Energy Outlook for the U.S. in 2010

As 2009 comes to an end, it is worth spending some time considering how the energy landscape of the United States might change in 2010. If a theme were to be selected to convey the general tempo of events and developments likely next year, "stabilisation" would perhaps be among the least controversial to choose: stability firstly because the United States is beginning to see growth in certain sectors of the economy, after an unquestionably challenging 2008, and secondly because, under the stewardship of a new president, some sense of direction is finally apparent in the country’s energy policy.

What a Difference a Year Makes

Indeed, 2010 will mark the first anniversary of President Barack Obama’s time in office. Already, the difference in energy emphasis between his administration and that of his predecessor, George W. Bush, could not be starker. Obama has given the environment primacy of place in calculations of energy development previously dependent almost exclusively on economic considerations. Although he has expressed support, for example, for new offshore drilling in the Outer Continental Shelf (OCS), he has made it clear that development would only be allowed with the appropriate regulatory structures in place, and with firms themselves committing to higher environmental standards. He has thrown his support behind efforts to reduce U.S. greenhouse gas (GHG) emissions, even pledging reductions of around 17% below 2005 levels by 2020 at the recent United Nations climate change talks in Copenhagen, Denmark. Moreover, Obama himself has not been alone in supporting the principle of reductions, with both houses of Congress still debating the issue.

On the subject of Congressional carbon emission reduction targets, it had been hoped that lawmakers would have a bill ready for signing by the president before his attendance at Copenhagen, but sadly this was not to be. While Congress continues to debate the exact mechanism for reductions, as well as targets, the issue becomes more complicated going into next year as 2010 is a Congressional election year. As the climate, not to mention reduction plans, are easy political targets, the stage is set for horse-trading and protracted negotiations as legislators—both incumbents and hopefuls—play the populist election game.

In terms of specific areas to watch out for, it seems clear that unconventional gas will continue to attract significant attention. If the economy picks up further in 2010, natural gas inventories, which have been at near bursting point, should deflate somewhat as industrial activity picks up. If gas prices rise, this will send a signal to producers to reinvest in drilling and production, marking, if not the beginning of a new boom, then at least a floor from which the industry can pick itself up. Given the very different gas supply picture from just a few years ago, when the expectation had been of supply tightness, the new reality of carbon constraints may make gas more appealing for relatively cheap and baseload power generation, at the expense of coal.

Elsewhere, we are likely to see some exploration work in the Chukchi Sea offshore northern Alaska during 2010 as Anglo-Dutch supermajor Shell secures the air permits it needs to begin work. Meanwhile, interest in the deepwater areas of the Gulf of Mexico will continue, attracted by the region’s potential for new discoveries. The year 2010 will, however, also bring with it a new hurricane season. While 2008 was fairly busy in terms of inclement weather, 2009 by most accounts can be said to have been quiet. Whether 2010 will bring with it plenty of bad weather will be a question for the forecasters at the National Hurricane Centre (NHC). As ever, the industry will be watching developments here with eagle eyes.

The year 2010 will also see TransCanada holding an open season to determine producer interest in committing possible natural gas production from the otherwise stranded and remote fields on Alaska’s North Slope (ANS) to a pipeline it is proposing to build in conjunction with ExxonMobil. TransCanada won a state licence to pursue the project via the Alaska Gasline Inducement Act (AGIA) framework in 2008 and has been granted access to US$500 million in state funds to help with the costs of acquiring a federal licence. The company’s open season is expected to take place over the middle months of 2010. Assuming the open season is successful, TransCanada could submit a regulatory application as early as 2012 before reaching a final investment decision in 2014. Construction of the 4.5-bcf/d, 1,700-mile-long pipeline would then take around four years before potentially coming online by around 2018.

Downstream, if the economy picks up, we can expect to see higher gasoline (petrol) consumption. In combination with somewhat tighter supply due to both temporarily and permanently shuttered refineries in 2009, this may result in higher prices for refined fuels, and, depending on where oil prices go over the course of the year, potentially higher margins.

Outlook and Implications