Must-know: Demand-related factors that affect ONEOK Partners
Must-know: An investor's guide to ONEOK Partners (Part 7 of 15)
Demand by producers
Producers require gathering and processing services to market their natural gas and NGL (or natural gas liquid) production. Producer demand is affected by seasonal demand, economic conditions, and the demand associated with various industries that utilize the commodity. For instance, butane and natural gasoline are used as blending stocks for motor fuel and diluents for heavier crude oil by the refining industry.
As producers continue to develop NGL-rich shale and other resource areas, ONEOK Partners (OKS) expects demand for its natural gas gathering and processing services to increase.
Natural gas and NGL price volatility affect producer demand for midstream services.
Natural gas serves as an alternate fuel to coal for generating electricity. As utilities shift to the cleaner natural gas, electricity generation companies are likely to increase their demand for natural gas.
Read Why natural gas may win the battle against coal in the long run for more on this.
Commodity Prices
As we’ve discussed earlier, changes in market conditions affect crude oil, natural gas, and NGL prices. Plus, demand for products from the petrochemical industry and other consumers, storage injection and withdrawal rates, and available storage capacity also affect commodity prices.
Surging natural gas production from shale gas plays has caused natural gas prices to remain depressed.
Low natural gas prices discourage producers from producing natural gas and encourage more concentration on NGL and crude. Producers include Chesapeake Energy (CHK), Cabot Oil & Gas (COG), and EOG Resources (EOG). All of these companies are components of the Energy Select Sector SPDR Fund (XLE).
ONEOK Partners is exposed to commodity price risk in its natural gas gathering and processing business, as it receives commodities (as payment) in exchange for services, and in its natural gas liquids business from the NGLs it purchases and sells. We’ll discuss this in greater detail in the following parts of this series.
Seasonality
Extreme warm or cold temperatures drive the natural gas demand needed for electric generation to heat and cool residential and commercial properties.
A company’s business is also affected by its “sources of margin” and the risk its exposed to. The following parts talk about this in greater detail.
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