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The Future’s So Bright I’ve Gotta Wear Shades – Crude, NGLs and Natural Gas Outlook

Natural gas production in the Lower 48 has surged 40 percent since 2005 – hitting record levels in recent months in spite of low prices and a drilling migration away from dry gas to liquids plays. Following a similar trajectory, natural gas liquids (NGLs) output from gas processing plants jumped 40 percent since 2009 as drilling for wet (high BTU) gas accelerated. Crude oil production from shale did not take off until the end of 2011 but since then has surged an astronomical 56 percent to 7.8 MMb/d. While this winter’s harsh weather has placed a temporary slow down on these skyrocketing production numbers, RBN fully expects the growth trend to continue - putting the U.S. within sight of energy independence in the not too distant future. Along the way plenty of new opportunities for the industry will be tempered by market challenges. Today we preview RBN’s latest Drill Down Report.

The Top Ten Energy Prognostications for 2013 – Year of the Snake

Worried about 2013?  You are not alone.  There are many rational reasons to be concerned about possible developments in energy markets this year, let alone phobias about the number thirteen (triskaidekaphobia).  But hey, this is the first working day of the New Year, so let’s look on the positive side.  In fact we are so psyched that we are going to violate the cardinal rule of consulting.  We are going to make predictions.   Of the future!  So hold on to your seat and get ready for our Top Ten Energy Prognostications for 2013, which according to Chinese astrology is the Year of the Snake.  Hmm, that doesn’t sound good.

Higher and Higher – Drilling Rig Productivity in the Marcellus

The second release of the EIA’s new monthly Drilling Productivity Report (DPR) for November came out on Tuesday (November 12, 2013) showing December natural gas production is expected to increase in four of the six regions covered. But one region alone – the Marcellus – accounts for 76 percent of natural gas production growth. In fact if the Marcellus were a country it would rank 5th in world gas production – ahead of Qatar. The DPR provides a breakdown of rig productivity and production from new and legacy wells and includes access to historical data back to 2007. Today we continue our review of the latest Energy Information Administration’s  (EIA) report.

Higher and Higher – A Better Forecast of Drilling Rig Productivity

Last month the Energy Information Administration (EIA) debuted a new monthly report detailing oil and gas drilling productivity in six of the largest US production basins. Rather than just being an “after the fact” report telling us what happened in the past, the new report provides a forecast of oil and gas production for the current and next month out in each of the six basins. The initial report indicates that oil production will increase by roughly 60 Mb/d in these basins during November with gas production increasing by 0.4 Bcf/d. The report also highlights continued improvement in rig productivity. Today we begin a series interpreting the new drilling rig productivity data.

The Hydrocarbon Top 40 – And a Big Index of 2012 RBN Blogs

During 2012 we’ve posted over 200 RBN blogs, covering everything from ethylene cracker margins (Ethylene Ethylene, Prettiest margin I ever seen), to northeast natural gas basis (The Mighty Algonquin) to the impact of a major crude pipeline reversal (Oh-Ho-Ho it’s Magic).  Now in our last posting of the year it seems appropriate to take a page out of Casey Kasem’s playbook to look back at the top blogs of 2012 based on website hits.  And there’s more!  In response to many members who have asked, we’ll also provide an index of all of our blogs by topic.  And finally we will introduce a new website feature that will give you the ability to see what is trending on the RBN site in real time.  BTW, we are not really going to look at 40 blogs.  After all it is New Year’s Eve.  But we will look a few of the really big winners for 2012.

Into 2013 - Tracking the Big Trends in Hydrocarbon Markets: Spotcheck

Fundamental to our approach to energy markets at RBN is a view that natural gas, crude oil and NGLs have become much more interdependent than in the days before shale.  What happens in gas impacts NGLs, which influences crude oil, which loops back to the natural gas market.  We’ve written about these cross-commodity relationships in a number of RBN blogs during 2012, showing the calculations and walking through several spreadsheet models.  Now we are taking our analysis one step further.  Starting on December 31, 2012, we are launching a new RBN website feature called Spotcheck that displays daily updated graphs of these relationships.  Today we’ll describe what is coming next week, and how you can interpret the trends to better understand developments in North America hydrocarbon markets.

Easy Come Easy Go – Crude to Gas Ratio Back Down to Earth Again?

The ratio between crude oil and natural gas (NYMEX) futures yesterday was 31.8. That is crude prices in $/Bbl were 31.8 X natural gas prices in $/MMbtu. In the 10 years from August 1997 to August 2007 the ratio averaged 7.5 X – that was the old world. Since August 2007 the ratio has averaged 19.4 X – with a dramatic rise during the last year to dizzying heights over 50 X. A major shift to high liquid hydrocarbon production has ensued. Now the futures market indicates the ratio will halve from 31 X to 15 X by 2020. Today we review the prospects for a return to a more normal crude to gas ratio.

Making Lemonade. LNG Exports Could Change Everything

Sometimes learning is about getting your mind changed.  Over the past couple of days at Bentek’s Benposium conference in Houston there were a lot of presentations and powerpoint slides looking at all sides of the LNG export issue.  I’m still not convinced that we’ll see more than one terminal built in the U.S.  But I was convinced of three things:  (a) there is a need for LNG exports to balance oversupply in the natural gas market, (b) pricing differentials support the economics necessary to build these facilities, and (c) if even a couple of the liquefaction plants and terminals are built, it will have a big impact on the natural gas market in North America. 

Lightning Round- Sell. Sell. Sell. – Outlook for Natgas, NGLs and Crude Oil

Yesterday was Day#2 of Benposium, the annual Bentek conference being held at the Houstonian hotel in Houston.  It was another day when I could attend the sessions as a participant, which is considerably harder work than it sounds.  Between Tuesday and Wednesday there were seven outside speakers and 15 breakout sessions with Bentek analysts, each repeated twice over the two days.  They went deep into natural gas, crude oil and NGL markets.  After 48 hours of Benpo 2012, my brain is full.  And there is one more day to go.

Rather than getting into the gory details of all these presentations, I thought it would be a good idea to take a page out of Cramer (that would be Cramer's Mad Money, not Cosmo Kramer) and do a lightning round on all of the major themes I heard across the two days. 

The Domino Effect: New Hydrocarbon Interdependencies

Yesterday ICE next-day gas at Henry Hub posted at $1.85/MMbtu, down a penny from Wednesday.  The CME/Nymex May contract settled at still another 10 year low (how many more 10 year lows could there be?) at $1.907, down 4.4 cnts. But May WTI crude oil at Cushing is still above one hundred bucks a barrel, closing at $102.27/bbl, off 40 cnts.  Our favorite measure of fundamental market disparity – the ratio of prompt crude futures to cash gas is now up to 55X (simply 102.27/1.85).