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.
As we enter 2013, the major theme for U.S. hydrocarbon markets must be “surplus”. Who wooda thunk it. We had a white Christmas in Texas, up in the Northeast Tennessee Zone 6 gas at year-end was $10.79/MMbtu, but natural gas inventories are still at multi-year highs and Henry Hub gas is languishing at $3.47/MMbtu. Those low prices have been great for gas demand, with gas duking it out with coal in the power generation market, and winning. Crude production in the Bakken, Eagle Ford and Permian is skyrocketing, Cushing inventories are still high, and that is keeping WTI at Cushing at a $20/Bbbl discount to Brent. Propane production is up 12% in the past year, while propane prices are down 35%. And that looks good compared to ethane, with prices down 70% over the past 12 months to 24.5 cnts/gal at Mont Belvieu, pretty close to parity with natural gas and near a level that would encourage widespread ethane rejection. What’s the world coming to?
Check out Kyle Cooper’s weekly view of natural gas markets at http://www.rbnenergy.com/markets/kyle-cooper
Looking into the crystal ball for 2013, it doesn’t appear that the world of U.S. hydrocarbon surpluses will be going away anytime soon. Of course, some wacky weather event or wackier Middle East incident could always turn things upside down, but barring that, the production of natural gas, crude oil and NGLs looks to remain strong. That will keep inventories high, and prices considerably lower than they would be if market supply/demand were balanced. But that doesn’t imply that nothing is going to change. In fact, market conditions are already changing – mostly due to all the new infrastructure that is coming on line. Many of our predictions below are being driven by the impact of the new pipelines, processing plants and terminals that are popping up all over the country.
So let’s get into the specifics. Like any good New Year’s top ten list, we’ll start at number ten and work our way down to number one.