It isn’t news to anyone that prediction is difficult, especially when it’s the future (as a great man once said). Uncertainty and unpredictability are just a part of the job of tracking and predicting the future supply and demand of energy. That being the case, when energy analysts say that the current level of uncertainty is particularly high, it might be easy to dismiss it as a “dog bites man” story. It isn’t. While every changing landscape through the years has felt unique and presented its own challenges, the outlook for the next few decades portends a fundamental change in the source of energy, as well as the cost and the question of whether these different energy systems – from coal to solar to wind to nuclear to biofuels to hydropower – can coexist.
Al Salazar, who is a member of the intelligence team at Enverus, has been watching the industry for more than two decades and said the scope of that uncertainty is greater than ever because of what he calls “the highly anticipated evolution of energy.”
And largely for one reason: “There are ambitions to increasingly adopt renewable generation, at the expense of natural gas and coal,” he said.
Salazar, who helps set the company’s forecasting, hedging and corporate strategy, said that prominent forecasting agencies like the U.S. Energy Information Administration, along with independent system operators, currently believe there will be a 6-9 billion-cubic-feet-per-day fall in gas-fired generation by 2030 due to renewable adoption.
In contrast – and in keeping with the aforementioned uncertainty – Enverus predicts that gas-fired generation will remain largely flat to the end of this decade.
Whoever is correct, the competition between natural gas and renewables is expected to increase in intensity, and this skirmish is not just happening in America.
“This arm-wrestle between gas-fired generation and renewables is not only a U.S. story, but an international one as well,” said Salazar.
He said the battlefield will spread.
“This competition will easily spill into the next decade and beyond. LNG (liquified natural gas) markets beware – this competition has a direct impact on global LNG trade,” he said.
A New Demand Factor
Salazar stresses that the need for grid reliability will have an undeniable impact in the competition to serve the power load.
“This likely means a more durable future for natural gas in the power generation sector than those bullish on the energy transition would like to admit,” he said.
Driving the source of this great uncertainty will be the changes in demand.
There will still be plenty of pie left to go around.
“However, gas and power bulls have a new darling to woo, that being data centers,” he said.
Today the range of estimates for gas equivalent demand required by U.S. data centers range between 2 billion cubic feet per day to 12 – roughly equivalent to U.S. residential demand.
“Ultimately, mega-infrastructure constraints (transmission/grid technology) appear to be the constraining variable for what appears to be an insatiable need for computing power and electricity from artificial intelligence machines,” Salazar explained.
Supply Unknowns
While demand uncertainty is on the minds of many when it comes to natural gas, it is the supply unknowns, he said, “that keep oil forecasters up at night.”
Oil demand is unlikely to peak before 2030, as the tie between GDP and oil demand growth looks reinvigorated and the electrification of the light duty vehicle feels uneven (strong in China and EU, weak in North America). He forecasts 1 million barrels of oil per day of annual demand continuing, albeit with significant changes in regional and oil product dispersion.
“The year 2030 is a mere five and half years away and bearish oil demand scenarios are running out of time to course correct and meet unlikely end-targets,” said Salazar.
He believes that supply uncertainties will keep prices high into the next decade, as it becomes a headwind for demand.
These uncertainties include:
- U.S. oil supply growth, which has played a critical role in serving global demand growth over the past decade: He cites Permian supply degradation, industry consolidation and rising costs. “This dynamic is about to change in the back half of this decade and into the next,” he said.
- OPEC’s ability to maintain global oil market order, as it has sufficient spare capacity: “They have stated their intent to take the cyclicality out of oil markets,” said Salazar. With this control, price levels, he believes, between $85-105 per barrel Brent seems most probable. Outside of OPEC, he cites the instability in U.S., Iranian, Venezuelan, Libyan and Russian markets and a lack of capital in Canada as adding to the uncertainty.
The Policy Wild Card
All of these topics – gas, crude, alternatives – will be subject to domestic and international politics.
“With a focus on the U.S., politics and its corresponding energy policy is a source of great uncertainty,” said Salazar.
The divide between Republican and Democrat goals appears wider than ever.
“An energy transition in desperate need of supportive policy could have vastly different objectives and outcomes depending on which party retains power in the second half of this decade and into the next,” said Salazar.
For environmentalists, he said, the most disappointing dynamic is the war over climate change. He said the Conference of the Parties (COP) – the United Nations Framework Convention on Climate Change – is not legally binding.
“A COP that is not legally binding is an ineffective COP. Progress is being made, but it seems insufficient to meet climate goals,” said Salazar.
And for energy analysts attempting to predict the future, that lack of legally-binding policy makes a difficult job even more so.
Growing Uncertainty
Predicting what the energy landscape will look like decades from now, by its very nature, is an imprecise science. Looking back over the past 10 years, Salazar said experts sometimes not only missed the boat, they missed all the boats.
“The United States Energy Information Administration in its 2014 outlook underestimated total U.S. liquids demand and also overestimated U.S. liquids production. in 2024. This is significant considering the pandemic impact on demand in 2020. Also, fuel economy standards don’t appear to be having the desired impact that legislation would suggest,” he said.
OPEC’s war on shale in 2015 was unpredictable as well, he added.
What concerns Salazar is what we don’t know now may be greater than what we didn’t know then.
“Overall, the uncertainty 10 years ago appears to be less significant compared to today,” he said.
Salazar’s colleague, Enverus President Manuj Nikhanj, will expand on these and other insights at this month’s Unconventional Resources Technology Conference in Houston during the “U.S. Energy Outlook” luncheon.