2016 review

Looking backwards is a good place to start before you look forward. It helps to contextualise and understand the current situation, and perhaps get a better forecast this year! At the start of 2016, we made TEN predictions, of which we got about SIX right.

1. Oil prices would stabilise – RIGHT

At the start of 2016 we said that the “oil price will remain volatile over the next months but that it will stabilise and rise this year……and “that the price is likely to settle in and around $60 over the next 18 months”.  We may have not got the $60 price right although we were not far off, as a barrel of Brent crude oil finished the year at $56.85 with the negative trend of the last two years broken thanks to an OPEC agreement to reduce production.

2. Big name bankruptcies in U.S. shale – WRONG

Big bankruptcies in U.S. shale included: Linn Energy (filed for Chapter 11 May 2016, $8 billion debt), SandRidge Energy (May 2016, $4 billion) and Sabine Oil and Gas (Jan 2016, $3 billion). But there were no huge names (mentioning no names, but like, say Chesapeake). Last year, shale producers benefited from rising gas prices in the U.S., while the biggest producers benefited from the strength and depth of U.S. capital markets. Notwithstanding the absence of very big names, 2016 did see some 70 North American oil and gas producers file for bankruptcy, as of December 14, according to the law firm Haynes & Boone (double the 35 filings in 2015). These bankruptcies represented some $56.8 billion in cumulative secured and unsecured debt ($17.4 billion in 2015).

3. Coal power comes under yet more pressure in Europe – HALF-RIGHT

We got this half-right. On the partly wrong side, production cuts in China caused a massive increase in global coal prices which has helped ailing coal producers across the world. On the half-right side, in Europe, we forecast increasing pressure on coal from investors, and said Germany, Netherlands and other European countries may follow Britain’s 2025 coal power phase-out deadline. Regarding investors, Credit Agricole and Societe Generale announced they would no longer finance coal power projects, and the FT reported a “50-fold increase over the past year in the value of funds that have pledged to shift away from coal, oil or gas.” Regarding national phase-outs, Germany fell short of a coal phase-out date in its Climate Action Plan 2050, while the Netherlands kicked a decision forward to 2017 but Portugal and Finland looked to phase out coal in the 2020s.

4. No silver lining for the over-supplied Asian LNG market – RIGHT

We were of the opinion that LNG prices across the world would fall as increasing amounts of U.S and Australian cargos hit the market. This is what exactly happened in Europe and Japan with LNG import prices down on last year.

5. European wholesale power prices to fall further – RIGHT

We got this partly right. In the first quarter European wholesale prices hit ten year lows below €30/MWh as we had expected, but rising coal and oil prices pushed up wholesale prices in the second half of the year to finish the year around €30/MWh.

6. An M&A surge across energy – RIGHT

We got this right. There were no headline grabbing mega mergers but there were lots of deals from GE’s acquisition of Baker Hughes, which makes them the no.2 global oilfield services company, to Canadian pipeline giant Enbridge’s decision to acquire U.S pipeline company Spectra Energy. That said, the most interesting deals took place in the shale Permian basis in Texas where some $25bn was spent on acquisitions. In Europe, we had considerable activity, including the listing of spin-offs from European utilities E.ON and RWE in Uniper and Innogy respectively. In renewables we also a lot of activity particularly in wind with Siemens take-over of Gamesa and Nordex’s merger with Acciona.

7. A record year for global renewable energy installations – RIGHT

We were spot on that 2016 was a record year for global installations. We had estimated 120GW of new solar and wind across the world but in fact the number could be as high as 130 GW thanks to massive growth in solar which could be as high as 70GW of new installations, up from 54GW in 2015.

8. Batteries and hybrid power solutions will have a big year, with the first big IPO – WRONG

Batteries had a big year as we had expected but there was no big IPO, and in fact there was a failed one in the form of Germany’s Varta Microbattery. That said global installations of grid connected storage double to over 750MW of new installations and we saw massive interest from utilities, energy companies, automobile manufactures and industrial companies. The biggest deal of the deal was Sony’s battery business which was sold to the Japanese electronics group Murata.

9. More climate volatility: higher food prices – WRONG

We also predicted that “2016 will probably be a record warm year for the planet”, as the effects of a strong El Nino linger. We got this spot on. However, there was no return to higher food prices, with the FAO Food Price Index falling for the fifth consecutive year in 2016.

10. Growing commitment to energy efficiency: a step-change for UK smart meters – WRONG

We forecast a massive jump in long-delayed smart meter deployments in Britain in 2016, to make good on a national commitment to achieve rollout across all 27 million households by 2020. Specifically, we expected installations of electric smart meters to  pass 3 million by Sept 2016, from 1 million in Sept 2015. In fact, that number reached just 2.4 million. But we can comfort ourselves with the “massive jump” prediction, with quarter/quarter deployments of electric smart meters rising 30% in Q3 last year.

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