This time last year the fiscal cliff emitted a dark cloud over the financial markets, but the bull market continued throughout 2013 with the S&P 500 reaching an all-time high. With Janet Yellen taking over the Fed's top post and stuck with the task of tapering bond purchases, 2014 is masked in uncertainty, but our contributors have three predictions for the coming year.
Travis Hoium: Gas will fall below $3 per gallon
Did you know that both the U.S. and European Union are using less oil today than they were 10 years ago? It's a surprising stat, but two of the world's largest consumers of oil are seeing a decline in usage long term.
U.S. Retail Gas Price data by YCharts
This decline in demand has also coincided with a long rise in oil prices, making gasoline more expensive. But the trend higher is starting to slow, and next year there are a few reasons I think we'll see gasoline become more affordable.
First, the U.S. is flush with oil. The American Petroleum Institute said U.S. oil production was nearly 7.8 million barrels per day in October, the highest in 25 years. The Department of Energy is expecting domestic oil production to increase from 7.5 million barrels per day in 2013 to 8.5 million barrels per day next year. There's plenty of oil in the U.S., and in the long term that will help drive down the price of gasoline.
Second, fuel-efficiency standards are improving how far we can go on a gallon of gas, and vehicles like the Tesla Model S are now viable alternatives to gas-powered cars. Long term, these have a huge impact on gasoline consumption and will help push down prices.
Finally, the global energy picture is looking attractive for consumers. I think sanctions on Iran will be eased next year, adding supply to the market. There's also a number of huge drilling projects going on off the coast of Africa, Brazil, and the U.S., which will increase supply. Plus, the expansion of shale drilling outside of the U.S. has just begun.
The cost of gasoline has already fallen 12 cents in the past year to $3.24 per gallon according to Gas Buddy, and given the factors above I think we'll crack the $3 mark in 2014.
Maxx Chatsko: Industrial biotech platforms explode onto the commercial scene -- and in your home
Several technologies that use microbes to turn sugar into industrial chemicals for making everyday products -- rather than those that use heat and pressure to transform petroleum -- will make critical progress at commercial scale in 2014. Big Oil and Big Chem surely won't sweat the rise of industrial biotech next year, but they will be forced to acknowledge its arrival and disruptive potential. You will too.
Amyris (AMRS +0.00%) is already operating at commercial scale at its Brotas, Brazil, biorefinery -- which uses engineered yeast to produce the renewable hydrocarbon farnesene -- and will reach nameplate capacity of 40 million liters by the end of 2016. The company will continue to build on its recent production milestones and add valuable flavor and fragrance molecules to its product mix, which already includes diesel and jet fuel, cosmetic emollients, and industrial lubricants. A recently announced joint venture with French energy giant Total for producing renewable diesel and renewable jet fuel should produce several uplifting announcements next year.
Solazyme (SZYM +0.00%) will begin operating its first two commercial scale facilities early next year, which use heterotrophic algae to produce renewable oils. The company signed an offtake agreement with Unilever to begin supplying food and personal-care oils developed under a long-term JDA, while other customers will be added as production ramps. I'm not willing to bet the company won't encounter more setbacks in 2014, but revenue should easily double even with severe setbacks. Hopefully next year marks the beginning of the end for less-sustainable oil-production-and-harvesting technologies that use palm oil.
Don't think the industry's progress will be allocated to just two companies. After raising more funds, Gevo could be in the perfect place at the perfect time with its isobutanol platform, which can convert the oversupply of ethanol in the United States and Brazil into more valuable chemicals with a simple retrofit. It's already making renewable paraxylene Coca-Cola bottles. Other companies expected to make commercial-scale waves for the industry in 2014:
- Butamax and Green Biologics with biobutanol production
- Joule Unlimited and Algenol with cyanobacteria platforms for fuels and chemicals
- Genomatica and BioAmber with 1,4-butanediol (BDO)
- LS9 with fatty alcohols and specialty esters
- Novozymes, Genencor, Iogen, Dyadic, Codexis enabling ultraefficient chemical manufacturing with fungi enzyme platforms
- Various companies producing biopolymers (plastics) with yeast and bacteria
Simply put, 2014 will be the year industrial biotech platforms prove themselves, which will be a critical milestone for expanding manufacturing capacity beyond initial biorefineries. Expect an explosion of revenue and customer agreements that will force you to take the nascent industry seriously and forget about past developmental delays.
Aimee Duffy: MLPs remain dominant
I predict the Alerian MLP Index will outperform the S&P 500. There is a general uneasiness when it comes to rising interest rates and master limited partnerships, the consensus being that as bond rates rise, investors will abandon MLPs en masse for safer yields.
But I don't think that will happen. The index may dive if and when the Federal Reserve announces its taper, but I don't think investors will abandon MLPs for the long run for one simple reason: The going is just too good right now.
Sure, we've seen MLPs like Enterprise Products Partners (EPD +1.09%) and Energy Transfer Partners (ETP +0.00%) post excellent unit price performance this year, but its the consistent distribution growth backed by a tremendous American energy narrative that will keep investors hanging on to MLPs.
The environment is such that Energy Transfer just reinstituted distribution growth after five years off. Over the past two years, we've watched MLPs consistently post record volumes on natural gas and crude-oil-pipeline systems, as well as NGL processing and fractionation units. Houston is currently flooded with hydrocarbons, and the U.S. is now the largest propane exporter in the world, led by Enterprise. These businesses have made a conscious effort to move to fee-based contracts for these services, which means improved reliability for cash flows and distributions.
The other side of this coin is the performance of the S&P 500. If the Fed tapers, this index will drop as well. I don't know that anyone is expecting the market to return another 25% next year, so the Alerian MLP Index may not have to do very much to outpace the S&P. Only time will tell.
