The interplay between U.S. and global energy markets is a specialty of Kelly Bennett, director of research and analytics at Ponderosa Advisors. The company was founded about a year and a half ago by Bennett’s father, Porter, after the sale of Bentek Energy, which he also founded. Ponderosa is an advisory firm for the energy, agriculture and water sectors.

Kelly leads a number of Ponderosa’s research and market engagement efforts. A native of Denver, Colorado, where Ponderosa is based, Bennett’s interest in European energy policy took hold during his years at Occidental College in California, where he graduated with a degree in diplomacy and world affairs. At the time, struggles between Russia and Eastern and Western Europe over natural gas supply were multiplying. An internship with Sempra Energy deepened his interest in investment in natural gas infrastructure in the European space. Joining Bentek after college, he founded the global energy desk.

Outside of the office, Bennett is involved in a nonprofit, Project Uplift, which provides support for atrisk youth through school and beyond. In a recent interview, he discussed the growing interdependency of U.S. and global markets.

Investor: What piqued your interest in the European energy market?

Bennett: In the early to mid-2000s you had a captive market at the end of the pipe, with dwindling indigenous supply, crazy regulations coming into play—the market was rife with uncertainty. At the same time, it was trying hard to develop a liquid traded market like the U.S., but it had no concept of what the U.S. market was like.

Investor: What is the status of that market today?

Bennett: Today I see a market destroyed by poor regulation from the European Union. It’s a market where brand-new, gas-fired power plants will not be brought online because they are so out of the money. There is a fleet of less-than-five-year-old, gas-fired power stations that will be furloughed soon.

Partly it’s because of the way the Europeans mismanage and over-regulate their market; partly it’s an unintended consequence of the U.S. shale-gas revolution—the nexus of U.S. production growth and global impact.

Investor: What is the effect?

Bennett: It’s turned the global gas market on its ear. As we’ve produced more gas and used it in the power stack, coal is getting pushed out to the global market. In Europe they are consuming much of what we don’t use, so coal prices have fallen compared to natural gas prices that are indexed to oil, and some of the infrastructure completed over the past five years that was supposed to burn natural gas will be mothballed.

Investor: How about liquefied natural gas?

Bennett: U.S. shale-gas production has pushed out well over 10 billion cubic feet (Bcf) per day of LNG imports that we were expected to be importing now, driving global price spreads. Global markets have adjusted a lot closer to crude relative to U.S. spot natural gas, so we remain the low-priced island.

Investor: What E&P themes do you see?

Bennett: There is a huge focus on reducing costs and on environmental mitigation. Producers have to reduce their per-unit cost of production and find ways to step out ahead of regulatory response. Some of this comes in the form of innovating more efficient processes like water management and drilling programs. I think this focus will allow production to continue to grow, even if faced with weak commodity prices.

On the demand side, it’s all about figuring out how to use natural gas and deal with the impending refining issues in the crude market. At the same time, it’s not clear we’ll develop all the demand we need for natural gas liquid products. Again, how will that flow out into the global market? The next 10 years could see significant growth in U.S. export of many of the energy commodities and their derivatives that we produce.

Investor: Will there be a significant demand response for gas?

Bennett: I think it will be muted, because our regulatory regime is not too dissimilar to Europe’s. While we will see a boost in gas-fired power generation, it may not be any easier in two years to permit an ammonia plant than it is today. In the industrial and manufacturing segments, generating heat and steam with natural gas is only a small incremental impact.

As for the direct reduced iron process using natural gas, unless you can get all the fabrication facilities and production lines involved as well, it’s still a question mark.

Investor: How can independents strategize?

Bennett: Many opportunities to add and lock in value are going to be outside of the U.S. Opportunities are going to be associated with innovative marketing and creative asset integration, both domestically and internationally.

With the natural gas price outlook that we have, range-bound at less than $6 for at least 10 years out, producers will have to be leaders in the market and boost value of production. It’s no longer acceptable to say your business is just producing and selling at the lease.

The diversity of production is staggering and also offers opportunity. Producers need to figure out how their production fits into specific regional markets and tie it back into global market trends and opportunities.