Markets and Politics Bob Tippee Editor, Oil & Gas Journal PVF Roundtable General Assembly Meeting Aug. 18, 2009
Dec 26, 2015
Markets and Politics
Bob TippeeEditor, Oil & Gas JournalPVF Roundtable General Assembly MeetingAug. 18, 2009
World oil demand (MMb/d)
0
10
20
30
40
50
60
70
80
90
100
2004 2005 2006 2007 2008 2009F
OECD
Non-OECD
Source: IEA
83.9
-2.8%
86.3
-0.2%FR: 85.4
IEA’s demand view
-3
-2.5
-2
-1.5
-1
-0.5
0
0.5
1
1.5
2
Jan Apr Jul Oct Jan Apr Jul
Y-Y change
Million
b/d
Forecast month
2008 vs. 2007
2009 vs. 2008
Source: IEA Monthly Oil Market Report for each month indicated
To 83.8 MMb/d for ‘09
World oil supply (MMb/d)
0
10
20
30
40
50
60
70
80
90
100
2004 2005 2006 2007 2008 2009F
Proc. Gain*
OECD
Non-OECD
OPEC**
*Plus other biofuels. Source: IEA
84.6
-2.2%FR: 85.7
Non-OPEC supply (MMb/d)
50.1
50.2
50.3
50.4
50.5
50.6
50.7
50.8
50.9
51
51.1
2006 2007 2008 2009F
Non-OPEC
Source: IEA; Note: Includes OPEC members as of 1-1-09. Angola (1.7 MMb/d), Ecuador (0.5 MMb/d) joined OPEC in ’07. Indonesia withdrew from OPEC in ’08.
Forcing balance (MMb/d)
Demand 83.9
Ex-OPEC supply
-51.0
OPEC liquids -5.2
Stock change +0.5*
OPEC crude -28.2 0*
Source: IEA *OGJ assumption.
The market: a snapshot
Demand will be down in ’09 – but the amount of expected decline is stabilizing
Cushions thick: stocks, p’n capacity OPEC has tried to follow demand
down with production cuts Demand revival depends on economy
The questions
What drives prices? Fundamentals (supply and demand) Investment flows Currency fluctuations
Will OPEC wait too long to raise output? Non-OPEC output? Role of speculators?
US energy shares
0%10%20%30%40%50%60%70%80%90%
100%
Hydro, other
Nuclear
Coal
Gas
Oil
Source: EIA for 2004-08
US product demand (MMb/d)
0
5
10
15
20
25
2004
2005
2006
2007
2008
2009
FR
2009
MY
Others
LPG, ethane
Resid
Distillate
Jet fuel
Mogas
18.76
-3.4%
Note: Before exports (1.76 in ’08; 1.85 in ’09). Source: EIA for 2004-08.
18.73
-3.9%
Gasoline, distillate demand (MMb/d)
0123456789
10
2004
2005
2006
2007
2008
2009
FR
2009
MY
Gasoline
Distillate
Source: EIA for 2004-08
3.76
-4.7%
9.01
+.02%
Gasoline, ethanol use (MMb/d)
0
1
2
3
4
5
6
7
8
9
10
2004 2005 2006 2007 2008 2009MY
Gasoline
Ethanol
’09 is mandate (724 Mb/d)
9.01
+0.2%
Source: EIA for 2004-08
EISA mandate: 2.4 MMb/d in 2022 (all biofuels)
ULSD, biodiesel use (MMb/d)
0
0.5
1
1.5
2
2.5
3
3.5
2006 2007 2008 2009MY
0-15 ppm S dist.
Biodiesel
Source: EIA for 2006-08
3.008
-6.2% Applied 80% factor to dist. demand
’08 production: 44,500 b/d;
’08 consumption: 20,900 b/d
’22 mandate:
326,160 b/d
Industry oil imports (MMb/d)
0
2
4
6
8
10
12
14
16
Products
Crude
12.15
-5.8%
65% of demand
Source: EIA for 2004-08
US refining
16.4
16.6
16.8
17
17.2
17.4
17.6
17.8
78
80
82
84
86
88
90
92
94
Capacity
Utilization
MMb/d %
Source: EIA for 2004-08
US total liquids production (MMb/d)
0
1
2
3
4
5
6
7
8
NGL, LRG
C and C
7.05 +4.6%
Source: EIA for 2004-08
US gas consumption (tcf)
20.5
21
21.5
22
22.5
23
23.5
24
Cons.
Fcst.
Source: EIA for 2004-08
22.75
-2.0%
Marketed gas production (tcf)
21.2 +5%
Source: EIA for 2004-08
0
5
10
15
20
25
Other
Fed GoM
Louisiana
Texas
21.23
-1.0%
US gas imports (tcf)
-2
-1
0
1
2
3
4
5
2004
2005
2006
2007
2008
2009
FR
2009
MY
Exports
LNG
Mexico
Canada
LNG 0.53
+50%
Source: EIA for 2004-08
US drilling--completions
0
10,000
20,000
30,000
40,000
50,000
60,000
2004
2005
2006
2007
2008
2009
FR
2009
MY
Comp.
Fcst
43,384 -16.7%
Source: API for 2004-08
36,788
-29.4%
US drilling – rig count
0200400600800
1,0001,2001,4001,6001,8002,000
Rigs
Fcst.
Source: Baker Hughes for 2004-08
1,503
-19.5% 1,235
-33.9%
The budget’s costs (ex. climate) Measure 2010-19 receipts
(billion $)
Superfund 17.2
GoM tax (deepwater) 5.3
IDC 3.3
Tertiary injectant 0.062
Passive loss 0.049
Manufacturers’ tax 13.3
G&G amortization 1.19
Percentage depletion 8.3
GoM (use or lose) 1.2
Total 49.9
Renewables instead of oil – 1
“The [measure or its result], like other oil and gas preferences the administration proposes to repeal, distorts markets by encouraging more investment in the oil and gas industry than would occur under a neutral system…”
From Treasury Department explanations of budget oil, gas provisions:
Renewables instead of oil – 2
“…To the extent the [measure or result] encourages overproduction of oil and gas, it is detrimental to long-term energy security and is also inconsistent with the administration’s policy of reducing carbon emissions and encouraging the use of renewable energy sources through a cap-and-trade program.”
Arithmetic of subsidies - 1 Oil & gas in 1981
38.1 x 1015 btu $10.9 billion
subsidies (percentage vs. cost depletion and expensing E&D costs)
Ethanol in 2007 550 x 1012 btu $3.2 billion
subsidies
29¢/MMbtu $5.82/MMbtu
Source: “Federal Financial Interventions and Subsidies in Energy Markets 2007,” Energy Information Administration, April 2008
Arithmetic of subsidies - 2 Oil & gas in 2007
30.57 x 1015 btu $1.74 billion
subsidies (various, mostly for small producers)
Ethanol in 2007 550 x 1012 btu $3.2 billion
subsidies
5.7¢/MMbtu $5.82/MMbtu
Cost to displace oil and gas
By 5% from projected 2020 usage levels
Assuming $6/MMbtu subsidization of 2.93 quads of solar, wind, and biofuels
Requires subsidies totaling $17.6 billion
NOTE: 2007 subsidy levels: solar $7.16/MMbtu, wind $6.87/MMbtu (production), $5.82/MMbtu ethanol (consumption/blending)