As the United States continues to rapidly grow its production of oil and gas from shale, and Canada increases production from its oil-rich tar sands, these new volumes are helping to support world oil markets as crude production outside the US declines due to increasing conflict in the Middle East and North Africa. Should these conflicts widen, the global markets will be increasingly volatile as supply disruptions outpace the growth in North American production. Though US natural gas production has not yet impacted the global market space via LNG exports, there is no doubt that those exports will happen. While the impact on US prices is unclear at this time, these exports will be yet another variable with which to content in a US market already unsettled by increasing regulations that will, by design, reshape the US energy mix. Dealing with this uncertainty will require increasing market vigilance, with a constant view on both the near and longterm energy outlook, and supported by a commodity trading and risk management solution that facilitates analytics, market visibility and regulatory compliance, such as Eka Energy.

1. THE ENERGY
TRADING OUTLOOK
Sponsored by
WHITE PAPER
UNCERTAINTY IS CLOUDING

2. THE GLOBAL ENERGY
MARKETS ARE UNDERGOING
AN UNPRECEDENTED PERIOD
OF NEAR UNRELENTING
CHANGE, AS TECHNOLOGY
INNOVATIONS, REGULATION
AND GEOPOLITICAL UPHEAV-
AL ARE SHIFTING THE FUL-
CRUM UNDER THE ENERGY
SUPPLY AND DEMAND
BALANCE. FOR ENERGY
COMMODITY PRODUCERS,
TRADERS, AND CONSUMERS
THE IMPLICATION OF THESE
CHANGES IS A PROLONGED
PERIOD OF MARKET
UNCERTAINTY.
INTRODUCTION
s the United States continues to rapidly grow its
production of oil and gas from shale, and Canada in-
creases production from its oil-rich tar sands, these
new volumes are helping to support world oil markets as
crude production outside the US declines due to increasing
conflict in the Middle East and North Africa. Should these
conflicts widen, the global markets will be increasingly vola-
tile as supply disruptions outpace the growth in North Amer-
ican production.
Though US natural gas production has not yet impacted the
global market space via LNG exports, there is no doubt that
those exports will happen. While the impact on US prices is
unclear at this time, these exports will be yet another vari-
able with which to content in a US market already unsettled
by increasing regulations that will, by design, reshape the
US energy mix.
Dealing with this uncertainty will require increasing market
vigilance, with a constant view on both the near and long-
term energy outlook, and supported by a commodity trading
and risk management solution that facilitates analytics, mar-
ket visibility and regulatory compliance, such as Eka Energy.
A

3. © Commodity Technology Advisory LLC, 2014
A ComTech Advisory WhitepaperUncertainty is Clouding the Energy Trading Outlook
THE CHANGING NORTH
AMERICAN ENERGY ECONOMY
North America, and more particularly the
US, has in the last 5 years seen a dramatic
shift in its energy economy, moving from
a country that had been increasingly reli-
ant on imported oil (up to 45% in 2004) to
one that is rapidly displacing those imports
with newly found domestic production. This
energy renaissance has been fueled by ad-
vances in horizontal drilling and hydraulic
fracturing technologies have opened new
and abundant sources of natural gas and
crude oil that were once tightly locked in
shale and tight sand deposits.
The increase in energy produc-
tion is unprecedented and has moved the
US up to the second largest oil producer in
the world, trailing only to Saudi Arabia.
Though US oil demand is expect-
ed to continue to outstrip domestic produc-
tion for the foreseeable future, increasing
tar sands production in Canada is expect-
ed to contribute to increased supplies from
that country, further reducing US reliance
on imports from volatile Middle Eastern
and South American countries.
Since 2007, natural gas production from
shale fields has increased from about 3 BCF
per day to more than 28 BCF per day, with to-
tal US production increasing from 55 BCFD
in 2007 to an estimated 72 BCFD in early
2014. Oil production from shale reserves
has helped push US crude production from
slightly more than 5 million barrels per day in
2008 (a more than 50 year low), to almost 8
million barrels per day in 2013 (a twenty-plus
year high).
While these new production sources have helped the US
reduce its reliance on foreign sources of oil and have brought
about a boon in economic growth in many parts of the country,
incorporating the increasing volumes of shale gas and oil has
not been without issue. Given that much of this new production
has been found outside the reach of the traditional production
and transportation infrastructure, the industry is facing a num-
ber of significant challenges to move those supplies to market.
These challenges include lack of adequate pipeline capacity in
proximity to the new fields, the disruption of historical supply
patterns, and increasing price uncertainty as these new fields
continue to ramp volumes into areas that are increasingly over-
supplied and bottlenecked.

4. A ComTech Advisory WhitepaperUncertainty is Clouding the Energy Trading Outlook
© Commodity Technology Advisory LLC, 2014
In particular, areas such as the Bakken
Shale in North Dakota and Eagle Ford Field
in South Texas have proven especially chal-
lenging as the huge increases in oil produc-
tion have overrun crude pipeline capacity, ne-
cessitating alternative means of transport in
order to move that crude to the refining cen-
ters in the Midwest and along the Gulf Coast.
For the Bakken, the best alterna-
tive to pipe transport has been via rail, with
up to an estimated 700,000 bbls/day
being transported via train, accounting for
about 60% of the state’s total oil production.
While pipelines are generally considered
the preferable choice in transportation given
their lower costs and perceived lower opera-
tional risk, delays in permitting and construc-
tion of new pipes have increased reliance on
rail transport; and increasingly, producers are
recognizing the advantages offered by rail, in-
cluding more flexible routing that allows for
delivery to the most lucrative markets, and
potentially rerouting should market condi-
tions change while the volumes are in tran-
sit. While there are a number of proposals
for new crude pipelines to provide additional
capacity to move oil production to refineries
in the east and south, given the significant in-
vestment that has been made in new rail lines
and equipment in the area, and combined
with environmental concerns related to pipe-
line construction, it’s unclear if and when this
new capacity will be built.
The Eagle Ford Field in South Texas
is located relatively near the production and
transportation infrastructure that services the
long established Permian Basin. However,
the huge increases in oil production from the
field in the last three years (growing from 123,000 bbls/day
in 2009 to more than 1 million bbls/day in December 2013)
have required a massive development program by producers
and midstream operators. New pipelines have been built and
new capacity added to existing facilities to move oil and con-
densate east to Houston-area refineries and processing plants,
and south to Corpus Christie for loading on barges and ships
for delivery to refineries in Louisiana and points further east.
This re-plumbing of the transportation infrastructure in south
Texas will continue as drilling expands more widely in the oil
rich areas of the field and later as gas production increases
when prices improve.
The Marcellus Field in the Northeast US, though locat-
ed along established pipeline routes, is having a dramatic and
unprecedented impact (with up to 32 tcf of proven reserves1
)
on the natural gas markets from New England to the Gulf
Coast. As Marcellus natural gas production continues to ramp-
up, increasing from less than 2 BCFD in 2009 to more than
14 BCFD in early 2014, basis differentials between the Gulf
Coast and Midwest supply points and the Northeast markets
have tightened, often making transportation uneconomic and
reducing the flow of gas from the south. As producers in the
south find their once lucrative markets being taken up by Mar-
cellus gas, they are increasingly forced to seek out alternative
markets in the southern US and Midwest, often realizing much
lower prices and forcing many to reduce their exploration and
production budgets for gas projects.
In order to address the growing surplus of gas in the
southern US, pipeline operators are seeking to expand their
pipeline networks in the southern states, reaching new or un-
derserved markets and, in the process, improving utilization of
their long-haul systems. While these new facilities will help to
reduce some of the backlog of gas, industrial expansion in the
region and the developing LNG export facilities are the best
hope for improving prices and profitability for producers in the
region.
1| www.eia.gov/naturalgas/crudeoilreserves/pdf/uscrudeoil.pdf

5. © Commodity Technology Advisory LLC, 2014
A ComTech Advisory WhitepaperUncertainty is Clouding the Energy Trading Outlook
Though the US will certainly continue to be
a net importer of oil for the foreseeable fu-
ture, the share of imports from outside of
North America will continue to fall, reduc-
ing the country’s reliance on increasingly
unstable or potentially unreliable sources
in the Middle East and South America.
With increasing production, the US has
been able to effectively return about an aver-
age of about 1 million barrels a day (volumes
that otherwise would have been imported) to
the global markets over the last three years,
helping to ensure a stable global oil price
even in the face of global supply disruptions
(Libya, Iran, Iraq, and others) that have oc-
With the increases in US natural gas pro-
duction, and the prospects for even greater
volumes to enter the market over the next
decade, increasing attention is being paid
to the prospects for large scale export of
LNG from the US. Though only a single facil-
ity is currently under construction (Sabine
Pass operated by Chenier) and the volumes
to be exported from that facility are rela-
tively modest (initially 2 BCFD), more than
a dozen new facilities are in the permitting
process and though many of those may not
be ultimately built, the potential for much
curred during the period. Nonetheless, as long as the US is
a net importer of oil, the country will continue to be exposed to
a global price and the impact of any prices shocks that could
occur should supply interruptions occur in the Middle East or
South America.
Ongoing geopolitical unrest in the Middle East and Af-
rica producing regions continues to be a cloud over the oil
markets, with the potential loss of several millions of barrels
a day should countries such as Libya and Iraq fall into turmoil.
Should this happen, and despite the increasing production in
North America, shortages would occur if swing producers,
particularly Saudi Arabia, are unable to offset the losses and
prices could spike well above the recent three year average
around $110/bbl (Brent).
greater exports does exist. However, given that the US is
geographically disadvantaged in servicing the lucrative
Asian and European markets versus competitors in eastern
Russia, Australia and North Africa, domestic US prices will
ultimately determine the competiveness of US LNG.
Further clouding the outlook for LNG development in the US,
the EPA announced in late spring 2014 new CO2
emissions
standards intended to reduce greenhouse gas emissions from
coal generation by 30% from 2005 levels, by the year 2030.
These new regulations, if implemented as proposed, will force
the early retirement of significant amount of coal fired gen-
eration capacity, with much of that lost capacity necessarily
replaced with natural gas-fired generators. While the exact mix
US OIL PRODUCTION SUPPORTING
GLOBAL MARKETS
WHAT WILL BE THE IMPACT OF
US NATURAL GAS?

6. A ComTech Advisory WhitepaperUncertainty is Clouding the Energy Trading Outlook
© Commodity Technology Advisory LLC, 2014
large amounts of US LNG could find a market, particularly in
Europe, given the increasing concerns related to the reliability
of Russian gas supplies.
Should LNG producers’ plans come to fruition and LNG
exports do increase in-line with those plans, gas exports com-
bined with increased domestic consumption and increasing
pipeline-based exports to Mexico, could result in demand
growing by as much 15-20 BCFD over the next decade, an
increase of more than 20% over current US production. While
it’s not clear how much excess delivery capacity currently ex-
ists in the system, there is no doubt that such a dramatic in-
crease in demand will require huge investments in new drilling
and natural gas infrastructure, and will most certainly result in
higher prices and growing price volatility as excess capacity is
quickly taken up and producers scramble to meet demand.
of new gas-fired versus renewables facilities
is not yet clear, natural gas will certainly be
a significant contributor and gas burns for
power generation could increase by several
BFCD beyond otherwise “normal” demand
growth by 2030.
In early 2014, US natural gas prices be-
gan to recover from several years of depressed
prices brought on by oversupply. With prices
driven-up by a slowing of drilling for natural
gas and increased demand brought about by
a very cold winter and a gradual economic
recovery, the prospects for large scale LNG
export look somewhat less likely. However,
should the European economy recover from
years of economic recession, and growth in
China and the Asia Pacific region accelerate,
REGULATIONS IMPACTING
ENERGY TRADING
The financial crash of 2008 ushered
in a new era of regulation, one that
has seen the G10 countries commit
to higher levels of regulatory oversight
and intrusive control over energy trad-
ing markets. The resulting market reg-
ulations -- in the form of Dodd-Frank
in the U.S. and EMIR/REMIT (among
others) in Europe -- continue to unfold,
and their market impacts are continu-
ing to evolve.
The primary targets of the new regula-
tions, large banks and affiliated financial insti-
tutions that trade commodities and financial
derivatives, have over the last decade invest-
ed heavily in energy trading and have often
become the primary facilitators of liquidity in
many physical and financial energy markets. As a result of the
new regulations, and combined with low returns due to low
volatilities and prices, many of these banks have decided to
exit the energy markets entirely, closing trading operations
and selling assets to non-bank entities. The potential loss of
market liquidity associated with the departure of these large
trading groups could increase price volatilities and risks for all
market participants in Europe and North America.
For non-bank energy trading companies, the impacts of
the new regulations are increasing the cost of doing business -
requiring greater cash reserves to meet margin requirements,
increased investments in technology and personnel to address
trade reporting requirements, and increasing the risk of run-
ning afoul of regulators who can, and have, assess fines in the
millions of dollars. These new and evolving regulations are fur-
ther impacting commercial decision-making as traders must
balance growth with increased regulatory exposure and costs.

7. © Commodity Technology Advisory LLC, 2014
A ComTech Advisory WhitepaperUncertainty is Clouding the Energy Trading Outlook
DEALING WITH UNCERTAINTY
In order to profitability operate in this environ-
ment, energy traders must maintain a long
view of the market, one that allows them to
position themselves to take advantage of op-
portunities that may arise in the coming year
or years. But, more importantly, they must
maintain a vigilant eye on near-term develop-
ments that can impact the supply or delivery
of energy commodities and ensure they are
properly positioned to address the risks in an
uncertain market.
As market conditions evolve with the
ever-changing supply and demand balance,
and oversight becomes more intense and
invasive, visibility across all aspects of your
business must improve:
Market visibility / market aware-
ness driven by data with a vigilant eye on
macro trends. Strategies must be formulated
around macro trends and managed on mar-
ket data and real-time or near real-time analy-
sis.
Internal visibility / profit is made
or lost on daily decisions. Accurate and time-
ly position management, risk management
and business intelligence support is key to
ensure opportunities are optimally exploited
and risks addressed.
Regulatory visibility /regulators will be quick to
move and once on their radar, you will be a target of scrutiny
for a very long time. Developing a culture of compliance and
visibility for regulators is key to avoiding punitive attention and
actions.
Your chances of succeeding in this market will be, in
large part, dependent upon the quality of your technology in-
frastructure. No company can operate profitably and in com-
pliance with regulators without the appropriate technology
systems and tools. Your IT infrastructure must be able to im-
mediately and accurately capture the commercial activities of
your business, provide near real-time feedback as to positions
and exposures, aggregate data from many disparate sources
to assist in identifying near and long-term opportunities, and
finally, ensure that information for all those sources is accu-
rately captured, maintained, and communicated appropriately
to ensure regulatory compliance.
The core of that IT infrastructure should be a compre-
hensive, multi-commodity energy trading and risk management
(ETRM) solution, such as Eka Energy. Eka’s “Smart Commod-
ity Management” product is a fully integrated multi-commod-
ity (ETRM) system covering the entire transaction life-cycle
from capture through confirmation, operations, settlement and
risk management. With Eka’s smart commodity management
strategy, analytics have become the core of the solution’s ca-
pabilities, providing the requisite tools to optimize positions,
limit risk and ensure compliance in an increasingly unsettled
market.
Given the rapidly changing energy supply patterns and resultant market imbalances in the US and globally,
wholesale energy traders are having difficulty remaining abreast of the ever-changing landscape and adapt-
ing to the new physical market dynamics.
The technology implications of the new reg-
ulations are substantial, as compliance re-
quires a constant recording of all commercial
activities, including data and information that
may have influenced or supported a trade de-
cision. As a result, energy trading companies must accurately
capture, collate, transmit, store and retrieve massive amounts
of data from numerous disparate systems, including ETRM
systems, phone, IM, exchanges, data feeds, and even social
media.

8. ABOUT
Commodity
Technology
Advisory
LLC
Commodity Technology (ComTech) Advisory is the leading analyst organization covering
the ETRM and CTRM markets. We provide the invaluable insights into the issues and
trends affecting the users and providers of the technologies that are crucial for success
in the constantly evolving global commodities markets.
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energy and commodities markets, provides depth of understanding of the market and
its issues that is unmatched and unrivaled by any analyst group.
For more information, please visit:
ComTech Advisory also hosts the CTRMCenter, your online portal with news and views
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