WORKING DRAFT Last Modified 27/10/2010 11:29:57 GMT Standard Time Printed 27/10/2010 11:30:01 GMT Standard Time Where next? A perspective on oil supply and demand 25 th October 2010 Presentation to the Energy Club at London Business School 81 participants, plus 3 presenters CONFIDENTIAL AND PROPRIETARY Any use of this material without specific permission of McKinsey & Company is strictly prohibited [email protected]Daniel [email protected][email protected]
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WORKING DRAFT
Last Modified 27/10/2010 11:29:57 GMT Standard Time
Printed 27/10/2010 11:30:01 GMT Standard Time
Where next?A perspective on oil supply and demand
25th October 2010
Presentation to the Energy Club at London Business School81 participants, plus 3 presenters
CONFIDENTIAL AND PROPRIETARYAny use of this material without specific permission of McKinsey & Company is strictly prohibited
|SOURCE: IEA Oil Market Report July 2010; BP Statistical Review of World Energy 2010
OECD
0.9
US
2.1Non-OECD
-2.0
China
-3.7
China 0.7
Non-OECD 1.6
US 0.1
OECD -0.1
Change in demandMillion barrels per day1
However, OECD and Non-OECD demand behaved differently
2007-09 2009-10
1 OECD numbers incl. US, non-OECD numbers incl. China
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0
20
40
60
80
100
120
10 20 30 40 50 60 70 80 90 100
2010
202020302025
2015
1979
1982
1970
Global GDPTln USD, referenced to 2005
Oil consumptionMln barrels per day
We don’t expect a long-term departure from the historical direction…
SOURCE: Worldbank; McKinsey analysis
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2008 2010 2012 2014 2016 2018 2020
98
96
94
92
90
88
86
102
100
0
SOURCE: McKinsey supply and demand model
… which implies that demand growth will pick up over the next decade
Mbpd, assuming economic growth
Demand
Liquids unconstrained demand forecast
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|SOURCE: McKinsey Global Energy Insights
699
652
609
546
481
362
0.7% p.a.
1.2% p.a.
205020402030202020102000
+45%
Total world energy demand
Transport and industry sectors are expected to drive most of the growth in energy QBTU, Base-case1
Granular, bottom-up explicit forecast
Scenario based extrapolation
1 Base-case uses Global Insight GDP forecast, and $75/barrel real oil price2 New power model not yet shown in results
Energy demand per sector
Buildings
Industry
Energy sector
Transport
Power losses2
Other
144
0.8%0.8%
123105
+38%
138121108
0.7%0.6%
+29%
192
0.3%
2.0%
181
122
+58%
38
0.6%0.7%
20502030
34
2010
30
+30%
CommercialResidential
Chemicals
Machinery
Other industry
Other metals & mining
Pulp & paper
Steel
Power
Charcoal production
Coal mines
Oil and gas extraction
Oil refineries
Other energy
Pipeline transport
CAGR%
Absolute growth%
33
0.3%1.0%
20502030
31
2010
26
+30%
Agriculture
Food and tobacco
Construction
Other
Textile and leather
Wood and wood products
152
1.3%
1.3%
11992
+66%
Air traffic
Light vehicles
Trucks
Other transport
Rail
Shipping
PRELIMINARY
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And oil demand growth will be concentrated in China, the Arab Gulf, Latin America and IndiaMBD
Shipping 1.6
Air Traffic 3.2
Trucks 6.3
Chemicals 11.1 China
2.2
Arab Gulf
3.9Latam
5.4
India
8.2
Demand growth – Top 4 sectors Demand growth – Top 4 regions
Base-case (2010-30)1 Base-case (2010-30)1
1 Base-case scenario, based among others on $75/barrel oil price assumption and Global Insight GDP forecast
SOURCE: McKinsey supply and demand model
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10
20
30
40
50
60
70
80
90
100
110
120
130
20504515 25 35302007 20 40
Where can we realize substantially lower demand? MBD, Base-case1
SOURCE: McKinsey Global Energy Insights
1 Base case uses Global Insight GDP forecast and $75/barrel real crude price; Liquids include conventional crude, NGLs, condensate, refinery gains, biofuels, GTL, CTL, oil sands, extra heavy oil, and other unconventional liquids
2 Agriculture, power, other energy sector demand, and other undefined sectors
Other2
Buildings
Other Industry
Chemicals
Other Transport
Air Traffic
Trucks
Light Vehicles
▪ Could feedstock be replaced through shift towards natural gas?
▪ At what price will demand for chemicals be substituted?
▪ Could technology enable a large scale shift to new fuel types (H2? LNG?)
▪ What room is there for a shift to rail/boat?
▪ New fuel types for light vehicles?▪ Will regulation (Fuel Efficiency
standards) force a faster transition?
Key questions
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Contents
▪ Oil demand
▪ Oil supply
▪ Implications
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Our oil supply model is a global “bottom-up” approach
SOURCE: McKinsey analysis
Text
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UK base case: planned projects and substantial brownfieldwill slow down decline rate of production to ~5% annually
SOURCE: WoodMac, EIA, BP Statistical Review; Energy Files; McKinsey analysis
activities raises overall UK North Sea recovery factor from the current 45% to 49%
1 Brownfield activities include all satel lite redevelopments, infield drill ing, EOR and IOR activities2 Production from yet to find resources3 Total YTF resource estimate from DTI is ~6.2 bln bbls, excluding West of Shetlands and Scotland leaves ~4 bln bbls4 Deepwater production also avai lable in spli t between the 4 different wedges (i.e., existing, brownfield, YTD and YTF)
Assumed natural decline rate of 15% for fields that are in decline
Avg. net decline rate of 5% over ’08-’25 vs. 6.7% over ’00-’07
Assumptions YTD:? All currently planned
projects in WoodMac are taken into production Assumptions YTF2 :
? Assumed 80% of discover ies will come from Central North Sea
? West of Shetland not taken into production within next 15 years
? Assumed discovery rate of ~120
mbbls/year (avg. last 5 yrs) will decline slowly in next 15 years
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2008 2010 2012 2014 2016 2018 2020
94
92
90
88
86
98
96
102
100
0
SOURCE: McKinsey supply and demand model
We expect supply to grow to 2020
Mbpd, assuming economic growth
Supply
Liquids unconstrained demand forecast
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Mbpd
Supply capacity per country: 2010 – 2020
Non-OPEC
OPEC
2020 Baseline Comments
Others
SOURCE: McKinsey supply and demand model
2.4
7.9
0.6
0.9
0.7
0.9
3.2
0.8
3.7
1.6
3.9
2.1
3.5
8.2
3.0
0.4
2.3
2.0
2.5
2.7
5.0
2.4
2.9
2.0
3.8
3.7
15.2
9.1
0.1
1.3
-1.2
-0.1
0.1
-0.2
-0.3
1.5
-0.6
1.5
-0.7
0.6
-0.7
-0.4
1.0
-1.1
-0.1
0.3
0.2
0.5
0.7
2.4
-0.6
0.1
-0.7
0.5
-0.8
1.6
Growth, 2010-20
97.6 5.2
Saudi Arabia
Iran
UAE
Venezuela
Kuwait
Nigeria
Iraq
Angola
Algeria
Libya
Qatar
Ecuador
Russia
US
China
Mexico
Canada
Norway
Brazil
United Kingdom
Kazakhstan
Azerbaijan
Indonesia
India
Malaysia
Other non-OPEC
Bio-fuels
Other
Announced growth program to meet call on crude
Maturing fields
NGL growth (driven by gas development)
Lack of investment and activities
Working hard to stabilize (secure country budget)
Fiscal uncertainty, DW fields start declining
Above the ground limitations to ambitious program
New DW comes onstream
More investment, more development
Investment stalled with onerous fiscals
NGLs linked to gas
High underlying decline, challenging developments
GoM
Underinvestment
Oil sands
From stand-alone to satellites
Sub-salt
The mega fields and next wave
Mandates
Unexpected discoveries (+1) and shut ins (-0.5)
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1. Supply factor
constraints▪ E.g., Canada,
Kazakhstan, Brazil
2. Political
circumstances▪ E.g., Nigeria, Mexico,
Venezuela, USA
3. New discoveries▪ Brazil, US, Angola,
East Africa, Libya, Unknown
4. Secondary
development & EOR▪ Middle East., onshore
U.S., Europe
7. Alternatives (Biofuels)
5. Saudi Arabia
6. Geopolitical and
nature blockers or resolutions▪ E.g., Iraq, Hurricanes
0.7
-0.3-3.5
2.0
-2.0
2.0
-2.0
2.0
1.5
-1.0-2.0
2.5
-2.0
1.0
-1.5
Low High
Historic delays do not reduce; Canada not even developing 3 megaprojects in parallel (below NIB forecast)
Learning effects reduce resource claimsCanada: 4 megaprojects in parallel (CAPP case +0.5)
Another government worsens climate on funding, fiscal terms, access, approvals, etc; GoM moratorium (up to 0.5 mbpd)
Mexico or Nigeria improve upstream climate
No new unknown of 1 mbpd; creaming curve extrapolation too optimistic; Brazil sub-salt 25% of announced volume;
New Brazil sub-salt success;+1 mbpd more new unknown; or ANWR
Accelerating decline, less IOR Europe from 10% to 20% add’l recovery, and Russia mitigates decline from -0.5% to +0.5%; New IOR technologies
Higher decline, less oil development New capacity addition program
Iraq back in war, not reaching to 1979 peak of 3.6 mbpd
Iraq new infrastructure and full contract delivery.
Mandates reduced, or lower capacity to deliver
Base
-5 5.5
4.5
possible
realistic
Current mandates fully met
8-8
4-2
Compound statistical deviation 2020
assuming factors are independent +4-4
2
-2.5 +2
5-4
Seven determining factors for supply
SOURCE: McKinsey analysis
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0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
202020152009 20302025
IEA
Base case
EIA
Saudi Arabia2010 capacity
Full delivery case
LiquidproductionMln bbl/day
Implication on global balance (capacity vs. unconstrained demand)
For 2020▪ Oil price drops from “demand
destruction” to “supply reinvestment”level or OPEC budget balance▪ Oil sands, renewables and ultra-deep
water investments are at risk▪ Pressure within OPEC (Iraq would
become the second biggest producer, and cannibalize other’s earnings)
3
-3
Full delivery
Base
2020 2030
Full delivery
-15
Base
-21
Mbpd
Iraq: Full delivery and export on all contracts would tilt global balance
Full delivery case:
All 11 service contracts awarded in 2009 achieve their stated plateau level and duration with some delays
Base case:
Execution hampered and contracted fields achieve government required minimum plateaus for 4-7 yrs (not 7-13) with delays
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Macondo’s impact will be primarily on cost, lead times (and demand?) -not supply volume
1,000
1,100
1,200
1,300
1,400
1,500
1,600
1,700
1,800
1,900
2,000
20152010
GOM production Kboed
1
2
3
4
Less 165 kboed
Less 368 kboed
Less 568 kboed
9
8
6
5
2 3
8
28
Planned new rigs location
11
Other
Possible new rigs location due to DW GOMmoratorium1
Australia
North Sea
West Africa
SE Asia
Brazil
DW GOM
28
3
5
3
11
New deepwater rigs to come online in 2H 2010-11
1 Rigs mobility assumptions based on shipyard location, rig’s current location, operator’s assets portfolio, expert interviews and analyst reports