October 2015, Vol. 242, No. 10
Features
Music Worlds Loss Became Energys Gain
Jon Ecker would seem to have it all: an expert researcher, a successful entrepreneur, and a passion for the energy industry. Put it all together and you have an important piece of Genscape Inc., an analytical intelligence firm that has emerged as one of the leading information providers in the oil and natural gas businesses.
Ecker began working as a researcher in 1987; the following years were spent growing his expertise in database and spatial product development and management. He would build and sell various businesses specializing in natural gas, electricity and coal products along the way before joining forces with Genscape in January 2009 as managing director, natural gas.
In this interview, Ecker discusses the role energy analytics plays in the fast-changing business and offers a compelling perspective on the industry’s future.
P&GJ: Jon, where did you grow up, what were your interests as young man, and what led you into a career in the energy industry?
Ecker: I grew up in Boulder, CO mostly. My father was a professor of fine arts at the University of Colorado and we had the opportunity to move during faculty fellowships, sabbaticals and summers. I lived in Maine, New Mexico, Ohio, New Jersey, Florida and Michigan. My primary interest was music. I was in a very successful, all-original local band that was invited to play South by Southwest and the New York New Music Seminar. I managed the band financials and learned how to account for P&Ls and depreciation schedules.
I got into the energy industry when I ran into a friend’s father in downtown Boulder. His name was Ron McMahan and he had recently moved his company from Denver to Boulder. The company was Resource Data International (RDI) that later became Financial Times Energy and eventually Platts Database and Spatial product group. I found the money was good and traded my life of fame for a life of reliable income.
P&GJ: What was your energy background before joining Genscape, and why did you join the company?
Ecker: Prior to Genscape, I was the head of FT Energy’s database and spatial products, the head of Platts database and spatial products, and the president and co-founder of Energy Velocity (currently known as the Ventyx Velocity Suite). After selling Energy Velocity I realized that I would not be a good fit in the Ventyx organization so I took a year off to travel. I decided to join Genscape because we invent and patent technologies that provide data that nobody else can. I’ve consistently built products that became the market-leading provider for fundamental energy data, and I thought it would be great to layer my expertise in public data and analytic applications on top of the Genscape proprietary data.
P&J: Since Genscape began in 1999, what was its scope of business and when did it begin offering energy coverage as a core product?
Ecker: Genscape was founded on the ability to provide proprietary real-time data on power plant generation and outages. We have always focused on energy but we began to expand from power and into oil and natural gas around 2008.
P&GJ: With the growth of so many energy and commodity-related analytical companies today, a) what makes Genscape unique in this business? b) How competitive is the analytical business today and c) What does it take to succeed in this sector?
Ecker: Genscape is unique in that we invent and patent technologies that provide market data that is otherwise unavailable. We then marry our proprietary data with public data to provide a more complete picture of the market fundamentals. There are at least a few competitors from an analytic perspective in each of our market segments, but Genscape is fortunate in that we have exclusive access to proprietary data and having more data makes for better results.
In my opinion there are several factors critical to success in the energy analytics space.
First, you need high-quality data: Much of the public data is considered by the energy industry to be commoditized, and to some extent that is true. In the natural gas business, there is a lot of public data but it’s often reported inconsistently. Our competitors have trained the market to believe that there are two or four cycles reported per day by interstate pipelines when in reality there can be nearly 50 cycles. Additionally, many of the attributes reported in the data can be misleading. Our competitive advantage starts with managing the public data better than the competition.
Second, you need more complete coverage: All of the public data in the energy markets have gaps. In the natural gas market, those gaps are in the intrastate markets. Any pipeline that doesn’t cross a state border is exempt from reporting to FERC. In the power market, the public data coverage is very good but it’s delayed. In oil, there simply isn’t a lot of data available outside of the EIA and what is available is also delayed. Genscape is in the unique position to be able to invent a method of providing that market data. Getting this data is very expensive and requires a lot of innovation. Our methods of collection include aerial diagnostics, infrared and high-definition cameras, radio monitors, electro-magnetic field monitors, and satellites, just to name a few.
Third, you need market experience: Many of our customers get their analysts fresh out of school and train them to do market analysis. Each of our product leaders has direct extensive market experience. They have traded markets, run gas and oil fields, managed plants and worked in the supply chain.
Fourth, you need customer focus: Our customers are not always right but they do pay our salaries. A lot of companies talk about being customer-focused but we work for our customers. We’re always available to them via phone, IM, email and text and we’ll do our best to get answers we don’t already know.
Fifth, you need to have fun: Genscape employees take both their work and their play seriously. It’s fun to come to the office and we enjoy what we do.
P&GJ: You’ve been in energy business analytics for 20 years, what continues to drive your interest?
Ecker: The energy markets are fascinating. Just when you begin to think you know something about the markets some major disruption comes along to prove you wrong and keep things interesting. We’ve seen it play out with power deregulation in the 1990s, the combined-cycle plant overbuild in the late 1990s and early 2000s, peak oil and LNG imports followed by the shale revolution and soon-to-be LNG exports. What’s not to love about an industry where the plot changes every three to five years?
P&GJ: Three of your main focal points are electricity, natural gas and coal. What do you see as the future of each? Can coal make a comeback, and what percentage of power generation will it eventually fall to? Since there will be no alternative once power generators switch of gas, will there be enough to accommodate the electric generation industry while also supplying products for LNG exports, residential and commercial heating, and petrochemical feedstock? Do you see a future for natural gas as a transportation fuel?
Ecker: This is the trillion-dollar question. What I think is likely to happen is not well-aligned with what I think should happen, but I am not king of the United States.
On the coal question, I think taking steps to control mercury is a good idea. I was not a fan of the maximum achievable control technology (MACT) rule, primarily because it set the standard at the average of the top 15 performing units. This means that half of the units that would define the standard would not achieve the standard. I think the lessons learned from the acid rain cap-and-trade program should have helped define a reasonable market solution with real caps on what can be emitted.
When the acid rain ruling was enacted, the estimated costs were in the hundreds of billions of dollars. Instead, it broke down political boundaries that were propping up high-cost, high-sulfur coal markets with the ultimate result of saving hundreds of millions of dollars while improving air quality. I think it’s likely that MACT, or something like it, will return in the near future, and that is the harbinger of death for coal. Even without mercury emissions limits, coal has a real public relations problem that makes a comeback highly improbable as long as natural gas is cheap.
If the United States becomes dependent on natural gas as the primary source of electricity and heating, we’re going to see extraordinary price volatility. My concerns over the next couple decades are less for the ability to produce what we need, and more about the ability to meet peak demand transportation requirements. We have seen in the New England market, where there is very little coal generation, what happens when you expand the residential service without adding transportation capacity. Algonquin Pipeline commonly reaches its maximum deliverability thresholds.
During these constrained periods we have seen that deliveries to power plants have shrunk as a percentage of total deliveries at the same time as prices go higher. This is the result of price-insensitive distribution systems competing with power plants for the molecules. The competition doesn’t end until the power plants get to a price point where oil can displace natural gas. The problem is that short-term price volatility doesn’t yet justify infrastructure expansion. When coal is not available, many parts of the country will experience the same kind of volatility that happens today in New England.
LNG is going to be a fascinating addition to the U.S. market. I don’t believe that we should be exporting our raw materials, but since I’m not king and billions were invested in what have become stranded regasification facilities, it makes sense to let those stranded facilities retool for export. If anything near the frenzied rush toward LNG exports materializes, I think we’re looking at another long-term solution to a short-term problem. So many facilities will be built that capacity will quickly outpace demand and the value of the facilities will be severely diminished. I think it will look a lot like the combined-cycle overbuild.
I think there is a future in LNG as a bunker fuel on ships and in rail transportation. There will be an expansion in demand for CNG trucks but I don’t see a lot of residential adoption. I think consumers are more likely to adopt electric vehicles than gas vehicles but of course that should drive more natural gas electricity demand.
P&GJ: Where are we in terms of electric/natural gas integration? What are the biggest challenges facing this?
Ecker: Electric/gas coordination is important. I think it works best today on the hourly pipelines and they should serve as a starting point for further integration. Alternatively, we might want to think about a time zone-dependent coordination option so West Coast operators aren’t looking at being functional at 4 a.m.
P&GJ: Although the gas industry has strong backing from the Obama administration, is the era of natural gas here to stay despite the efforts of some to restrict fracking and infrastructure development in the name of climate change? Are there other potential drawbacks to growth of the industry?
Ecker: There are always drawbacks to any industry. The challenge comes in managing the abuses and mistakes that happen in the early days of developing any new technology. Realistically, we don’t have any viable option today except natural gas. Public sentiment tells us that coal is bad, nuclear is bad, hydro is bad, even wind and solar have their detractors. Renewable options simply can’t sate our thirst for energy. More houses have air conditioning than any time in history and that just makes the ambient outside temperatures hotter in the dense city landscapes, driving anyone who doesn’t have air conditioning to need it.
You can’t put enough solar panels up to meet air conditioning demand. That alone is enough to tell me that we will continue to produce natural gas but we can add to that the greed factor. Everything takes money and oil and gas are making a lot of money for companies, employees and governments. We will find a way to produce whatever we need as long as there is something in the ground to produce or until cold fusion becomes a reality.
P&GJ: How long to you believe the low-price environment for natural gas will last and do you see many producers deciding to shut in their wells, or move into gas liquids? Are we about to see the start of a new natural gas hub in the Northeast?
Ecker: I think that we will begin to see a new era of volatility in the next two years. This won’t likely bring consistency back to the oil and gas markets. Small and midsize producers have little incentive to produce less and manage supply to demand like the majors and the Middle East have done for decades. As long as these new producers can stay solvent we are going to continue to see innovation drive efficiency and new creative solutions in oil, natural gas and NGLs.
I think we need a new hub in the Northeast. Henry is starting to look like a demand hub with coal to gas switching in the Southeast and we are about to layer LNG export demand on top of that. A strong liquid hub in the Northeast would be a great addition to the market.
P&GJ: What’s your outlook for new pipeline construction? What is needed and where? Do you see a permanent geographical shift from the Northeast to the South?
Ecker: As we move from coal to gas across the nation, it will require a lot of additional pipeline construction. When this first round of infrastructure moving gas out of Marcellus in every direction is complete, it will be interesting to see how quickly the producers fill it up so it becomes a constraint again. At that point, we will likely see another round of Marcellus expansions. I think the area to watch first though will be the impacts of the REX expansion west. Marcellus should push through to Chicago, creating price pressure on the Rockies and MidCon with MidCon losing market share. Then the question will be how much MidCon gas can make it into the Southeast and Gulf. There is some capacity to flow gas that direction but I don’t think there will be enough to avoid constraints.
(Editor’s Note: The views and opinions expressed in this interview are the interviewee’s own and are not necessarily representative of the opinions of Genscape.)
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