What’s Hot is a biweekly feature that identifies the most important factors impacting hydrocarbon energy markets, with an emphasis on natural gas, NGLs and crude oil. It syncs up with our weekly Gas Cloud©, which graphically depicts the top issues from the perspective of natural gas markets. The more important the issue, the bigger the word.
This week SUPPLY continues to be the driving force. Production from shales continues to maintain natural gas production at record levels. High production combined with mild weather resulted in CME/NYMEX prompt futures (Feb.) closing out the year at $2.989/MMbtu, the lowest level since Sept. 2009. But the mild weather is over, at least for the next few days. An ARCTIC BLAST rolled into the Midwest, the South and the Northeast this week. Will it be enough to impact storage balances and the forward curve? Doubtful. But at this point the weather is the only thing that can keep end of season STORAGE OVERHANG from hitting a record 2TCF, so stay tuned.
With natgas at $3 and WTI Crude at $100/bbl (NYMEX close $99.65), that puts the GAS/CRUDE RATIO at 33X. That means crude and liquids plays will continue to get the lions share of investment dollars. Can it go higher. Don’t be surprised by 50X by spring.
Regulation, or better said, SUSPENDED REGULATIONS also top the first list in 2012. The U.S. Court of Appeals for the District of Columbia Circuit suspended EPA’s Cross-State Air Pollution Rule (CSAPR). More specifically, EPA granted requests to stay the rule pending the outcome of legal challenges to the case. It will be at least April before the case is heard. That will take that potential source of new gas demand out of the market for months, or longer.
In California, a federal judge halted enforcement of California's low-carbon fuel rules. The ruling is a good thing for both refiners and ethanol producers, because they won’t have to buy credits when importing oil and ethanol into California. It is doubtful that these developments are the start of a trend, but it does bear watching.
And other things to watch: FRACKING causes EARTHQUAKES?; SHALE production benefits INDUSTRIALS; KEYSTONE XL decision due in 60 days.
