0,79,85 medium-term oil market realities’: consensus & · pdf filemedium-term oil...
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Medium-Term Oil Market ‘Realities’: Consensus & Risks
November 2013
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Disclaimer
The information contained in this presentation (the “Presentation”) is being provided by Gunvor Group Ltd (the “Company”) and its subsidiaries (together with the Company, the “Group”). The Presentation is for information purposes only and any information made available orally or in writing at the Presentation is strictly confidential and may not be distributed, published, copied or reproduced (in whole or in part) or disclosed by its recipients to any other person for any purpose, at any time or in any form other than with the prior written consent of the Company.
This Presentation does not constitute or form part of and should not be construed as, any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any securities to any person in any jurisdiction nor shall it (or any part of it), or the fact of its distribution, form the basis of, or be relied on in connection with or act as any recommendation or inducement to enter into, any contract, commitment or investment decision whatsoever relating to any securities. The information contained in this Presentation, unless otherwise specified, is only current as of the date of this Presentation and is subject to further verification and amendment in any way without liability or notice to any person. The information contained in this Presentation has not been independently verified. The Company, all members of the Group and their respective associates or directors, officers, employees, advisers or representatives expressly disclaim any duty, undertaking or obligation to update publicly or release any revisions to any of the information, opinions or forward looking statements contained in this Presentation to reflect any events or circumstances occurring after the date of this Presentation. No undertaking, representation or warranty or other assurance, express or implied, is made or given as to the accuracy, completeness, sufficiency or fairness of the information or opinions contained or expressed in the Presentation or any information made available orally or in writing at the Presentation (or whether any information has been omitted from the Presentation) and, save in the case of fraud, no responsibility or liability is accepted by any person for any loss, cost or damage suffered or incurred as a result of the reliance on such information or opinions or otherwise arising in connection with the Presentation. In addition, no duty of care or otherwise is owed by any person for any loss, cost or damage suffered or incurred as a result of the reliance on such information or opinions or otherwise arising in connection with the Presentation. Recipients of the Presentation should conduct their own investigation, evaluation and analysis of the business, data and property described in the Presentation. This Presentation contains unaudited financial information in relation to the Group.
This presentation includes statements that are, or may be deemed to be, ‘forward-looking statements’. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms ‘targets’, ‘believes’, ‘anticipates’, ‘expects’, ‘estimates’, ‘intends’, ‘plans’, ‘will’, ‘may’, ‘could’ or ‘should’ or similar expressions or by discussions of plans, objectives, goals, strategies, future events or performance and underlying assumptions. These forward-looking statements include matters that are not historical facts or are statements regarding the Company’s intentions, beliefs or current expectations. Forward-looking statements are based on current plans, estimates and projections, and therefore too much reliance should not be placed upon them. Such statements are subject to risks and uncertainties, most of which are difficult to predict and generally beyond the Company's control. If the assumptions underlying any of these statements prove incorrect, the Company’s actual results of operations, financial condition and liquidity and the development of the industry in which the Company operates may materially differ from those made in, or suggested by, the forward-looking statements contained in this Presentation. The Company expressly disclaims any obligation or undertaking publicly to review or confirm analysts expectations or estimates or to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any changes in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
Neither this Presentation nor any copy of it may be taken or transmitted into the United States of America, its territories or possessions, or distributed, directly or indirectly, in the United States of America, its territories or possessions, except in reliance on or an exemption from the registration requirements of the U.S. Securities Act of 1933, as amended. Any failure to comply with this restriction may constitute a violation of United States securities laws. This Presentation is not an offer of securities for sale in the United States.
This Presentation is directed solely at (i) persons outside the United Kingdom, (ii) persons with professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 as amended (the "Order") or (iii) high net worth entities or any other persons to whom an invitation or inducement to engage in investment activities may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons in (i) -(iii) above being "relevant persons"). Any investment activity to which this presentation relates will only be available to and will only be engaged with relevant persons. Any person who is not a relevant person should not view this Presentation.
This Presentation is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of, or located in, any locality, state, country or other jurisdiction where such distribution or use would be contrary to law or regulation or which would require any registration or licensing within such jurisdiction.
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Pump It Move It Refine It Store It Sell It Move It
Gunvor: Providing liquidity along the supply chain
• Origins: trading Russian crude since 2000
• Now becoming more diversified geographically, across products and along the value chain
• But trading remains central
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Gunvor: A diversified & balanced trading portfolio
Asia & Middle East 20%
WesternEurope
North America
Latin America
AfricaAsia & Middle East 30%
Western Europe
North America
Latin America
Africa
2009: USD $50.4 bn 2012: USD $93 bn
Crude Oil
(60%)Fuel Oil
Gasoil
Gasoline
Naphtha
LPG Biofuel
Crude Oil
(30%)
Fuel Oil
Gasoil
NatGas +
LNG
Coal
Gasoline
Naphtha
LPG Biofuel
2009: 110 mn tons 2012: 130 mn tons
Revenue by region
Trading volumes
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Medium-term oil market ‘realities (…or are they?)
1. Robust economic recovery as a ‘given’
2. Emerging markets to drive 1 mb/d yearly demand growth
3. Europe will close another 1 mb/d of refining
4. A North American supply revolution
5. The inevitable rise of Iraq, and a new, bipolar OPEC
6. Easing market fundamentals & higher OPEC spare capacity
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The big picture: easing oil market fundamentals
Source: IEA Medium Term Oil Market Report, May 2013
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Oil demand & the macro economy: reverting to trend?
-3
-2
-1
0
1
2
3
4
5
-3
-2
-1
0
1
2
3
4
5
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
mb
/d v
s. b
ase
cas
e
real
GD
P g
row
th,
%
Economic risks & oil demand
oil demand impact IMF 09/11 IMF 10/12
low growth IMF 4/13
2
2.5
3
3.5
4
4.5
5
2011 2012 2013 2014
World GDP projectionsIMF forecast by release date
Oct-13
Jul-13
Jan-13
Oct-12
Jul-12
Jan-12
Sep-11
Apr-11 6
6.5
7
7.5
8
8.5
9
9.5
10
2011 2012 2013 2014
China GDP projectionsIMF forecast by release date
Oct-13
Jul-13
Jan-13
Oct-12
Jul-12
Jan-12
Sep-11
Apr-11
+1.0
mb/d
annually
IEA
MTOMR
EIA
Intl Energy
Outlook
OPEC
World Oil Outlook
Consensus oil demand growth
2010-2020 (+4-4.5% GDP)
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Key risks on the macro economy
US
sta
gn
ati
on
, p
oli
cy
gri
dlo
ck
, h
ou
sin
g m
ark
et
rec
ove
ry s
tall
s
Source: SocGen; Gunvor
• Recovery is underway, but the balance of risks
could still drag growth to the downside compared to consensus
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Is a structurally lower demand trajectory possible?
Source: Citigroup Research, 2013
Oil Demand Also to Depend on Efficiency Gains & Substitution (mb/d)
LNG Supply Increments (mtpa)
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Major new refining capacity in Asia, Mid.East, Lat.America
Source: IEA MTOMR 2013
• Simple arithmetic: +6 mb/d demand confronts +8-9 mb/d of new refining capacity during 2013-2018.
• Around 1 mb/d of upgrading additions annually too
• Much of the new build in Asia, Middle East & Latin America is designed to improve self sufficiency or to create export hubs
• So less prone to run cuts than commercially operated capacity elsewhere
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Capacity build & demand prompt inter-regional trade
• US is already seeing rising crude output, less imports, maturing oil demand, so trade shifts to products exports
• New refining hubs in the Middle East and other producing areas, emergence of India and China as exporters of key products
• Global products trade to grow faster than crude in the next decade
• Products tanker order book is rising (86% of new orders in 2013)
-1.5-1
-0.50
0.51
1.52
2.53
3.5
incr
em
en
t, m
b/d
Refining additions vs oil demand growth 2011-2017
Primary refining additions Oil demand growth
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More European downstream consolidation to come?
Teesside
Grangemouth
(Petrochina)
Stanlow:
Essar -> Shell
Milford Haven
WhitegateCoryton
Gothenburg:
Shell -> St1
Harburg
Heide:
Shell -> Klesch
Wilhelmshaven
Vlissigen (Lukoil)
Gonfreville-l’Orcher
Antwerp: Petroplus -> Vitol; Petroplus GunvorGelsenkirchen (Rosneft)
Dunkirk
Ingolstadt:
Petroplus -> Gunvor
Karlsruhe (Rosneft)
Lavera (Petrochina)
Berre-l’Étang
ReichstettPetite-Couronne
Priloi & Melilli (Lukoil)
Milazzo (Kuwait Petroleum)Saras
(Rosneft)
Rome
Cremona
Cressier
Petroplus -> Vitol
Ballshi
Fieri
Szazhalombatta
(Surgutneftegaz)
Brod (Zarubezneft)
Novi Sad (Gazprom)
Pancevo (Gazprom)
Gibraltar
(IPIC)
Huelva
(IPIC)
Capacity
ReductionTerminal
Closure For Sale
Sale
(Part)Owned Russian/Indian/
Chinese/ Middle Eastern
Burgas (Lukoil)
Mantova
760752 744
CDU capacity Mt/a 744
652
606 CDU throughput Mt/a
554
85.8%
80.7%CDU utilisation
%
74.5%
70%
75%
80%
85%
90%
500
550
600
650
700
750
800
2008 2010 2015 2020 2025 2030
CD
U C
apac
ity
Uti
lisat
ion
Rat
e (%
)
Cru
de
Dis
tilla
tio
n U
nit
Cap
acit
y o
r Th
rou
ghp
ut
(Mt/
a)
Source: Europia
-2.00
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
J01 J
J02 J
J03 J
J04 J
J05 J
J06 J
J07 J
J08 J
J09 J
J10 J
J11 J
J12 J
J13 J
$/b
bl
Margin pressures return after unexpected 2012 boost
SING Crack Dubai N.WE crack Brent Med Crack Urals
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A transformed US oil landscape
0
2000
4000
6000
8000
10000
12000
0
500
1000
1500
2000
2500
3000
2005 2006 2007 2008 2009 2010 2011 2012 2013
kb/d
kb/d
Falling US Crude Imports
Light sweet imports total imports (right)
0
1000
2000
3000
4000
5000
J73J75J77J79J81J83J85J87J89J91J93J95J97J99J01J03J05J07J09J11J13
kb/d
US net oil products exporter since mid-2011
Total products imports Total products exports
3500
4000
4500
5000
5500
6000
6500
7000
7500
kb/d
US crude oil production
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Are producers spending enough to sustain recent growth?
Source: Husseini Energy
0%
10%
20%
30%
40%
50%
0
50
100
150
200
2010 2011 2012 2013
North American E&P Spendingsource: Barclays Capital
North America, $ billion % increase0
1000
2000
3000
4000
5000
6000
7000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
US Light Tight Oil Production, kb/d
IEA
EIA
PIRA
PIRA hi
Citi 2012
OPEC
EnAsp
Average
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US LTO: mixed opinion on sustainability of recent growth
Plus points for major growth:
• Resource & reservoir behaviour becoming better understood
• Transport infrastructure is being built-out, belatedly
• High up-front cash flow continues to drive investment if prices stay robust, & there’s scope for cost reduction
• Infill drilling & well spacing improvements
• Technology – pad drilling & longer laterals
Risks:
• Drawn-out policy decision making
• Macro-slow down, oil price risk & refinery tolerance if exports restricted
• Sweet spots targeted first, so yields could fall & costs could also rise
• Sufficient skilled workforce & supply chain resilience?
• Tighter env. regulation – flaring, fracking restrictions, Federal lands
• Types of operators & availability of finance
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Progress in Iraq…
• Major post-war progress in expanding supply already
• Production on track to follow the more realistic, lower planning case
• JV production targets scaled back to reflect the new reality
• Troubled Kirkuk-Ceyhan export route to be augmented by new, 300 kb/d KRG link
• Recent expansion of Basrah export facilities will ultimately allow 6mb/d+ of southern exports
Source: IEA MTOMR, 2013
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...but challenges remain
• Infrastructure, water injection, gas processing all remain challenging
• Sunni insurgency has seen 3000 civilian deaths in 2013….
• …and sustained outages on Kirkuk-Ceyhan pipeline
• Crises in neighboring Syria and Iran will have a major impact on Iraqi expansion plans
• Meanwhile, stand-off between Baghdad and KRG continues
• So risks to 4-5 mb/d mid-term forecast are skewed to the downside
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N.America / Iraq focus neglects problems elsewhere
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
J11 M M J S N J12 M M J S N J13 M M J Skb
/d
Oil Production at Risk
Iran Iraq Libya SSSY Nigeria
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Upstream backdrop has improved..but technical challenges remain that may undermine supply potential
5-year average reserve additions & the crude price
Source: Schlumberger
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Easing market fundamentals, amid resurgent supply
Effective spare: OMR
mb/d 2013January 3.26
February 3.63
March 3.59
April 3.38
May 3.47
June 3.23
July 3.13
August 3.08
September 2.94
Average 3.30
• Lower-than-expected spare in 2013 has been due to supply,
not resurgent demand
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Is the consensus outlook viable, given OPEC dynamics?
9.8 9.8 9.2 8.5 8.1 8.2 8.3 8.4 8.5
3.0 2.7 2.5 2.5 2.4 2.3 2.2 2.1 2.0
3.0 3.1 3.3 3.5 3.8 4.0 4.2 4.3 4.5
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
2012 2013 2014 2015 2016 2017 2018 2019 2020
mb
/dOPEC output under a constrained 'call'
Saudi Arabia Iran Iraq
Other GCC Other OPEC 'call'
• Sustained demand growth, an Iran in terminal petroleum decline, plus conservative Iraqi outlook….
• Yet Saudi Arabia is still held below 9 mb/d??.
