some more long-term goals? 

Losers: Venezuela, Europe and Iraq

Indeed, Venezuela suffered in 2016. Low oil prices hit the country so hard that even OPEC’s recent decision to limit production did not save the economy from hyperinflation.

Situation with energy in Europe has not improved much in 2016 as the old world is still dependent on Russian natural gas. At some point, it seemed to many that the Russian-Turkish confrontation could lead to cancellation of construction of new pipeline "Turkish Stream", which should even increase supply of Russian natural gas to Europe. In this case, Europe could have a chance to put an end to dependence on the Russian energy sector through construction of a shorter pipeline in Azerbaijan. However, Russia and Turkey have settled their differences, and construction of the pipeline starts next year. 

The Iraqi government is ending 2016 in a difficult situation since the country has failed to convince OPEC to release it from the obligation to reduce oil production. The Iraqi government directly controls only some of its oil fields: the rest are run by the Kurdistan Regional Government and international oil concessions.

Therefore, the Iraqi state oil company will have cut production on their own, or to persuade or even force international companies and Kurds to limit the production. This will worsen prospects for future foreign investment and exacerbate the already tense relations with the Kurds. Iraqi energy enters 2017 stuck between a rock and a hard place.

source: forbes.com






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