Crude to Gas Ratio

Welcome to 2015!  No, the last few months of 2014 were not a dream – or nightmare, depending on your perspective.  Crude oil prices really did come crashing to earth, sucking down NGL prices in the process.  And natural gas prices followed, falling to $3/MMbtu last week.  Price relationships are out the window, as are drilling budgets.  Over the next few months, these markets will be going through some of the most dynamic changes in years, with unpredictable consequences.  Unpredictable?  Nah.  No mere market turmoil will dissuade RBN from sticking our collective necks out a third year in a row to peer once more into the crystal ball.   Today we wrap up RBNs Top Ten Energy Prognostications for 2015 – Year of the Goat – #5 to #1.

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.