It feels like News Year's Eve. The silly season is almost over and we will soon get some relief from the campaigns, pundits and intense advertising. For those of us living in swing states, the relief will be welcomed.
I don't have special insight as to who will be elected. I will leave political forecasting to others. But it doesn't matter much because some important energy projects will go forward no matter who is elected. Here are two.
Good Times Are Ahead in the Oil Patch
The U.S. and Canada will continue exploring and developing new sources of oil and natural gas. Delivering new products will be expensive, but it will provide new jobs, expanded infrastructure and provide new investment opportunities.
The primary driver behind these projects will not be government, but the energy markets and worldwide demand for petroleum products. For the first time in decades, the U.S. is beginning to export motor gasoline, diesel and jet fuels. Driving those exports is the newly formed price spreads between Brent and West Texas Intermediate oil markets. As long as that price spread continues, U.S. petroleum products will enjoy a competitive advantage worldwide.
This is one reason why the Keystone Pipeline will be built. This is an easy prediction to make because most of the pipeline is already built. The pipeline's first phase covers approximately 2,000 miles from Canada to Illinois and it went into commercial operations two years ago.
The second phase from Nebraska to Oklahoma went online last year. The third phase from Oklahoma to Texas is part of the so-called "Keystone XL" pipeline and its construction started in August. The final phase will duplicate and expand part of the Phase 1 pipeline to provide additional capacity, and it will likely be built no matter who becomes president.
It's not just a single pipeline driving domestic oil markets. TransCanada (TRP) and Enbridge (ENB) have been quietly developing dozens of new pipelines throughout North America. Today, TransCanada lists 15 active pipeline projects, representing $22 billion of investment. Not to be outdone, Enbridge lists 20 separate pipeline development projects.
Change Is Ahead in the Power Markets
While many rules are subject to Federal Energy Regulatory Commission oversight, most of the changes in the power markets are being driven by regional and state policies, not necessarily the White House.
Driving the change are energy efficiency and demand-response projects. They have become the industry's silver bullets because policymakers have found they are effective in reducing the need for more transmission lines and power plants. Since fewer power plants are needed to respond to peak demands, less pollution is produced and the states win again. Going forward it appears that energy efficiency will become the prime tool for power grids to manage energy delivery.
While this may be good news for consumers and companies like EnerNOC (ENOC), it will provide huge opportunities for new businesses. In the next decade, expect a number of killer applications that will help consumers respond to market signals and manage phantom loads (unnecessary devices that constantly consume small amounts of electricity). There could be dozens more Steve Jobs and Bill Gates in the making, so hang on to your seatbelts.
The good news on the industry's high technology side could spell challenging times for independent power producers who were accustomed to meeting peak demand and harvesting peak prices. With power prices shaved, producers such as Exelon (EXC), Calpine (CPN), Dynegy (DYN) and NRG Energy (NRG) will likely see lower margins going forward.
As such, no matter who becomes president, the nuclear power industry will likely remain stuck in neutral, power production from steam coal will remain bounded and investment in high technology gas turbines will be limited to regulated states.
No president can achieve energy independence for the nation and nobody is trying. The U.S. will continue to rely on Canada and other friends to provide most of the nation's oil imports. Canada may also provide growing amounts of electric power. The markets, not the White House, drive many of the industry's investment decisions.
