Turn the Page - Just Because It Worked, Doesn't Mean You Were Right

U.S. energy markets are coming to the end of their latest infrastructure cycle just as the reality of tight capital markets is sinking in. Permian crude oil and natural gas takeaway constraints are being relieved by new pipeline capacity. Long-delayed LNG terminals and NGL-consuming petrochemical plants are coming online. Essentially all growth in crude, gas and NGL production volumes is being exported to global markets that — so far, at least — have been absorbing the incremental supply. But there is a chill in the air. Besides the recent bump-up in crude prices tied to last weekend’s attack on Saudi oil facilities, commodity prices have remained stubbornly low. Easy access to capital is a thing of the past. No longer can private equity count on the build-it-and-flip asset investment model. Yup, it’s another inflection point in the Shale Revolution that we’ll start exploring today. All this has huge implications for energy flows, infrastructure utilization and price relationships across all of the energy commodities.

The high-tech space programs of Elon Musk, Jeff Bezos, and Sir Richard Branson may seem far removed from the down-to-earth business of producing and processing hydrocarbons. In fact, however, the multibillion-dollar efforts by SpaceX, Blue Origin, and Virgin Galactic to normalize space travel — and maybe even put the first men and women on Mars! — depend at least in part on some pretty basic oil and gas products, including regular jet fuel, highly refined kerosene, and LNG. Oh, and hydrogen too — or, more specifically, the liquid form of the fuel that has recently caught the attention of a number of old-school energy companies. In today’s blog, we look at what’s propelling the latest generation of space vehicles.

After a decade in which unprecedented upstream production growth triggered massive investment in infrastructure to get crude oil, natural gas and NGLs to market, 2020 is a major inflection point for the U.S. midstream industry. The good news is that after peaking at a whopping $37 billion in 2019, midstream capital expenditures are forecast to steeply decline over the next few years as the lion’s share of the infrastructure needed to gather, transport, process, and store current and expected hydrocarbon volumes has already been built or is nearing completion. And, despite continued cutbacks in capex by exploration and production companies, output is still forecast to rise in 2020, which should boost earnings growth for the midstream sector. But all midstream companies aren’t alike, and the prospects for individual entities vary widely because of the specific basins and hubs where they’ve decided to build, acquire, expand or divest. Today, we analyze the headwinds and tailwinds these companies will experience, and how their decisions over the past few years will help determine their prospects.