Covering the Energy Beat

By Steve Everly
November 27, 2007 02:50 PM

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I know it sounds odd, but “gas cracks” interest me.

The term is used as shorthand for crack spreads, which is more industry lingo describing the difference between crude oil and wholesale gas prices. The spread is a key indicator of refinery profits.

When oil prices were being blamed early this year for the rise in gas prices it was clear that soaring refinery profits were behind much of it. And this fall, after those spreads collapsed, they were the answer to why gas prices were declining in the face of higher oil prices.

Every business beat has its arcane terminology and the energy industry has its share.  

Master the terminology and you’re a step ahead in understanding how the industry really works.

I discovered this 12 years ago when attending a natural-gas conference. I struggled to follow discussions peppered with terms such as MMBtus, working storage and first-of-the-month indexes.

But I understood just enough at one of the conference’s sessions to know what I was missing. It was about how natural-gas utilities could do a better job in purchasing gas that they resell to their customers.

The person making the presentation agreed to help me understand the issue including interpreting the language. That led to a series of stories about how consumers spend millions of dollars more than necessary because of the utilities’ poor purchasing habits.

I never looked back.

Don’t get me wrong. There’s obviously more to energy reporting than understanding the terms. A truckers group first told me about the effects of temperature on fuel which triggered several months of reporting on a topic rarely discussed publicly even though the oil industry has been aware of the problem for decades -- a fact I discovered after reading the minutes of a meeting I obtained, believe it or not, through an interlibrary loan.

The work led to several stories about how consumers are being overcharged $2.3 billion per year because of hot fuel. The stories received nine awards including the Scripps Howard Foundation and Institute on Political Journalism’s awards for economic reporting and a Society of American Business Editors and Writer’s award for a project.

The natural-gas stories, however, set a pattern. Especially if it’s a new topic, I look for a source that has the patience to explain the terminology before I begin the reporting.

Sometimes I’m fortunate to find someone who can help with both such as James Williams of WTRG Economics.

The federal Energy Information Administration is indispensable. It has a glossary which is available at eia.doe.gov and going to its Short-Term Energy Outlook. The link will also give you a list of energy experts.

They’ll help you mine and understand the agency’s information, which is vast. It’s probably best known for its weekly price and petroleum status reports, but it has a lot more to offer including reports on ethanol and other energy issues.

Becoming versed in the terminology also helps when attending industry conferences, which often offer an inside look at the energy business.

A few years ago, a trade group was blasting government officials for requiring so many different blends of cleaner burning fuels. That was creating bottlenecks in distribution and could only be fixed with fewer different blends, they said.

A conference attended by refinery managers had a different take. The various blends were indeed causing distribution problems but that was improving the crack spreads. The managers didn’t want the number of blends to decline.

“They’re good for us,” said one of them.

There are dozens of conferences to pick from, but I’ll give you a couple I like. The Cambridge Energy Research Associates’ annual conference in Houston covers oil, natural gas and electric and gives an opportunity to toss questions to top executives. At one of the conferences, I snared an interview with the head of Saudi Aramco.

But my favorites are the smaller conferences attended by mid-level executives and managers -- and rarely by reporters. An example: the OPIS National Supply Summit which is held annually and provides a look at the reasons for volatile fuel prices and the problems that causes. One of the summits had a presentation by a United Airlines executive that gave me early notice about the financial crunch that higher fuel prices were causing most airlines.

Beyond the conferences, check out the Organization of the Petroleum Exporting Countries’ monthly report, which can be downloaded at opec.org. It gives a detailed view of the world’s petroleum situation and each month has a feature article on an issue such as refinery capacity.  

And OPEC’s officials will respond to questions sent by e-mail from its Web page.

SEC documents are also useful in spotting trends. Frontier Oil Corp., in its filings, provided a tip about growing amounts of Canadian oil used by Midwestern and Rocky Mountain refineries. The oil was sold at steep discounts and forcing many small U.S. producers to close their wells.

State regulators are good sources on electricity and natural gas issues. The Federal Trade Commission seems to have lost its way but it has some interesting past documents about refinery capacity. The U.S. Accountability Office has various reports on the energy industry.

But I have to say, I’m surprised by how much can be gleaned from an industry that would just as soon not give it up. Just don’t forget that glossary.

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