SIEW 2015: SIEW VIEWS #1

As a result of supply-driven dynamics, the oil price is likely to become increasingly volatile, reflecting a snakes and ladder motion. An appreciating US dollar, record high US inventory levels and robust US shale production, continue to put downward pressure on the front of the curve; but, there are reasons to expect a price rally. 

The impact of US monetary policy should not be discounted. The Federal Reserves’ anticipated rise in interest rates will likely squeeze out already pressured shale players and tighten domestic supply. Moreover, by the closing months of 2015, the effects of widespread global CAPEX cuts should begin to be reflected in oil prices.  In the midst of geopolitical flashpoints around the world, the impact of geopolitical disruptions cannot be underestimated too.

Product prices are likely to end up higher, relative to crude, due to low-cost feedstocks for refiners. With Asia Pacific’s rising domestic consumption levels and appetite for consumer-goods, demand for light-end products and petrochemicals will remain strong, lifting price forecasts.

Perhaps the key question for energy markets in 2015 is how the oil markets will balance. 

Last year's rapid rise in US crude production, coupled with anemic demand, left prices tumbling by year-end. 

This year we have seen a decline in the rig count in the US, but as yet no clear change to production levels, which if anything look higher. Neither has production fallen in the Middle East. 

If neither the US nor Middle East will swing, how will the market balance? The demand side would be an obvious solution, except that governments in key demand growth locations have been taking advantage of lower prices to cut subsidies, thereby muting the effect of price on downstream demand. 

Ultimately market prices will find a solution, but for now it is unclear where that is.

Amidst tightening environmental policies, clean energy options such as solar, wind and geothermal – in lieu of carbon-based fuels – will eventually represent a large share of global energy needs. This is further driven by enterprises keen to enhance operational efficiencies while reducing environmental footprints. However alternative energy sources come with their own set of dependencies (including time, weather). To efficiently utilize energy generation and storage, enterprises will therefore need to leverage on intelligent systems.

This is possible using an Internet-of-Things-based approach as the basis for intelligent energy management solutions. The availability and flexibility profiles of energy sources can be optimally matched to the demand profiles of individual consumers, right down to an appliance level in a Smart Home. As such, it is possible for businesses to cost-effectively plan, control and monitor their energy supply, consumption and storage with minimal infrastructural changes. This not only creates practical and productive business models, but also encourages a decentralized industry better poised to adapt to changes around energy availability and efficiency.