a brief global perspective › blogs.rice.edu › dist › 3 › 9169 › ... · 2018-06-01 ·...

Benzene

Toluene

Xylene Reformer

& Aromatics

LPG

Naphtha Raw

Crude Oil

North America’s hydrocarbon renaissance is impacting

the integrated Oil & Gas value chains

Oil Markets

Eco

no

mic

s

Global

Regional

PADD

Refinery

Assets

Gasoline/

Distillates/

Fuel Oil

Steam Cracker

Ethylene

Propylene

Ethane

Propane

Butane

Raw

Natural

Gas

Gas Processing

& Fractionation

Gas Supply

Natural Gas

Demand Net Balances

& Trade

Petrochemical

Derivatives

Agenda

A brief global perspective

North America production profiles

Key drivers to capturing value by play

What this means for construction activity

Growth trajectories in transport set the trend for OECD vs non-OECD

Non-OECD Demand OECD Demand

Source: IEA Forecast Wood Mackenzie

Non-OECD > OECD

by 10 mbd in 2020

Global oil fundamentals to 2020 shows rising supply and steady oil demand growth

Total Global Growth: 2013-2020

Source: Wood Mackenzie

US shows massive growth with Brazil and Canada also strong for non-OPEC supply; biofuels drives unconventionals

© Wood Mackenzie 7

Non-OPEC production change from 2013 to 2020 Forecast of Unconventionals to 2020

-1,000

-500

0

500

1,000

1,500

2,000

2,500

3,000

3,500

US

Bra

zil

Can

ad

a

Kazakh

sta

n

No

rway

Au

str

ali

a

Ru

ssia

So

uth

Su

da

n

Gh

an

a

Ug

an

da

East

Tim

or/

Au

s.J

PD

A

UK

Eg

yp

t

Co

lom

bia

Eq

ua

tori

al G

uin

ea

Vie

tna

m

Om

an

Ind

on

esia

Ch

ina

Mexic

o

Ch

an

ge in

pro

du

cti

on

2013 t

o 2

020 (

'000 b

/d)

Oil sands increases 1.0 million b/d

Tight oil accounts for 2.7 million b/d


Wood Mackenzie’s forecast shows moderate downward pressure to 2017 with Brent at $90 per barrel real

Annual average for Brent and WTI in real and nominal terms to 2020

Source: History – Thomson Datastream, Argus, Forecast – Wood Mackenzie

Agenda





Supply gains in Canada are driven by oil sands and diluent requirements

0.0

1.0

2.0

3.0

4.0

5.0

6.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Pro

du

cti

on

(m

illio

n b

/d)

Tight Oil Synthetic Crude Bitumen Other Western Canada East Coast

Forecast of total Canadian oil supply by type or location


0

1

2

3

4

5

6

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Pro

du

cti

on

(m

illio

n b

/d)

East Coast Other Western Canada Tight Oil Synthetic Crude Bitumen Diluent

US liquids growth driven by tight oil and NGLs

Tight oil growth of 2.7

mmbd by 2020

Forecast of Total US Liquids Oil Supply to 2020

NGL growth of

0.9 mmbd by 2020

US volume recovery started in the Permian and spreads to the Gulf of Mexico

US GoM growth to

2020 is 0.5 million b/d

Permian growth since

2006 is 1.6 million b/d

Forecast of Lower-48 Crude Oil Supply to 2020

US tight oil still dominates the non-OPEC growth story…and 8 counties dominate the US tight oil story

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

Year-

on

-year

Ch

an

ge (

millio

n b

/d)

US Tight Oil

Canada Oil Sands

Other Non-OPEC

Eight counties in the Bakken and Eagle Ford account for 75% of growth since 2009

Gains in US tight oil average almost 390,000 b/d per year between now and 2020.

US tight oil contributes 50% of non-OPEC growth in 2015 and more than 25% in subsequent years.

0

100

200

300

400

500

600

700

800

900

1,000

01/0

1/2

00

9

01/0

7/2

00

9

01/0

1/2

01

0

01/0

7/2

01

0

01/0

1/2

01

1

01/0

7/2

01

1

01/0

1/2

01

2

Pro

du

cti

on

(,0

00 b

/d)

Pre-2009 Core Counties Rest

Core counties dominate Eagle Ford and Bakken oil production

Non OPEC Supply


Majority of gas drilling remains highly economic at prices below $4/mmbtu

$0

$1

$2

$3

$4

$5

$6

$7

0 2 4 6 8 10

$/m

mb

tu

bcfd

2014 Cost of Supply

Montney Rich-Gas

Marcellus SW Rich-Gas

Haynesville Premium

Fayetteville

Eagle Ford Oil

Utica Gas-Cond.

Eagle Ford Gas-Cond.

Haynesville - Tier-One

Montney Lean-Gas

Marcellus NEPA Marcellus SW

Lean-Gas

Piceance

Anadarko Woodford

Eagle Ford Lean-Gas

Over 95% of new production in 2014 will have a breakeven below $4/mmbtu

Associated gas to add 1.5 bcfd on new-gas volumes in 2014

Costs have continued to decline in gas-prone areas like the ArkLaTex basin as drilling efficiencies continue to improve and pad-drilling spreads

Lower realized NGL prices and has increased gas breakevens in some Mid-Continent plays as well as widening basis points in the Northeast

2014 New-drill cost of supply stack


The price spread of oil to gas encourages demand growth through substitution

0

30

60

90

120

0

5

10

15

20

25

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Crude Oil, Brent ($/mmbtu or $/bbl)

Natural Gas, Henry Hub ($/mmbtu)

Real 2013$ Per Million BTU, Natural Gas & Crude Oil Real 2013$ Per Barrel, Crude Oil

($/MMBTU or $/BBL)

Source: NYMEX, Argus Media, Wood Mackenzie

Wood Mackenzie Forecast

($/MMBTU)

Agenda





i

Houston

Corpus Christi

Freeport St. James

Port Arthur

Nederland

Superior Clearbrook

Regina

Cromer

Chicago

Hardisty

Edmonton

Patoka

Cushing

Wood

River

Flanagan

Guernsey

Sarnia

Pipeline Routes Running at Full Capacity

Pipeline Routes with Spare Capacity

Midland

Gardendale

0

400

800

1200

2010 2015 2020 2025 0

400

800

1200

2010 2015 2020 2025

0

400

800

1200

2010 2015 2020 2025

0

400

800

1200

2010 2015 2020 2025

Cushing

West Canada

Bakken

Superior ! !

!

Persistent pipeline “choke points” keep inland differentials wide; as routes south from Canada remain “choked”

Growing rail infrastructure on the coasts results in greater optionality for inland barrels

Bakken

Eagle Ford

Permian

Mid Continent

Monterey

Niobrara

Other Gulf Coast

Northeast

2020 production

2020 rail offloading & pipeline capacity

PADD 5:

West Coast

PADD 1:

East Coast

PADD 2:

Midwest

PADD 3:

Gulf Coast

PADD 4:

Rocky Mountain

Note: scale of bubble reflects relative contribution to US tight oil volumes

West

Coast

Gulf

Coast

East

Coast

2013 production

2013 rail offloading & pipeline capacity

Expanding logistics offer optionality around destination markets

© Wood Mackenzie 19

Gulf Coast

$86.50/bbl

East Coast

$90.50/bbl

PNW

$91.00/bbl

California

$93.75/bbl

Chicago

$90.00/bbl

API: 58.0 41.7 39.9 38.5 36.4

Assay comparison reveals value drivers and further opportunities

• Lighter Eagle Ford barrels sell at a discount to LLS:

- Lower potential distillate yield

- Volatility in crude quality remains an transaction advantage for refiners

• Brent and LLS should sell close to parity, but US export policy forces LLS quality discount

-

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Eagle Ford Bakken WTI Brent LLS

Yie

ld C

ut,

Wt

%

LPG

Gasoline

Kero

Distillate

VGO

Resid

-5.0

-4.5

-4.0

-3.5

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

Va

lue

of W

TI

rela

tive

to

Bre

nt, $

/bb

l


Saturation of PADD III with domestic light and medium crudes expected to result in domestic crude refining value discounts

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2013 2014 2015 2016 2017 2018 2019 2020

NAM Heavy Imported Heavy

NAM Medium Imported Medium

NAM Light Imported Light


PADD 3 crude slate Value of Light Houston Sweet


110

111

112

113

114

115

0 200 400 600 800 1,000 1,200 1,400

$/b

bl

kbd

Destination market refining value and transportation to that market are key drivers to allocating North America inland crude oil

Pacif

ic N

ort

hw

est

by

Rail

US

East

Co

ast

by R

ail

Pacif

ic N

W b

y

Rail

US

Gu

lf C

oast

by

Pip

elin

e

Califo

rnia

by

Rail

Califo

rnia

by

Rail

Bakken Crude Oil Demand Curve - Illustrative


Agenda





New sources of North America gas demand growth, but prices remain moderate

2013 2015 2017 2019 2021

Coal & Nuke

retirements

LNG

Industrial

Res/com conv.

Oil sands

Sabine Pass Freeport

BC Cameron

Mercury &

Air Toxics

1 bcfd Spectra NY-NJ pipe

Nucor

DRI Methanex

migration

Various fertilizer,

petchem, GTL

Oyster

Creek

Vermont Yankee

Hatfield's Ferry

0

5

10

15

20

25

30

35

2016 2020 2025

Ch

an

ge

in

co

nsu

mp

tio

n v

ers

us

20

13, b

cfd

Mexico

Other

Transport

LNG Exports

Power

Industrial

Commercial

Residential

Demand growth vs. 2013 Annual gas demand growth (US & Canada)


Chemical Expansions: More than just infrastructure constraints

Chemical renaissance is based on: • Geology, technology, & infrastructure

that support large volumes of cheap ethane availability

• Stable investment climate / economy • Existing & expandable infrastructure

from the wellhead in the Eagleford to the polyethylene exporter in the US Gulf Coast

Risks to the renaissance are: • Sustainability of the gas/crude differential • Ethane deliverability infrastructure • Environmental permitting, capital costs

escalation, construction resources • Availability of international market demand

& trade

Delivering commercial insight Delivering commercial insight

$100+ billion in

chemical

related

investments by

2020

Capturing the North America energy value opportunity requires capital….and a lot of it

Capital Spending by Value Chain Segment

Black Swans??

Oil demand evaporates

US saturates petroleum product export markets

Oil prices collapse below wellhead break-even

Gasoline accounts for almost half of US oil demand but its dominance is fading. Current stabilization is temporary….

US Light Vehicle Stock US Gasoline Demand


Shift to natural gas is slow this decade but accelerates post 2020, with LNG displacing primarily diesel/gasoil

US Diesel/Gasoil Demand Oil Demand Displaced by Natural Gas


Black Swans??




Atlantic Basin is surplus gasoline and fuel oil if all refining centres operate at historical utilisation rates and yields

-5,000

-4,000

-3,000

-2,000

-1,000

-

1,000

2,000

20

00

20

05

20

10

20

15

20

20

kb

d

LPG Naphtha Gasoline Jet/Kerosene Diesel/Gasoil Fuel Oil

Atlantic Basin “isolated” balances


Black Swans??




Breakeven for new developments help set a floor for oil prices

© Wood Mackenzie 33

Breakevens for new developments

$0

$20

$40

$60

$80

$100

$120

$140

Inte

rnati

on

al T

igh

t O

il

US

Tig

ht

Oil

Oil

San

ds

Th

erm

al

Oil

San

ds

Min

ing

Ult

rad

eep

wate

r

Deep

wate

r

Sh

all

ow

Wate

r

On

sh

ore

US

$/b

bl (B

ren

t)

Average

Tight Oil

International plays are uncertain

compared to North America


Thus there is a limit to how low prices can fall….a third of new oil developments requires more than $80 per barrel to breakeven

Production from new oil developments by breakeven range in Brent terms real


Harold “Skip” York

Skip York is a Principal Analyst in Wood Mackenzie’s Oils Research Team responsible for cross-segment integration of petroleum market and infrastructure issues for North America. With over 20 years of worldwide experience across the energy value chain, he has deep expertise in petroleum market economics and price-setting mechanisms including valuing non-fungible crudes across a number markets, NGLs, and leveraging technologies for competitive advantage.

Specializes in strategy, transaction support, asset valuation, and commercial optimization. Recently he has been focusing on the implications of logistic constraints on market-clearing dynamics and prices for Canadian heavy crude oil and NGL production growth from unconventional plays.

Prior to joining Wood Mackenzie, Skip worked for ExxonMobil in a variety of strategic planning assignments. He held roles as the global expert on joint venture negotiation best practices, managing new business development downstream opportunities in Asia Pacific, and leading research teams on studies of the economic impact of large-scale oil investments on the economy of Russia. He also has consulted for clients at McKinsey & Company and Charles River Associates.

Skip holds a PhD Economics from the University of Virginia, as well as, a Masters of Science and Bachelor of Science also in Economics from the University of Wyoming.

Principal Analyst – Oils Research

E [email protected]

T +1 713 470 1667

Disclaimer

This report has been prepared for the Rice Global E&C Forum, February 7, 2014 by Wood Mackenzie Limited. The report is intended solely for the benefit of delegates attending this forum and its contents and conclusions are confidential and may not be disclosed to any other persons or companies without Wood Mackenzie’s prior written permission.

The opinions expressed in this report are those of Wood Mackenzie. They have been arrived at following careful consideration and enquiry but we do not guarantee their fairness, completeness or accuracy. The opinions, as of this date, are subject to change. We do not accept any liability for your reliance upon them.

Strictly Private & Confidential

a brief global perspective › blogs.rice.edu › dist › 3 › 9169 › ... · 2018-06-01 ·...

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