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Energy Commodities More Interconnected, Complex, BP Exec Says

While industry analysts are still scratching their heads trying to discover the new math needed to better track and understand hydrocarbons globally, developments could converge next year that upset any chance of finding a supply-demand balance for natural gas in 2017, according to Dawn Constantin, vice president for marketing and fundamentals at BP Energy Co.

Speaking to the second day of the LDC Gas Forum Rockies & West in Denver on Wednesday, Constantin painted a global picture for oil and natural gas in which fossil fuels are increasingly interconnected across commodities and geographies, and, therefore, more difficult to track accurately.

"To understand the future for gas prices in North America, we need to more fully understand oil and liquids dynamics, as well as global supply-demand trends," Constantin said, citing forecasts for world oil demand to increase this year and next by about 1.4 million b/d, creating the prospect for demand to outstrip global production by the second half of 2017 (see Shale DailyFeb. 11).

As a result, the need for more robust risk management strategies is "more critical than even before," she said, adding that today the only constant is change, whether that means new infrastructure, new environmental regulations or new global trade patterns.

Constantin emphasized that to be ready for these changes is an increasingly difficult task and one that requires thinking globally.

"There are big numbers for demand increase coming around the corner [2017], but production keeps dropping off due to the low commodity prices," she said. "We're still waiting for crude oil supply-demand to balance, and many thought it would come this year, but that hasn't happened."

As an example of the increasing interconnectedness of commodities, Constantin said that any forecasts for future Henry Hub gas prices are not credible unless they also take into consideration forecasts for future crude oil and natural gas liquids (NGL) prices (see Shale DailyJune 30).

For North America, Constantin envisions a number of short-term trends emerging out of this more interconnected commodity world, including a long-term WTI crude price (2016-2020) that stays under $60/bbl, continued slowing of the NGL market and a potential continued slowdown in natural gas production.

There are large quantities of liquids still in the ground, and that has implications for future infrastructure needs and for where new gas supplies come from, according to Constantin.

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