Time to sober up. Not from excessive New Year’s Eve reveling, but instead from the past five years of euphoria in the shale oil and gas markets. In the past two months crude oil prices have come crashing to earth, sucking down NGL prices in the process. And lately even natural gas has succumbed to the malaise, falling below $3/MMbtu this 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 can dissuade RBN from sticking out our collective necks to peer into the crystal ball for a third year in a row for 2015 – Year of the Goat. Really. We did not make that up.
2014 Track Record
Before we turn our attention to 2015, it is instructive to look back at the Top Ten RBN Prognostications for 2014, posted one year ago today, January 2, 2014. Overall it was another pretty good year for the RBN crystal ball. Let’s tick down through the list:
1. Marcellus natural gas markets are the new Rockies. The concept was that Marcellus take-away capacity problems in 2014 would be as bad as the Rockies gas price problems were in 2007. It happened in spades. Not only were Marcellus prices bad, they were even worse than we expected, and we predicted carnage. On New Year’s Eve, the Zone 4 Tennessee Gas Pipeline (TGP) in Northeastern Pennsylvania was $1.12/MMbtu. That’s crazy. Somebody tell the gas market that it is winter in the Northeast!!
2. The feeding frenzy in crude-by-rail will taper off. And it did. New pipeline capacity into the Gulf Coast virtually eliminated the regional price differentials that had supported much of the crude-by-rail volumes, while at the same time congestion on some rail lines resulted in operational hassles and delays. More than half of North Dakota’s crude is still moving by rail, but the combination of narrow price differentials and higher transportation costs eliminated any growth in crude by rail volumes.
3. Permian crude oil production will take off. That was another good one. In only 12 months, Permian crude production grew from 1.4 Mb/d to 1.8 Mb/d, an increase of 29%. That counts as ‘taking off’. Producers have made great strides in adapting shale technologies to the geology of the Permian.
4. Northeast NGL markets get messy. Yes those markets did get messy, more than doubling production in 2014. But we were predicting worse than that, perhaps quadrupling production during the year. It turns out that getting all that production connected into processing plants is taking a little longer than we expected. But it is still a lot more NGLs than the Northeast can use, and surplus barrels are being hauled hundreds of miles to find markets. So it is messy, just not as messy as it might have been. Yet.