An admitted market bear says the industry’s current prospects make him “a little more upbeat than I normally am.” Porter Bennett, president and chief executive for Ponderosa Advisors, told attendees at Hart Energy’s DUG Midcontinent conference that “I have bearish tendencies” but he sees a future looks bright for producers and the midstream.

“We’re producing more natural gas, more natural gas liquids, and soon more crude oil, than the country can consume,” Bennett told the Tulsa event, which attracted more than 1,000 attendees.

Abundant supply and slack demand – thanks to a soft economy and industries not geared to use those hydrocarbons – creates low prices for now. But those attractive prices will create new demand, and higher prices, in the long run.

“Customers are finding new ways to exploit that low-cost energy,” he said. Current trends also “probably will lead to the export of crude, also propane and even ethane,” along with liquefied natural gas.

What has happened is “historic and tumultuous. It’s hard to understate the issues when you think about the changes in the last 10 years,” Bennett added.

The industry analyst broke down economic trends by commodity. For gas, he cited current production of 64.4 billion cubic feet per day. “That’s the positive side,” he added and up sharply from a few years ago. However, Bennett noted the current mark actually is down 200 million cubic feet per day from fourth-quarter 2012. “We’re in a market where production may have stabilized” and that’s a good thing for the industry, he said. A more-normal winter has helped reduce a gas storage glut, he noted.

For crude oil, Bennett said output also has increased dramatically, rising 1.8 million barrels per day (b/d) since 2011 – truly “an unexpected event,” he said. “All of that new crude is trying to find its way to refineries and storage facilities,” creating challenges for the midstream. Trends indicate crude production could rise another 5 million b/d by 2025, “that assumes the rig count and initial production, well performance, and the regional distribution of production remains constant. The most important variable is the price of crude – if it stays between $70 and $100 (per barrel),” he added.

A significant challenge will be how, and if, U.S. refineries can process that increase. The bulk of new domestic production is light sweet oil from shale plays, flooding into an industry that has skewed toward heavy, sour feedstocks over the years.

Rising production has created an equal challenge for natural gas liquids (NGLs), he said. “In 2009, NGLs were a value-add to gas but they became the primary target as gas prices began to fall,” Bennett added. “Unlike the gas sector, I expect NGLs will have a floor under them.”

He then discussed how production of each commodity not only has increased, but core production areas have changed. Gas production in the Rockies – a big player for years – has dropped while output from the Northeast’s Marcellus – a region that historically had negligible production – has skyrocketed. Crude production also has boomed in new areas, such as the Eagle Ford in South Texas and Bakken in North Dakota while dropping from conventional core producing areas, in particular Alaska.

Surging NGL output has seemingly come out of nowhere from the Eagle Ford, Marcellus and other shale plays. Gas liquids are a big component of produced natural gas in the unconventional shale plays.

All of this change creates special challenges for the nation’s midstream sector, he pointed out. Existing transportation and processing networks must be expanded and re-purposed.

Supply and demand will come into balance over time and U.S. exports will be a necessity. He pointed to ethane as an example. Now in over supply, new ethylene cracking capacity under construction along the Gulf Coast, coupled with exports, should bring supply and demand into balance by 2018.

“Customers have low prices now and have to figure out how to use that (advantage),” Bennett said. “In petrochemicals, steel and fertilizer, there are opportunities that they haven’t seen in years. Eventually, the market will take advantage of it.”

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