Why energy companies need analytics to navigate constantly changing markets

By Sean Carnahan | 10 October 2017

North American energy markets have undergone massive changes in the last decade. Easing export regulations, technological innovation, the rise of LNG, and increased focus on renewable energy have shifted the focus toward lower cost and more environmentally friendly sources of fuel. Energy companies need to stay on top of these trends to ensure long-term profitability.

The changing tide

The easing of export regulations, investments in energy export facilities and increasing foreign demand for US LNG, liquids and crude oil have resulted in a tightening connection between US and foreign energy markets. The US has become a significant player in global LNG markets, including newly open Mexican markets, effectively connecting the domestic market to global natural gas prices. With additional facilities and process trains coming on line in the next two years, total takeaway via LNG could reach as much as 4-5 BCF/day.

In addition to exports, there is increased reliance on natural gas for power production, boosting domestic natural gas demand and forcing greater operational coordination between the gas and power markets. These shifts have made timely market data and operational flow information an imperative for maintaining profitable operations.

Technology provides a boost

With the advent of long-reach horizontal drilling techniques and massive hydraulic fracturing, a wealth of supply has been brought on-line from fields that were otherwise uneconomic to produce. The resulting shifting of supply to the Northeast US from the Gulf Coast has redirected pipeline flows and rewritten pricing relationships that have existed for more than two decades. With new processing facilities under constant development in the Northeast, price development at the emerging trading hubs in the region are in a state of flux and pricing forecasting is a constant challenge for traders.

The influx of renewable energy resources, including wind, utility scale solar and distributed solar have challenged grid operators in maintaining market stability and impacted traditional power generators.  According to the EIA, in March 2017, wind and solar sources exceeded 10% of the total electric power generated in the US for the first time – up from the 7% contributed by wind and solar for the full year 2016. 

As these renewable resources are highly variable, and their output will rise and fall with conditions that can’t be controlled, their increasing contributions are forcing grid operators from New York to California to develop new operational strategies, tools and markets to ensure grid stability. While the operational and market changes being contemplated are in various stages of development, it’s almost certain that most or all will require the implementation of sub-hourly bidding and dispatch to cope with the variable nature of renewables.  

The need for analytics

Absorbing these many new energy sources has created new markets, hubs and trading locations and increased the sources, granularity and velocity of market data that flows into energy trading floors across the industry. Identifying and collecting the appropriate sources of data and information is a critical first step in developing the insights and actionable information necessary to succeed in these challenging and constantly evolving markets. Energy companies cannot afford to take days, or longer, to collect this information. They need access to the information in near real time to analyze it and respond before the market shifts again.

Without advanced analytics to convert that data to timely, relevant and actionable market and operational insights (i.e. early warnings of potential supply bottlenecks or inventory changes, timely identification of shifts in your intraday P&L, non-optimized physical assets, etc.), the flood of data does not provide much value. It’s the combination of gathering information quickly and analyzing it automatically that provides the information energy companies need to make intelligent choices.

Fortunately, advances in cloud-based technologies have enabled a new generation of tools that can accelerate the analysis of huge data sets from multiple systems and data sources - allowing the earliest possible identification of market moves, emergent opportunities and impending risks. One such solution, Eka Analytics, utilizes apps that can be configured by business users to mix and match different data sets from divergent sources and perform real-time analysis to answer their organizations most critical and timely questions.

Eka’s “always on” intelligence engine analyzes data automatically, without waiting for queries, so information is always being updated with the most recent and relevant data. With support for all types of analytics from simple aggregations to advanced predictive models, energy companies using this solution can gain a competitive advantage by optimizing operations and strategies to take advantage of both rapidly emerging opportunities and longer-term market developments.

Evolving markets are here to stay

Evolving energy markets are here to stay. Increased focus on renewable energy, reducing emissions, and cutting costs will continue. Energy companies need to stay vigilant, and use all the information they have to make smart decisions to remain competitive and profitable. Big data and advanced analytics are the only way to keep ahead of the shifting tide.  

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