January 2020, Vol. 247, No. 1


2020 North American Outlook: Industry Adopting ‘Wait And See’ Philosophy

By Richard Nemec, Contributing Editor     

If North America was one giant oil and natural gas basin with one spigot, the flow handle would probably be set at only half-open in 2020, a year when global events will determine if, and which direction, the handle moves. 

This is happening in the context of international and domestic assessments that anticipate the United States accounting for large amounts of global oil and gas production growth over the next two decades. The International Energy Agency (IEA) in November 2019 calculated that U.S. oil production is likely to account for about 85% of added global output and up to 30% of the added gas output between now and 2030.

IEA said the United States will expand its position as an oil and gas exporter over the forecast period to 2040, while its domestic production should overtake total output from Russia before 2025. This cannot be overlooked within a broader geopolitical context that sees continuing deterioration and uncertainty surrounding U.S.-Russian relations at a time of another national election cycle in the United States and continuing suspicions about possible Russian interference.

“This rise of U.S. output, together with increases from Norway and Brazil, mean that Organization of Petroleum Exporting Countries’ share of global production declines to 36% by 2025, a level not seen since 1990,” the IEA opined in November. 

That World Energy Outlook (WEO) 2019 noted that there has been a ten-fold increase in the U.S. tight oil output during the past decade, providing positive projections for the new upcoming decade. Currently, tight oil accounts for more than 6 MMbpd of U.S. production, compared to 600,000 bpd in 2010. That is a global-leading pace equaled only by Saudi Arabia in the late-1960s.

For the purpose of characterizing 2020 potential or the entire next 10 years, estimated resource bases in the major U.S. basins have swollen by 35% since similar estimates were made by IEA in its WOE 2018 report. IEA analysts note the real test will be how long current production levels can be sustained as opposed to how high their peak estimates become. In terms of prices long term, IEA forecasts that if the high production levels are maintained, longer term prices are likely to be at least 10% lower overall 20 years from now.

In Norway, the Oslo-based international research and business consultant, Rystad Energy late in 2019 pegged the United States to achieve clear energy independence in 2020, probably by late winter/early spring. “Going forward, the United States will be energy independent on a monthly basis, and by 2030 total primary energy production will outpace primary energy demand by about 30%,” according to Rystad’s Sindre Knutsson, a vice president of the firm’s gas market team, whose latest report is expecting very large U.S. oil and gas production increases over the next decade.

In a speech to American business leaders around the same time in late November, U.S. Energy Secretary Rick Perry echoed this projection, telling his U.S. Chamber of Commerce audience that “the United States is now producing its energy more abundantly and more affordably, more cleanly and more efficiently, and from a wider range of energy sources than anyone was predicting just a few short years ago. [As a result,] we are now standing right at the doorstep of energy independence.” Perry added that by 2020, “we’ll become a net energy exporter as well, and we are poised to export the technology that unleased our bounty in the first place.”

Rystad has calculated that total U.S. oil and gas production in 2030 will exceed primary energy demand nationwide by 30%. Noting that the signs are already in place for Rystad, which is predicting the U.S. Energy Information Agency (EIA) may soon report that the United States was self-sufficient in primary energy for the 12-month period of October 2018 through September 2019. 

While it was not necessarily bullish about the immediate future of 2020, Rystad is projecting quantum leaps in market and energy values in the United States by 2030. The 2018 $62 billion petroleum trade deficit will become a $340 billion trade surplus for the United States in 2030, and energy production overall will reach 138 quadrillion Btu’s that year, compared to the 95 quads reached in 2018.

Within the North American context, interplay between the United States, Canada and Mexico is likely to become more complex and carry more economic consequences on how various issues, such as the new North American Free Trade Agreement (NAFTA) rolls out as the United States-Mexico-Canada Agreement (USMCA), which headed into 2020 as ratified by only one nation (Mexico). Impeachment, immigration, and the presidential election machinations were drowning out any meaningful work in Congress to ratify the new agreement.

The experts in both Canada and Mexico question how much, if any, impact the completed USMCA will have on the energy sector in their two nations. The major impacts, they say will come in the macro-economic sector. “Moderately impactful” at least for the energy sector is how they see it. It ratifies what is already known – energy flows will continue and grow in some cases.

In 2020, an evolving integration of the North American energy market as a whole is likely to become more evident, according to Chris Bloomer, president of the Canadian Energy Pipeline Association (CEPA), who thinks Canada by now has changed the perception of its industry to one that is seen as both environmentally responsible and cost-effective. “This integration will become clearer, especially on the natural gas side,” Bloomer said. “Certainly, Mexico sees gas as a core building block for its economy. From the North American aspect overall, it will be interesting to see how things unfold in the New Year.” 


Following third-quarter earnings reports in the fall, the tone of oil/gas industry analysts turned pessimistic for the most part, although some like RBN Energy LLC’s Nick Cacchione offered some silver linings to the dark and stormy projections for the New Year. Among the 47 exploration and production (E&P) companies RBN tracks closely, 40 reported 3Q2019 profits, despite decreases in operating profits and cash flow tied to falling commodity prices.

“Although producers generally cut back expenditures in line with lower cash flows, increases in drilling efficiency allowed production to keep growing,” Cacchione wrote on a daily RBN blog that drilled down to look at the financial health of the 47 E&Ps. Overall, the E&Ps experienced in the third quarter what Cacchione called a “double-barreled hit” consisting of falling oil/gas prices and substantially rising impairment charges on the balance sheets. RBN’s 47 E&Ps collectively reported pretax profits in the third quarter of 2019 of $6.1 billion ($5.06/boe), which were the lowest quarterly results since 2017.

Nationally, RBN sees U.S. oil and gas production continuing to grow, led by the large E&P group, but it also noted that the natural gas-weighted companies it follows reported their first collective quarterly loss since 2016 in the third quarter of 2019. Cacchione noted that the stumbling block was more than $1.2 billion in impairments among the companies. Among its peer group of 10 gas-focused E&Ps, RBN found six operators posting quarterly profits with Cabot Oil & Gas and Chesapeake Energy leading the way.

At year-end 2019, another RBN analyst, Housley Carr examined the prospects in 2020 for the U.S. midstream sector, interpreting an annual report from East Daley Capital’s 2020 outlook for the sector. 

Carr drew two “key conclusions” from the East Daley report: one is that the market is putting too much emphasis on decreasing global demand for hydrocarbon liquids, and the other being a projected slowdown in U.S. production, particularly in the flagship Permian Basin. East Daley sees the “likelihood of slowing economic growth and even recessions in parts of the world but rejects the suggestion that global demand for hydrocarbons has peaked,” Carr wrote in his analysis. 


Aside from East Daley’s rather thorough report, Carr offers his own thought that the macro analyses of the U.S. midstream is probably less important that micro economic analyses done by and on individual companies operating in the sector.

“Assessing these micro-level assets and the contributions they each make to a [midstream] company’s bottom line requires particularly deep analysis,” said Carr, who restricted his work to assessing the broader themes and analyses of East Daley Capital.

While there are some U.S. skeptics about the industry’s upcoming ability to continue to command large investments, observers to the north in Canada seem to see pots of gold in the lower 48 states, particularly in comparison to the parsimonious attitudes among would-be energy investors in the north. While Canadians see pricing and market access barriers in their energy-rich country, they can point to the billions of dollars flowing into the U.S. liquefied natural gas (LNG) export market as a situation they hope to create in the coming years. 

“In Canada it is really tough, we’ve gone through extended periods where the ability to access both oil and gas markets has been extremely difficult,” CEPA’s Bloomer said. “We need an LNG project [like the one under construction by Shell, et al.] to assure we have a robust business. We need to understand the role of natural gas in the economy.”

He is concerned about a lingering perception that Canada is a no-growth or low-growth place for oil and gas investment.  The nagging question for Bloomer and his associates is how Canada will attract the needed investment to grow the industry. “And the only way we’re going to grow it is with greater access to market, the LNG project and our ability to get three key pipeline projects built.

A key to success in 2020 is to continue progressing with the trio of pipeline projects, all of which are moving through processing but not at the pace their sponsors would like. Trans Mountain Pipeline to export oil and refined products from the West Coast of British Columbia, TransCanada’s long-struggling Keystone XL oil pipeline through the United States to the Gulf of Mexico coast, and Enbridge Energy Partners’ Line 3 project from Alberta to Superior, Wisc., via Minnesota.

“We expect to see major progress on getting those built and online,” Bloomer said. In 2020, that’s going to be “very important to the industry and the perception of the industry getting things done,” he adds. At the start of December, Enbridge started the Canadian portion of its Line 3 replacement, and Bloomer expects the project’s ongoing U.S. regulatory and legal challenges to be resolved in the New Year. “And, likewise, with Trans Mountain we expect to see very significant progress and a clear view of when all these projects will be operational,” he said.


As 2019 was wrapping up, gas production in Mexico was down for the most part as production by Petroleos Mexicanos (Pemex) and its partners averaged about 3.81 Bcf/d, down from 3.88 Bcf/d the same time in 2018. Analysts note that given Pemex’s own internal gas use for its operations, less than half of those recorded daily production figures were put in Mexico’s growing pipeline system, divided among northern, central and southern systems.

IEA in its year-end 2019 reporting noted that interconnections are a key need in Mexico. Pemex wants to increase that production to more than 5 Bcf/d by 2024 at the end of the current national administration of President Andres Manuel Lopez Obrador (AMLO).

Mexico presents a conundrum or paradox waiting to unfold. Within a large economy with its electricity and energy sectors growing briskly, the nation’s economy is in the midst of a pre-recession. While sliding economically, Mexico’s new national government faces economic and regulatory uncertainty lurking everywhere. “We’re looking at one or two years of wait-and-see,” a knowledgeable observer told P&GJ.

In the oil sector, Mexico’s main refinery’s output dropped by 40% in 2019, although a new $8 billion Dos Bocas facility now under construction promises to erase that deficit when it comes online in the mid- to late 2020s. Originally slated to be built by the private sector, AMLO belatedly ordered Pemex to do the job. It is all part of the nation’s goal of “energy sovereignty,” making up the current deficits from imports. “The outlook for Pemex production continues to be grim,” said Jeremy Martin, vice president for energy and sustainability at the LaJolla, Calif.-based Institute of the Americas (IOA) at the University of California, San Diego.

At the start of 2020, U.S. exports of gas to Mexico stood at 5 Bcf/d, and analysts like Jason Ferguson of RBN Energy LLC were predicting U.S. exports would reach 8 Bcf/d by 2025, speaking at a U.S.-Mexico gas forum in San Antonio in November.

The imports represent about 70% of Mexico’s national gas demand, and when Pemex’s gas use is factored out, the proportion jumps to 91%, according Mexican analysts speaking in San Antonio. The conclusion of a panel of analysts is that Pemex will not be able to satisfy Mexico’s gas needs in the years ahead, given the national oil/gas company’s lack of focus on gas production and AMLO’s distrust of the upstream private sector.

In the first year of AMLO who campaigned on a more socialist-like agenda, regulations and rules encouraging private energy investment are being “chipped away,” while interest in future investment is drying up, according to one long-term U.S. player in the Mexican energy markets. In the energy space, markets and programs are moving forward south of the U.S. border, but in the policy arena the new national administration is not supportive of large-scale, privately funded projects. AMLO looks to Pemex and the Comision Federal Electricidad (CFE) as the primary energy sector players.

The shift from former President Enrique Pena Nieto’s liberalized policies to the more rigid resistance to the energy private sector by AMLO has created a stark contrast in 12 months, according to IOA’s Martin, who said there continues to be opportunities across the board.

The changed approach was signaled early in AMLO’s first weeks in office when CFE general director Manuel Bartlett Díaz and the new president labeled the gas pipeline contract terms for the 2.6 Bcf/d Sur de Texas-Tuxpan line unfair and abusive, demanding renegotiation and threatening to bring the dispute to international arbitration.

San Diego-based Sempra Energy’s Mexican affiliate, Infraestructura Energética Nova (IEnova) and a unit of TransCanada developed the 42-inch diameter pipeline in a 50/50 partnership involving TC Energy Corp. CFE is the pipeline’s anchor customer which 

The bottom line from this example is there is “a bit of uncertainty because although we know the rules and incentives are still on the books [from Pena Nieto term], the regulations now are being slowly chipped away at,” Martin said. “While the companies have said they were satisfied with the renegotiated deals, more broadly you have to see what this bodes for the future. What’s next?” Generally, he paints a picture of 2020 in Mexico in which both costs and risks continue to go up significantly.

Major players have a lot at stake because they have put a lot of money in the ground in recent years in Mexico, and Martin calls them “committed to finding a way to deal with the uncertainty,” but he is not sure they are planning on investing much beyond 2020. Martin’s IOA specializes in investment and public policy analytics with an emphasis on building bridges between the public and private sectors in Latin America, which has often found the two areas at odds with one another.

“I think the whole region is going through a period of upheaval regarding notorious inequality in the markets,” Martin said. “It’s historical and it’s only gotten worse. We thought in Chile they were solving that question, but the average citizen doesn’t feel like he or she is getting ahead even as the country’s GNP goes up. Brazil is seeing the same dilemma.”


A forecast from Canada’s own producers stitched together in mid-2019 showed a “constrained” outlook for 2020 and perhaps for much of the coming decade. The Canadian Association of Petroleum Producers (CAPP) report notes current projections are toned down considerably compared to future projections just a few years ago. 

CAPP expects overall crude production in Canada to expand in coming years, but on a much more modest annual growth basis of less than 1.5%. The oil sector, in effect, is slated to be held back by a number of factors, including pipeline constraints, what CAPP calls a “lack of market diversity,” and inefficient regulations for which the re-elected Trudeau administration is assigned a lot of the blame.

As 2020 approached, CAPP CEO Tim McMillan frequently was telling whoever would listen that investment needs to return to the oil sector to drive growth, and unclogging pipeline networks and streamlining regulatory processes could help do that. McMillan said CAPP has been vociferous in articulating the industry’s continuing concerns about the challenges oil/gas face north of the U.S. border. Its current outlook for the future underscores these concerns and the economic baggage they carry for Canadians, McMillan said.

“Canadians are being left on the sidelines while global demand for oil and natural gas is rapidly growing,” McMillan notes as part of the CAPP mid-year report, 2019 Crude Oil Forecast, Markets and Transportation. “We are positioned to be a leading supplier of the most responsibly produced oil and natural gas on the planet, but other suppliers, with lesser environmental and social standards, are taking our market share.”  

The new year in Canada is a “transition year” and what CEPA’s Bloomer calls a “wait-and-see” year (not unlike Mexico) on how new national energy rules are clarified, on how major projects move forward, and how they get regulated. In 2020 there should be a parting of the clouds offering more clarity on a number of issues,” he said. “The government has changed the rules similar to the way the U.S. changed the landscape for energy, making sure there is value for growing the industry.” 

He points out that in the resource-rich province of Alberta there is a newly elected government that wants to follow the U.S. lead, and in Ottawa, the re-elected Trudeau government is “going to have to take this issue really seriously if they want to maintain their leadership position in a minority government.”

Bloomer said there is no question that Alberta’s new government is seeking to turnaround the image of Canada’s oil/gas industry throughout North America and the world. “They are streamlining things, reducing red tape, and planning to engage with the federal government on the basis that we have a massive resource base,” he said. “We’re one of the largest energy resources in the world, and one of the largest producers giving us massive oil and gas industries. On an environmental basis globally, we should be one of the first barrels that is consumed. That is what the Alberta government is refocusing the industry around;” 

Oil sands emissions have been reduced by 28%, he offers as an example.

In 2019, a major move by the Trudeau administration resulted in Canada’s Energy Reform Act (Bill C-69), whose implementation will be critical to industry developments in 2020. C-69 included the change of the National Energy Board (NEB) into the Canadian Energy Regulator (CER), which the industry was just beginning to get comfortable with at the start of the New Year. 

“CER has changed its governance model to make regulations clearer about the processes, and the passing of C-69 created the [national] impact assessment agency that influences how major projects will get proposed,” said Bloomer, adding that the transition from the NEB to the CER has been seamless, offering hope the new governance model will be effective. “With the new government there seems to be the attitude that they will get things right and provide clarity in the process, and certainly we look forward to working with the government to make sure that is the case.”

Impact assessment in this case is focused on the environment, but can cover economic impacts, too. The economic impact comes more into play under the determination of whether a major project is in Canada’s national interest, Bloomer stresses. “Hopefully, we will get to a point where industry feels we have a lot more clarity because we initially saw a lot of problems with the legislation and were very deliberate and proactive in recommending amendments; some were accepted and some weren’t, but it was basically an historical engagement on the bill to make changes to C-69. We got some of it, but not all of it, so we still need to work on the implementation.”


At year-end 2019, there were more sobering short-term statistics from the U.S. seven unconventional well basins. The signs were indications of a slowdown for 2020. EIA was predicting that the collective growth in the last month of 2019 would be less than 1%. That includes the production from the Permian, Bakken and Eagle Ford plays.

 At the same time, the Canadian Association of Oilwell Drilling Contractors estimated that drilling rigs in Canada in 2020 will drop by 9% to under 500. The association president called 2019 “another difficult year” among his member companies. And in Mexico, Pemex production continued to fall steadily into the New Year.

Industry leaders who participated in this article seemed to agree the level and interest in oil and gas among the financial community is expected to be tepid in 2020. CEPA’s Chris Bloomer in Alberta articulated a challenging environment for future projects in addition to major ones now beyond the financial investment decision (FID)-making stage.

Bloomer takes some solace in the fact that Canada LNG’s project by the start of 2020 was past its FID stage and under construction. “It is underway with a targeted start date of 2025 or 2026, so it’s going ahead and that is a positive, but it is still five or six years away, and in the energy business that is a couple of lifetimes,” he said. Good or bad, a new calendar year should offer some indications of what kinds of new lifetimes are in store for North American oil and natural gas operations.

Richard Nemec is a Los Angeles-based correspondent and regular P&GJ contributor. He can be reached at: rnemec@ca.rr.com.                                               

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