Why make 8 predictions, you might ask? No big reason – it’s just the number of forecasts that I thought rose to the level of potential consequence required for inclusion in this piece as I was thinking it through and compiling it. It’s happenstance that I didn’t end up with 5 or 23 of the things, although 23 would have obviously made for a much longer, potentially tedious read.
So, better to go with 8. Here they are, in no particular order
The renewable energy sector will see a dramatic expansion in the United States during 2023 – This is probably the easiest prediction to make. The hundreds of billions of dollars in new subsidies and incentives contained in two federal bills, the Bipartisan Infrastructure Law (BIL) and Inflation Reduction Act (IRA) are already creating something of a feeding frenzy at the federal trough as startups and established companies alike line up to qualify their projects and innovations for a piece of the huge pie.
Those billions in subsidies will be multiplied in economic impact as private capital competes to get involved in helping to finance qualifying projects, which is how those laws are designed to work. The energy media will be filled with stories covering this dynamic for years to come. I’ve already published half a dozen such pieces myself. For better or worse, this will be the major growth area of the U.S. energy sector for years to come. It is baked into the national policy cake at this point.
U.S. electricity grids will become increasingly unstable as a result – By now, most credible sources are recognizing that the practice of piling up increasing levels of unpredictable intermittent generating capacity – wind and solar – into integrated grids without adequate investments in corresponding dispatchable thermal capacity is the major cause of rising levels of instability in American power grids.
The rapid expansion of wind and solar without any semblance of adequate battery back-up capacity and ongoing under-investment in thermal capacity will ensure that the jobs of grid managers will continue to grow much harder during 2023.
The oil and gas midstream sector will continue to be hampered by FERC – The Biden administration will maintain efforts to obstruct permitting of major new interstate pipeline projects needed to facilitate growth of natural gas production in major shale basins like the Marcellus and Haynesville plays. Such efforts are, after all, an integral piece of the overarching Biden energy plan.
This in turn will hamper growth of the U.S. LNG export industry at a time when more LNG cargoes are in high demand across Europe and Asia. These ongoing efforts by the Federal Energy Regulatory Commission (FERC) to obstruct new interstate pipeline infrastructure will continue to be the most destructive and damaging aspect of the Biden energy policy.
Europe’s energy crisis will evolve into an energy calamity in 2023 – Unfortunately, this outcome seems unavoidable unless a quick end to Russia’s war on Ukraine suddenly materializes. That outcome would at least enable Europe to renew its dependency on Russia for oil and natural gas resources.
While that’s a foolish dependency, it might seem more attractive to Europe’s leaders than the current situation that has the continent burning record amounts of coal and even wood for electricity, and paying extreme high prices for whatever LNG imports it is able to secure from the U.S. and other exporting nations.
Unfortunately, there seems little prospect that Russian President Vladimir Putin might relent and suddenly withdraw, the only apparent way a quick end to the conflict could come about. Thus, the energy crisis of 2022 seems destined to evolve into a full-fledged energy calamity during 2023.
Oil prices will hit $100 again in 2023 – That’s what S&P Global vice chairman Dan Yergin told CNBC during a recent interview, and I see no reason to argue with his projection. Yergin was referring to the base case for crude prices compiled in a recent S&P Global study, and it’s a prediction echoed by other firms who are in the business of making such price projections.
While Yergin said the study’s base case projected the Brent price to go as high as $121 when China fully reopens from COVID-19 restrictions, the average price for the year came in at $90 per barrel. Again, that seems like a reasonable assessment given all the potential factors at play, and would reflect a high anticipated degree of volatility in the markets, a year in which Yergin added we could also see the Brent price drop as low as $70 per barrel at some point.
The average U.S. price for a gallon of regular gas at the pump will hit $5 again – If Brent really does go as high as $121, that will mean a corresponding jump in gasoline and diesel prices at the pump during 2023. Should the crude price spike during the late spring, when U.S. refiners must make the switch from cheaper winter blends to more costly summer blends right as summer driving season starts to ramp up, then drivers can expect another summer of pain like the one they enjoyed during 2022.
It will be fun to see how President Biden responds to such a circumstance, given the already-depleted state of the U.S. Strategic Petroleum Reserve. Well, not ‘fun’ exactly, but interesting.
America’s Shale industry will happily stay in its new-found sweet spot – After a decade of debt-driven spending as it mounted the largest oil and gas drilling boom in half a century, the U.S. shale industry settled into a pretty sweet spot during 2022. Despite rising costs, investor demands for lower drilling budgets and a daily assault from the Biden administration, shale oil and gas drillers took advantage of strong commodity prices to increase overall domestic crude production by 620,000 barrels per day.
The easy prediction here is for the industry – which was the best-performing business sector in the U.S. stock markets during 2022 – to continue to strive to remain in this sweet spot in 2023. That would mean another year of strong, but not record production increases, like the 500,000 bopd rise projected recently by Enverus. After all, why mess up a good thing?
Saudi Arabia’s membership application will be approved by BRICS – At its 2023 Summit to be chaired by South Africa, the BRICS Alliance (Brazil, Russia, India, China and South Africa) will approve an application for membership from Saudi Arabia. Of all the possible energy-related events that could take place during 2023, this one would probably be the most consequential.
This move would make BRICS arguably the world’s most powerful economic and trade alliance, surpassing the G7. By adding Saudi Arabia, BRICS’s membership would include the world’s 2nd and 3rd-biggest economies (China and India, which surpassed Germany’s during 2022), South America’s largest economy (Brazil), Africa’s largest economy (South Africa) and the world’s 2nd and 3rd-biggest producers of oil (Saudi Arabia and Russia). The addition of Saudi Arabia to this already-powerful alliance would have profound geo-political ramifications in the global energy picture, which could even include an end of the era of the so-called “petro-dollar,” the long-term situation in which the U.S. dollar has served as the global currency for trades in oil and natural gas.
Bottom line: 2023 promises to become perhaps the most consequential year in the world of energy in modern times. Better buckle up for a wild ride.