There was a time when you could live out your career in the gas business, or the NGL business, or the crude business and get by with knowing very little about the other hydrocarbon markets. That time has now passed. Natural gas, NGLs and crude oil markets are tied together in ways we’ve never seen before. Making sense out of the interrelationships between hydrocarbon markets is what RBN Energy is all about. To that end, we are now bringing the RBN Energy brand to a two-day course of study to be held in Houston next February.
We want to be absolutely honest with you. Today’s blog is an advertorial for School of Energy. But we will also explore techniques for monitoring linkages between energy markets and consequently the health of the hydrocarbon complex.
Check out Kyle Cooper’s weekly view of natural gas markets at
The Domino Effect
If you’ve been reading these blogs for a while you’ve noticed that we try to give equal time to crude oil, natural gas and NGL topics – and when we can, tie the markets together. One of the blogs earlier this year titled The Domino Effect probably did this best. The thesis was (a) shale technologies hit the natural gas markets - driving new efficiencies and productivity throughout the industry, (b) this productivity stimulated natural gas production, resulting in a supply overhang and depressed gas prices, (c) to avoid low returns for dry gas wells, producers shifted drilling budgets to wet (high BTU) gas and crude oil plays, (d) consequently NGL production increased, driving down prices for NGLs, particularly ethane and propane (with very positive consequences for petrochemicals), (e) in the crude oil markets, production in the Bakken and midcontinent plus Canadian imports increased dramatically, well beyond the ability of the pipeline infrastructure to move the barrels to market, resulting in wide Cushing-vs-US Gulf price differentials (with very positive consequences for midcontinent refiners), (f) while in the gas sector, wet and associated gas kept gas production strong. So natural gas prices remain weak, and users of gas – gas fired power generation, industrials, commercials and residential customers are making and/or saving a lot of money (with negative consequences for competing fuels, like coal).
The Domino Effect can also work the other way. For example, what happens if the U.S. starts exporting significant volumes of LNG in a few years, a definite possibility after publication of the recent DOE report on the subject (see http://www.fossil.energy.gov/programs/gasregulation/reports/nera_lng_report.pdf)? Given big LNG export volumes, in one possible scenario prices of gas go up, the relationship between crude and gas narrows, NGL processing margins decline, NGL production falls, NGL prices rise, petrochemical margins take a hit, producers shift from crude back to gas, etc., etc. We’re not saying all these things are going to happen. But they could. And the challenge for all of us involved in energy markets is to analyze, monitor and understand these relationships so we anticipate these developments, not simply react to them. That is precisely what School of Energy is designed to accomplish. It is a course of study that explains how relationships between energy commodities have behaved over time, why they work that way, and most importantly, how to track and decipher how they change going forward.