Take Me to the Other Side - Oil, Natural Gas and NGLs in Post-COVID, 2021-25 Markets

In an energy market filled with incalculable uncertainty, it is no surprise that most of the focus is on the short term: production shut-ins, collapsing demand, refinery unit shutdowns, ballooning storage inventories and continually weakening prices. But even in the face of such dire circumstances in the weeks just ahead, there remains a cautious optimism — relatively speaking — for the resumption of some kind of new normal on the other side of COVID. You can see that expectation in the numbers, with the WTI May 2020 contract settling on Friday at $18.27/bbl, but the May 2021 contract up to $35.52/bbl. Granted, that May 2021 price would have been catastrophic if viewed in January 2020, but now it’s a bullish 95% increase over the front month.  It is that shift in perspective that underlies the fundamentals content that we developed for our two-day Spring 2020 Virtual School of Energy, held last week in the cloud: how things were viewed BEFORE the meltdown, and how things look AFTER — over the next five years. Did you miss the conference? Not to worry. The entire 14 hours of content are available online in our encore edition. It’s almost like being there! Today’s advertorial blog reviews some of the most important findings we covered at School of Energy and summarizes our overall virtual conference curriculum.

Are we starting to see the light at the end of the tunnel, or is it a head fake? Most states have imposed lockdown measures, shuttering businesses and restricting social contact, but the number of COVID cases and deaths continues to rise, albeit at a slower rate. Here in the Lone Star State, Gov. Greg Abbott is doing a limited reopening of state services and businesses starting this week. Are we ready for that? It is impossible to know whether we are taking two steps forward but will be forced to take one step back in a few weeks. But regardless of how the timing of the reopening plays out, most of us believe that the U.S. — and the rest of the world, for that matter — will be open for business at some point in the hopefully not too distant future, so that the second quarter of 2020 will turn out to be the worst of the pandemic. Let’s assume that’s the most likely scenario, if for no other reason than an extension of the lockdown for the rest of the year is a concept so dire that we would rather not contemplate the implications — not yet anyway.

So what does a post-COVID world look like? No doubt it will be different from the pre-COVID world, even if the virus is totally tamed. It is going to take a while for a lot of people to become comfortable being cramped in large crowds again. Packed sporting events, live concerts, cruise ships and political rallies will be back, but it will be a long time until they feel the same as they did before. Likewise, we’ll drive and fly again, but it remains to be seen how long it will take for those activities to get back to pre-COVID levels. So, bottom line, the demand for energy commodities is and will remain substantially lower than any forecast done before 2020. Since production ultimately must balance with demand, that means that we are headed toward a world where everything is lower: production, flows, demand, exports, prices. Everything. And that means that the need for infrastructure, both new projects that have been in the planning stage for months or years, and existing assets that have been online for years if not decades, are facing an entirely new reality of utilization, competition and, for many, financial viability.  

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