Cheap Oil and Gas, Employment and OFWs

Bienvenido “Nonoy” Oplas Jr.

Minimal Government Thinkers

Cheap Oil and Gas,

Employment and OFWs

Presentation at Kapatiran DLSU, in partnership with

Development Economics classes,

De La Salle University, Manila

01 March 2016

Part 1: Cheap oil and gas

1. Oil and gas, prices and output

2. Oil and gas, number of rigs vs. production

3. Medium term outlook

4. Concluding notes

Part 2: Employment impact

1. Macroecon, jobs indicators, rich & emerging markets

2. Global remittances by country

3. OFWs destination countries

4. Saudi government finance

5. Concluding notes

Oil prices:

Left charts,

as of yesterday

http://oil-price.net/.

Lowest this year was

$26/barrel, early Feb.

Below chart,

WTI past 44 years,

adjusted for US

inflation.

Current prices are low

compared to 12-13

years ago, but higher

compared with late

90s prices.

Natural gas prices:

Left, as of yesterday, http://oil-price.net/

Below, past 8 years,

ttp://www.infomine.com/investment/metal-

prices/natural-gas/all/

Current prices are low since the previous decade

or even earlier.

Thanks to shale gas

revolution in the US, Canada,

other countries.

Medium term prices outlook is

stable low.

http://www.bloomberg.com/ne

ws/articles/2015-12-30/in-

world-with-too-much-crude-oil-

1-100-foot-steel-monsters-rule,

Dec. 30, 2015.

Glut in oil storage (left)

partly due to fast growth

in US shale oil output

(below), from 5-6 M bpd

in the previous decade to

current 9+ M bpd.

Four-week moving average of

US oil output, thousands of

barrels per day. http://www.businessinsider.com/us-

energy-production-boom-charts-

2014-12

Annual change in US Oil Production, 1960-2014.

Source: EIA

US crude oil inventories, 1985-2015.

Source: EIA, Bloomberg

Declining Rigs Versus Rising

Production (left) March 06, 2015

http://www.bloomberg.com/news/articles/

2015-03-05/the-price-of-oil-is-down-so-

why-is-production-still-going-up-

This clearly shows rising

productivity and output per rig.

Talk Markets, Feb. 16, 2015 Why The Price Of Oil Is More Likely To

Fall To 20 Rather Than Rise To 80

Rig productivity has acquired its

own momentum. And as oil

prices remain low, the search

for even higher productivity per

rig will rise further.

http://www.bloomberg.com/news/articles/2015-04-16/big-oil-is-about-to-

lose-control-of-the-auto-industry April 16, 2015

Oil Demand has flatlined for a decade

(US shale oil output

alone, from around 6.5

M bpd 2013 to 9+ M

bpd late 2014 until now.

Plus Canada shale…)

(While global oil demand

has generally flatlined,

see previous chart).

U.S. crude oil production (including lease condensate) increased during 2014 by

1.2 million barrels per day (bbl/d) to 8.7 million bbl/d, the largest volume increase

since recordkeeping began in 1900. On a percentage basis, output in 2014

increased by 16.2%, the highest growth rate since 1940.

U.S. oil production growth in 2014 was largest in more than 100 years, March 30,

2015. http://www.eia.gov/todayinenergy/detail.cfm?id=20572&src=email#

April 28, 2015, http://www.bloomberg.com/news/articles/2015-04-28/the-oil-rally-looks-doomed-in-five-

charts

NO MERCY. Above, Saudi Arabia output. Below, US fracklog, uncompleted wells

Sustained

decline in #

of oil rigs

since late

2014.

Closing

less

comm’l

ones.

Source: Mark P. Mills, “Shale 2.0: The emerging (American-driven) oil glut.”

Senior Fellow, Manhattan Institute for Policy Research, and CEO, Digital Power Group

http://www.businessin

sider.com/the-new-

structure-of-the-oil-

market-2015-8, Aug

9, 2015

Same pattern with US oil –

number of rigs decline but

overall output increases.

Meaning rising productivity

and declining cost per

shale rig. Perfect formula

to reduce the price in a

competitive environment.

http://www.bloomberg.com/ne

ws/articles/2016-01-14/for-

real-oil-prices-the-crash-is-

even-bigger-as-china-fizzles

Jan. 14, 2016

If already low nominal

prices are deflated or

adjusted for inflation to

get real prices, it’s

down to $20, $17 a

barrel.

Source: OPEC, World Oil Outlook 2015,

http://www.opec.org/opec_web/static_files_project/media/downloads/publicati

ons/WOO%202015.pdf, p. 48.

OPEC

projected in

2015 that oil

prices won’t

recover to

$50, $80 a

barrel (real

prices) until

a decade

after.

Interesting to

see their

new

projection

this year.

Concluding notes:

• Cheap oil is good. Especially for us oil consumers. Cheaper cost of

air, land and sea transport. Cheaper cost for farmers using tractors,

harvesters; for fisherfolks; for manufacturing, etc.

• Cheap oil though has negative effect on many OFWs based in Saudi

Arabia and UAE.

• Cheap oil hurts dictatorial governments more, many of them in OPEC.

Like Saudi Arabia, Iran, Venezuela. Also outside OPEC like Russia.

• Global capitalist competition is good. OPEC oil vs. Russia oil vs. US

shale oil and gas vs. others

• Medium term outlook, cheap oil will stay. Something like $40/barrel

average for the next few years.

Part 1: Cheap oil and gas

1. Oil and gas, prices and output

2. Oil and gas, number of rigs vs. production

3. Medium term outlook

4. Concluding notes

Part 2: Employment impact

1. Macroecon, jobs indicators, rich & emerging markets

2. Global remittances by country

3. OFWs destination countries

4. Saudi government finance

5. Concluding notes

The Economist, February 27th 2016,

http://www.economist.com/news/economic-and-financial-indicators/21693593-output-prices-and-jobs

Biggest economies in N. America, Europe & Japan have (1) low GDP gr, (2) low or neg. industrial

prodn., (3) near deflation prices, and (4) medium to high unempl. Greece, Spain outliers.

In contrast, rich and emerging economies in Asia (Japan and China not included):

(1) med. to high GDP growth, (2) mostly positive industrial prodn.,

(3) low consumer prices, and (4) low to medium unemployment rates, max 6.2%.

Low unemployment means more jobs are created, cheap oil has helped.

PH, from 7+ to only 5.6% unempl., more local businesses, can help absorb returning

OFWs from Saudi, UAE, others.

• Labor mobility and migration is a result of push and pull factors in both labor

exporting and importing countries. Labor-surplus countries have lower wages

and labor skills, labor-deficit countries have higher wages.

• If labor migration is heavily restricted via multiple regulations and permits,

wage gap and income inequality between the labor-surplus and labor-deficit

countries will worsen.

• If labor migration is less restricted, wage gap and income inequality between

the two group of countries will narrow or lessen. Global wages per industry and

sub-industry, wages per skills levels – other things being equal or held

constant – will move towards equilibrium or near-equality.

$ Billion 1984 1994 2004 2014 2015f R/GDP

India 2,293 5,855 18,753 70,389 72,178 3.4% China 403 395 6,640 62,332 63,938 0.6% Philippines 718 3,453 11,473 28,403 29,665 10.0% Pakistan 2,580 1,750 3,942 17,066 20,100 6.9% Bangladesh 501 1,150 3,582 14,969 15,760 8.6% Vietnam .. .. 2,310 12,000 12,252 6.4% Indonesia 53 449 1,866 8,551 10,487 1.0% Sri Lanka 301 715 1,586 7,037 7,189 9.4% Korea, Rep. 946 3,085 6,574 6,481 6,594 0.5% Nepal .. 50 823 5,878 6,718 29.9%

Thailand 893 1,280 1,620 5,655 5,714 1.5% Mexico 1,564 4,127 19,830 24,460 25,689 1.9% France 1,262 3,955 12,260 24,968 24,414 0.9% Nigeria 12 550 2,270 20,921 20,865 3.7% Egypt 3,960 3,670 3,340 19,570 20,391 6.8% Germany 1,964 4,405 6,581 17,629 17,494 0.5%

Belgium .. .. 6,867 11,494 11,060 2.2%

Spain 1,227 2,635 7,540 10,744 10,511 0.8%

Russia .. 4,568 2,499 7,777 7,871 0.4%

Lebanon .. .. 5,589 7,446 7,498 16.3%

Italy 3,274 2,418 2,176 7,256 7,176 0.3% USA 80 1,940 4,730 6,878 6,998 0.0% Poland .. 581 4,724 7,134 6,955 1.3% Morocco 874 1,830 4,220 7,053 6,680 6.6% Guatemala 3 285 2,632 5,837 6,408 9.9% Ukraine .. .. 411 7,354 6,212 5.6% World 35,361 85,677 226,426 580,365 588,199

Source: WB,

Migration and

remittances data,

October 2015. http://www.worldbank.org/en

/topic/migrationremittancesd

iasporaissues/brief/migratio

n-remittances-data

(click the excel data)

R/GDP --

remittances/GDP ratio

PH low in 80s, fast

90s, now 3rd biggest

recipient worldwide

China very low until

90s, very fast growth

in last 2 decades.

Bangladesh, Vietnam,

Nigeria coming very

fast too this decade.

Sources: BSP,

http://www.bsp.gov.ph/statistics/keystat/ofw.htm,

http://siteresources.worldbank.org/INTRANETTRADE/R

esources/WBI-Training/288464-

1247082428215/Daisy_Cabral.pdf

Differences in WB and

Bangko Sentral ng

Pilipinas (BSP) figures.

For instance, BSP

data: 2014 remittances

was $24.35 B (vs.

WB’s $28.4 B). For

2015 forecast, BSP’s

target is $25.3 B while

WB’s forecast $29.7 B.

Difference could be

due to diff. accounting

method used by the

WB that applies to

other countries in its

global database.

1. USA 1,998,932 17. Spain 38,291

2. UA Emirates 700,000 18. N. Zealand 37,299

3. Saudi Arabia 670,000 19. Guam 35,410

4. Canada 454,340 20. Oman 21,669 5. Malaysia 410,149 21. Norway 19,528 6. Japan 226,179 22. Thailand 17,581 7. Australia 189,969 23. France 14,280 8. Italy 129,788 24. Singapore 14,176 9. Qatar 185,000 25. Ireland 13,600 10. Kuwait 153,292 26. Austria 13,512 11. UK 126,972 27. Switzerland 13,213 12. China 121,320 28. N. Mariana Is. 12,324

13. Hong Kong 116,505 29. Netherlands 11,611 14. Germany 54,325 30. Macao 11,539 15. S. Korea 49,273 31. Sweden 11,468 16. Bahrain 43,971 32. Denmark 10,585 World 6,001,696

OFWs destination countries, 2013

US 9,653 China 452

UAE 3,496 Germany 252

Saudi Arabia 3,205 Bahrain 195

Canada 2,069 Spain 165

Malaysia 1,666 UK 563

Japan 1,001 New Zealand 161

Kuwait 844 Others

HK 564 TOTAL 28,403

Bilateral Remittance Estimates for 2013 using Migrant Stocks, Host Country

Incomes, and Origin Country Incomes (millions of US$) (April 2015 Version)

http://www.worldbank.org/en/topic/migrationremittancesdiasporaissues/brief/

migration-remittances-data

OFW Remittances by source countries, $ million, 2013

UAE and Saudi are huge sources of remittances. Cheap oil will affect

their revenues and hence, their capacity to employ foreign workers like

OFWs.

Revenues Expenditures Balance

2014 279 293 -14

2015 162 260 -98

2016 Est. 137 224 -87

Fiscal effect on Saudi Arabia -- from budget surplus to budget deficit, rising

from $14 B in 2014 to $98 B in 2015, highest in Saudi’s fiscal history,

despite significant spending cuts.

Meaning lower budget for public health, social sectors, physical

infrastructures, etc. Both direct and indirect spending (via private

contractors and suppliers).

Saudi government’s fiscal situation, in $ billion

Concluding notes

• Threat of reduced demand for OFWs in Saudi is real.

• But opportunities for employment in other countries, tourism-dependent

ones, will increase.

• Local businesses thriving, espec. tourism. High vehicles volume reported

in NLEX, SCTEX, SLEX, etc., meaning tourism in provinces booming.

• Cheap oil is one

proof we have

entered a period of

rising and

continuing world

abundance.

• The best is yet to

come. The young

people today are

lucky. But luckier

will be their

offspring.