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As the year gets ready to end and another New Year is about to be ushered in, it’s common practice for many to not only make resolutions but to also reflect on the passing year.

The same can be said for global oil and gas markets. Just a little over a year ago, market watchers were still reeling from the November 28, 2014 disclosure that OPEC, led by its de facto leader Saudi Arabia, was not going to curb production to help stop falling oil prices. Brent oil fell more than $6 to a now mouth-watering $71.25 per barrel just after the OPEC announcement.

As 2015 broke upon oil markets, Saudi Arabia stood its ground in order to protect market share and also put enormous pressure on other oil producers, mostly US shale producers, who have much higher oil production break even points. The Saudis’ stubbornness if you will, even caused considerable consternation and both financial and political pain for members within the cartel. Just the mention of Venezuela pretty much sums up the agony for many OPEC members.

Nigeria’s Minister of State for Petroleum Resources and President of the OPEC Conference Emmanuel Ibe Kachikwu (L) and OPEC’s Secretary General Abdalla Salem El-Badri of Libya attend a news conference after a meeting of the Organization of the Petroleum Exporting Countries, OPEC, at OPEC headquarters in Vienna, Austria on December 4, 2015. The Organization of the Petroleum Exporting Countries has decided against cutting its oil output to lift prices, its president and Nigerian oil minister Emmanuel Ibe Kachikwu said following the meeting. AFP PHOTO / JOE KLAMAR / AFP / JOE KLAMAR /Getty Images

As 2015 gained steam, oil prices did not. They kept dropping, with the now all too familiar job loss disclosures from oil and gas companies as well as oil services companies. Oil majors have also not been immune to the pain. Most have also laid off workers and slashed capex in order to manage the bloodbath in oil markets. The most recent US-based companies to announce massive spending cuts are Chevron, the second largest US oil company after ExxonMobil and Houston-based ConocoPhillips, the world’s largest independent exploration and production company. Earlier this month, Chevron announced cost cuts of 24%, while ConocoPhillips announced cuts of 25% – both massive amounts in the billions of dollars.

And adding insult to injury, on December 4 OPEC, once again led by Saudi Arabia, failed to ring in any early holiday cheer, again refusing to make any production cuts, with the obvious intent of driving out low cost producers. Also, Russia (in attempts to fill depleted state coffers and to protect its own market share and battle for market supremacy with Saudi Arabia in Europe and Asia) has ramped up output to over 10 million barrels per day, highs not seen since the Soviet-era.

With oil prices dropping below the psychologically important $40 per barrel range recently for both global bench mark Brent and US-benchmark, NYMEX-traded West Texas Intermediate (WTI), prices are now hovering in the mid-$30s range, while those who had forecast oil to drop in the $20s-range don’t look so foolish anymore.

How will markets re-stabilize and reach equilibrium again is easy enough to answer – when the ongoing supply glut decreases and demand growth accelerates, including more demand growth again from China. The hard question to answer however and one that nobody has gotten right in a very long time is: When will prices find a floor and start to trend up again?

Pain the natural gas markets has been just as acute. Curtailed by warmer weather, gas prices in the US have dropped to their lowest level since 1999, while LNG prices in the Asia-Pacific region are also off by more than 60% since the start of February 2014, amid a LNG supply glut and weaker demand from Japan and South Korea, the top two global LNG importers, respectively.

Moreover, as more LNG supply enters the market next year from additional Australian LNG projects coming on-stream and when Cheniere Energy stats to export cargo from its Sabine Pass Terminal on the Gulf of Mexico in January, a new era of gas will be ushered in, not the golden era that the International Energy Agency (IEA) forecast just four years ago, but a prolonged and painfully unprecedented supply glut that will continue well into the mid 2020s.

Spot LNG prices in Asia will also likely fall to around $6 per million British Thermal Units (MMBtu) next year, $5 per MMBtu and even lower for the next few years after that. A structural change is afoot in global LNG markets that will last much longer than the on-going supply glut in oil markets. Hence, there isn’t much holiday cheer for global energy markets, while the New Year will be even more painful.

By Tim Daiss

Source: Forbes