woodmac.com Trusted Intelligence John Coleman, Senior Analyst, North American Crude Market December 2018 Short term crude market outlook: global curtailments and pipe dreams
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woodmac.com Trusted Intelligence
John Coleman, Senior Analyst, North American Crude Market December 2018
Short term crude market outlook: global curtailments and pipe dreams
2
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-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2014 2015 2016 2017 2018 2019 2020
An
nu
al ch
an
ge
in
mill
ion
b/d
China Rest Asia US
Europe Other* Global
* Other includes Middle East,
Africa, Russia/ Caspian, and
Latin America
92
94
96
98
100
102
104
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2015 2016 2017 2018 2019 2020
Glo
bal su
pp
ly (
millio
n b
/d)
Year-
on
-year
ch
an
ge (
millio
n b
/d)
Global supply change Global supply (rhs)
1.7 1.5 2.5 0.4
Global liquids supply
Stronger global supply outlook: US and Iran upgraded, Canadian outlook cuts in 2019 Pace of global oil demand growth is maintained through 2020
Source: Wood Mackenzie
Global oil demand
1.08m 1.15m 1.33m
3
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0.0
0.5
1.0
1.5
2.0
2.5
3.0
2016 2017 2018 2019 2020
Millio
n b
/d
Condensate exports
ROW
NW Europe
Euro Med
South Korea
Japan
India
China
Iran liquids production
Iran: US sanctions waivers push up exports until May 2019
Production revised up during six month waiver period; exports assumed to drop if no renewal of waivers next year
Source: Wood Mackenzie
Iran crude and condensate exports
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Jan
-15
Jul-
15
Jan
-16
Jul-
16
Jan
-17
Jul-
17
Jan
-18
Jul-
18
Jan
-19
Jul-
19
Jan
-20
Jul-
20
Pro
du
cti
on
, m
illi
on
b/d
Oil Condensate
5
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Alberta Heavy crude curtailment impact (kb/d)
Alberta government announces production curtailment of 325 kb/d beginning in 2019
Curtailment serves as effective cap on West Canada production through 2019
Source: Wood Mackenzie North American Crude Markets Service
2000
2200
2400
2600
2800
3000
3200
3400
Jan-1
8
Feb
-18
Ma
r-1
8
Apr-
18
Ma
y-1
8
Jun-1
8
Jul-1
8
Aug-1
8
Sep-1
8
Oct-
18
No
v-1
8
De
c-1
8
Jan-1
9
Feb
-19
Ma
r-1
9
Apr-
19
Ma
y-1
9
Jun-1
9
Jul-1
9
Aug-1
9
Sep-1
9
Oct-
19
No
v-1
9
De
c-1
9
Jan-2
0
Feb
-20
Ma
r-2
0
Apr-
20
Ma
y-2
0
Jun-2
0
Jul-2
0
Aug-2
0
Sep-2
0
Oct-
20
No
v-2
0
De
c-2
0
Est. Heavy Crude Capacity (kb/d) Supply After curtailment
Curtailed supply w/ storage reduction
Note: Capacity utilization shown at 95% supply volumes shown after dilution and local refining consumption
-1.0
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
Millio
n b
/d c
han
ge
OPEC + Russia crude supply, excluding Iran
Saudi Arabia and Russia have added substantial volumes to the market
Helping to offset anticipated losses from Iran and continued declines in Venezuela
Source: Wood Mackenzie
OPEC and Russia crude production change,
April to October 2018
In order to offset losses from Iran,
OPEC and Russia have increased
supply by ~1.4 million b/d between April
and October
Decline through Q1
driven by
Venezuela Together, Saudi Arabia and Russia
have added ~1 million b/d since
production restraint was eased in
June
27.0
27.5
28.0
28.5
29.0
29.5
30.0
Jan-1
6
Jan-1
7
Jan-1
8
Jan-1
9
Jan-2
0
Millio
n b
/d
Base case Base case (annual average)
2018 2019 2020 Oct
’18
H1
2019
Saudi Arabia 10.3 10.0 10.0 10.6 10.0
Russia 11.2 11.3 11.3 11.5 11.3
Production, million b/d. Russia includes oil and field condensate
9
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US Lower 48 Crude and Condensate outlook: year-on-year growth forecast at 1.5 million b/d in 2018 and 1.1 million b/d in 2019
Strong Q3 performance leading to upward adjustments to the base
Source: Wood Mackenzie
US L48 onshore crude/condensate outlook
0
2,000
4,000
6,000
8,000
10,000
12,000
Jan-1
5
Ma
r-1
5
Ma
y-1
5
Jul-1
5
Sep-1
5
No
v-1
5
Jan-1
6
Ma
r-1
6
Ma
y-1
6
Jul-1
6
Sep-1
6
No
v-1
6
Jan-1
7
Ma
r-1
7
Ma
y-1
7
Jul-1
7
Sep-1
7
No
v-1
7
Jan-1
8
Ma
r-1
8
Ma
y-1
8
Jul-1
8
Sep-1
8
No
v-1
8
Jan-1
9
Ma
r-1
9
Ma
y-1
9
Jul-1
9
Sep-1
9
No
v-1
9
Jan-2
0
Ma
r-2
0
Ma
y-2
0
Jul-2
0
Sep-2
0
No
v-2
0
Oil P
rod
ucti
on
(m
bo
d)
Fayetteville Barnett Utica Marcellus
Haynseville_CV Niobrara Mid-Continent Bone Spring
Bakken / Three Forks Eagle Ford Wolfcamp Vertical / Other HZ
10
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Robust production growth comes at a price: market access concerns loom into 2019 and 2020 beyond the Permian
Bakken
2018
2019
2020 Rockies/
Guernsey
2018
2019
2020
Cushing
2018
2019
2020 Permian
2018
2019
2020
Corpus Christi
2018
2019
2020
Unconstrained market access
Constrains emerging/alleviating
and widened regional basis
Projected pipeline
constraints/widened regional basis
12
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Permian basin crude takeaway outlook: NGL pipes to the rescue
Source: Wood Mackenzie North America Crude Market Service
Permian Supply vs. Takeaway capacity
0
1
2
3
4
5
6
7
8
Jan-1
6
Ma
r-1
6
Ma
y-1
6
Jul-1
6
Sep-1
6
No
v-1
6
Jan-1
7
Ma
r-1
7
Ma
y-1
7
Jul-1
7
Sep-1
7
No
v-1
7
Jan-1
8
Ma
r-1
8
Ma
y-1
8
Jul-1
8
Sep-1
8
No
v-1
8
Jan-1
9
Ma
r-1
9
Ma
y-1
9
Jul-1
9
Sep-1
9
No
v-1
9
Jan-2
0
Ma
r-2
0
Ma
y-2
0
Jul-2
0
Sep-2
0
No
v-2
0
Jan-2
1
Ma
r-2
1
Ma
y-2
1
Jul-2
1
Sep-2
1
No
v-2
1
Jan-2
2
Ma
r-2
2
Ma
y-2
2
Jul-2
2
Sep-2
2
No
v-2
2
millio
n b
/d
Plains/XOM JV Permian Gulf Coast
Gray Oak Pipeline Cactus II
EPIC Pipeline Enterprise NGL Coversion Line
Sunrise Expansion Permian Express Phase 3
Midland-to-sealy Expansion Midland-to-Sealy (Mid-Ho)
Cactus Pipeline expansion Permian Express 2 expansion
Existing pipeline capacity Local refinery consumption
Supply
13
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2020 Permian pipe utilization forecast: over-pipe scenario broadly lowers most pipe utilization rates
Corpus Christi bound lines see strong utilization
Crane
McCamey
Colorado City
Cushing
Houston Beaumont
Corpus Christi
Wichita Falls
BridgeTex
West Texas Gulf
Cactus II
Orla
Freeport
Midland
<60% utilization
60-70% utilization
70-80% utilization
80-90% utilization
>90% utilization
Major Permian long haul pipeline utilization forecast 2020
Note: Pipeline route are for illustrative
purposes and not fully inclusive of all
Permian long-haul pipelines
14
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Permian volume surge into Corpus Christi forecast to create coastal export bottleneck
Corpus Christi export terminal volume forecast (kb/d)
0
500
1000
1500
2000
2500
Jan-1
8
Feb
-18
Ma
r-1
8
Apr-
18
Ma
y-1
8
Jun-1
8
Jul-1
8
Aug-1
8
Sep-1
8
Oct-
18
No
v-1
8
De
c-1
8
Jan-1
9
Feb
-19
Ma
r-1
9
Apr-
19
Ma
y-1
9
Jun-1
9
Jul-1
9
Aug-1
9
Sep-1
9
Oct-
19
No
v-1
9
De
c-1
9
Jan-2
0
Feb
-20
Ma
r-2
0
Apr-
20
Ma
y-2
0
Jun-2
0
Jul-2
0
Aug-2
0
Sep-2
0
Oct-
20
No
v-2
0
De
c-2
0
South Texas Gateway
Magellan
Flint Hills Ingleside
Moda Ingleside
Buckeye Partners Texas Hub
Nustar North Beach
Corpus Christi Export Capacity (kb/d)
Forecast
16
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Cushing inflows by supply source (kbd)
Growing Bakken & Rockies production cascades into the next potential bottleneck and pipeline battleground: Cushing
Midstream companies race to provide solutions for increased demand for transport from Cushing to USGC market
Demand for transport from Cushing to USGC
market vs. USGC bound capacity (kb/d)
0
500
1000
1500
2000
2500
3000
3500
Jan-1
8
Ma
r-1
8
Ma
y-1
8
Jul-1
8
Sep-1
8
No
v-1
8
Jan-1
9
Ma
r-1
9
Ma
y-1
9
Jul-1
9
Sep-1
9
No
v-1
9
Jan-2
0
Ma
r-2
0
Ma
y-2
0
Jul-2
0
Sep-2
0
No
v-2
0
Other
SCOOP-STACK
Permian
Rockies/Bakken
Canadian Light
Canadain Heavy
0
500
1000
1500
2000
2500
Jan-1
8
Ma
r-1
8
Ma
y-1
8
Jul-1
8
Sep-1
8
No
v-1
8
Jan-1
9
Ma
r-1
9
Ma
y-1
9
Jul-1
9
Sep-1
9
No
v-1
9
Jan-2
0
Ma
r-2
0
Ma
y-2
0
Jul-2
0
Sep-2
0
No
v-2
0
Light Crude
Heavy Crude
USGC transport capacity (kb/d)
Growing Canadian Heavy and Bakken/Rockies
production largely offsets Permian inflow
reduction in 2020
17
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Brent-WTI ($/bbl)
0.00
2.00
4.00
6.00
8.00
10.00
12.00
Jan-1
8
Ma
r-1
8
Ma
y-1
8
Jul-1
8
Sep-1
8
No
v-1
8
Jan-1
9
Ma
r-1
9
Ma
y-1
9
Jul-1
9
Sep-1
9
No
v-1
9
Jan-2
0
Ma
r-2
0
Ma
y-2
0
Jul-2
0
Sep-2
0
No
v-2
0
Brent-WTI spread to remain elevated until increased pipeline capacity offers relief for Cushing barrels into USGC market
Currently five projects proposed to alleviate existing and future Cushing bottlenecks – one FID will be needed to relieve forecast Cushing stock builds
Brent-WTI spread ($/bbl)
Cushing stocks (millions bbls)
Forecast
Permian to USGC pipeline
in-service modestly
reduces Cushing supply
inflows
0
10
20
30
40
50
60
70
80 Forecast
woodmac.com 18
Midstream companies rapidly progressing Cushing outflow projects in light of increased demand for USGC transport
Patoka
St. James
Corpus Christi
Houston (MEH)
Beaumont
Capline Reversal
Seahorse
(800 kb/d) Voyager
(250 kb/d)
Red Oak
(400 kb/d)
Liberty
(350 kb/d)
Pony Express
(400 kb/d)
Cushing
Diamond Expansion
(200 kb/d)
Projects on the table to debottleneck
Cushing:
• Seahorse (Tallgrass Energy, 800 kb/d)
• Voyager (Magellan, Navigator, 250 kb/d)
• Red Oak (Phillips 66, 400 kb/d)
• Gladiator (SemGroup, capacity not
announced)
• Diamond Expansion (Plains, (200 kb/d)
Existing Pipeline
Proposed Reversal
Proposed New Build
Memphis
Bakken
Powder
River
basin
Guernsey
Gladiator
20
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