The Top Ten Energy Prognostications for 2014 – Year of the Horse

So you are feeling pretty good about 2014, eh?  Stock market on a tear.  Most U.S. energy markets relatively stable.  Gaps in the oil and gas infrastructure getting filled.  Well let’s not get cocky.  U.S. energy markets are still in the middle of a revolutionary transformation from shortage to surplus.  Where there are big shifts, there are big market disruptions.  And in such disruptions, there are always winners and losers.   You don’t want to be on the short end of that stick.  So in our time honored tradition – the second year in a row – we again stick our collective RBN necks out to peer into the crystal ball to see what 2014 may hold.   

2013 Track Record

But before we turn our attention to 2014, it is instructive to look back at the Top Ten RBN Prognostications for 2013, posted one year ago today, January 2, 2013. Actually we feel pretty good about most of last year’s market calls.  Let’s tick down through the list:

1. Rail will suck crude oil barrels out of pipelines.  Yup, that happened.  Volumes ebbed and flowed as price differentials changed, but overall crude-by-rail volumes continued to grow.
2. 2013 Will Not be the year of Natural Gas Price Recovery.  Another good one. Prices may be higher this month due to cold weather, but the average natural gas price for 2013 came in just under $3.75/MMbtu.  Our outlook was for some number  below four bucks.
3. The Enterprise Propane export terminal expansion won’t solve the propane oversupply problem.  Well, Enterprise didn’t solve the oversupply problem by itself, but the combination of exports from Enterprise, Targa and Sunoco/Marcus Hook, plus a record corn drying season, plus cold weather pretty much sucked up the oversupply.  We’ll take only partial credit on this one.
4. Crude Oil rig count will continue to fall, but it won’t matter.  Missed that one. The crude oil rig count stopped falling (it was down during December 2012) and actually increased by 77 rigs.  But the point was still valid. U.S. crude oil production increased more than one million barrels per day in 2013 – up over 10%.
5. We will see the first inkling of Gulf Coast Crude Prices declining below world levels.  You’ve got to admit, that was a pretty good call.  Light Louisiana Sweet (LLS) on the Gulf is now about $8/Bbl below international Brent and was more than $15/bbl below Brent last month.
6. Natural gas pipeline quality will become a nationwide issue as ethane rejection accelerates.  Nationwide is a little strong, but it has certainly become an important issue in certain regional markets like the Marcellus/Utica and the Bakken.
7. The natural gas market will awaken to the full potential impact of Marcellus natural gas flow reversals.  We are particularly proud of this one.  From June – August 2013, TGP Zone 5 Marcellus prices averaged $1.85/MMbtu, crashing below $0.50/MMbu on more than one occasion.  This market is now officially awake and pipelines are reversing.
8. Condensates will emerge as a market in their own right.  Condensates became much more of a factor in the crude oil market, but not really a market in their own right.  We think the more likely development is that condensates will trade on component yield (like NGL y-grade) and differentials to marker crudes, not as segregated grades with outright prices like WTI or LLS.
9. Production growth is coming on fast, but not as fast as new pipeline and processing infrastructure.  That has been true in crude oil, NGLs and especially Northeast natural gas.  We did lots of blogs on infrastructure development during 2013.
10. Natural gas inventories will never hit the capacity wall.   To understand this one it may be helpful to go back and read last year’s Prognostications.   Inventory capacity was a non-issue in 2013 with cooler weather, so we did not come close to testing this prediction.  We remain convinced that the concept hangs together.