a saturated crude oil market dries out - esai energy...
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A Saturated Crude Oil Market Dries Out
Sarah EmersonESAI Energy, LLC
Energy Security Analysis, [email protected]
781‐245‐2036
Argus Americas Crude SummitJanuary 2016
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ESAI Energy, LLC
• Energy Research and Forecasting Firm located just outside of Boston
• 30 years of Global Energy Market Analysis and Forecasting: Crude, Petroleum Products, Petrochemicals, E + P, Refining, Natural Gas, NGLs Alternative Fuels, Vehicle Technology, Geopolitics of Energy
• Clients include Majors, NOCs, Midstream/Logistics, Refiners, Traders, End Use Consumers, Automakers, Financial Institutions, National Governments
• ESAI Energy provides independent, holistic market analysis and does not advocate for particular groups
• Empirical Source Global Supply/Demand/Refining database by country, dating back to January 1978
• Global Expertise in Policy/Regulation, Asset Valuation, Refining/Petchem Investment feasibility, Expert Witness in Arbitration
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China’s oil use will slow down by 60% compared with 2000‐2015
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Chinese Oil Demand Growth
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
2000‐2015 2015‐2030
(000
b/d)
Total Oil demand Growth
Gasoline Diesel LPG Naphtha Jet/Kero Fuel Oil Other
Growth by Petroleum Product 2015 to 2030000 b/d
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China Slows But Still Contributes
(3,000)
(2,000)
(1,000)
0
1,000
2,000
3,000
4,000
5,000
70 80 90 00 10 20
Annual Growth in Global Oil Demand000 b/d
China
Europe
US
ROW
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Transport and Plastics
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Tight Oil Bends But Does Not Break
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‐
1,000
2,000
3,000
4,000
5,000
6,000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
000 b/d
U.S. Crude and Condensate Production by Shale Basin
Woodford
Utica
Permian Shale
Niobrara
Mississippi Lime
Marcellus
Lower Monterey
Granite Wash
Eagle Ford
Barnett
Bakken
Production Outside of OPEC
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(2,000)
(1,600)
(1,200)
(800)
(400)
0
400
800
1,200
1,600
2,000
2012 2013 2014 2015 2016 2017 2018 2019 2020
000 b/d Non‐OPEC Crude and Condensate Annual Growthby Region
OECD OIL SANDS FSU AFRICA LATIN AM MIDEAST OTHER ASIA Total
2017 Looks like the Year
• OPEC is already close to 32.0 mmb/d and Iran is increasing output.
• With a drop in non‐OPEC output in 2016 and little growth in 2107
• Call on OPEC could stabilize at 32.0 to 32.5
• Prices recover
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2015 2016 2017 2018 2019 2020
OECD Sub Total 46.1 46.3 46.4 46.4 46.4 46.3Non‐OECD Subtotal 48.0 49.2 50.2 51.3 52.4 53.5Total 94.1 95.5 96.6 97.7 98.8 99.8annual delta (mmb/d) 2.1 1.4 1.2 1.1 1.0 1.0
Crude and Field Cond. 44.9 43.8 43.5 43.8 44.2 44.8Other Supply 13.8 14.1 14.5 15.1 15.6 16.0Total 58.7 57.9 58.1 59.0 59.8 60.8annual delta (mmb/d) 1.7 (0.8) 0.1 0.9 0.8 1.0
OPEC NGLs 6.0 6.2 6.3 6.5 6.6 6.7Call on OPEC Crude 29.3 31.4 32.3 32.3 32.4 32.3 Actual OPEC Crude 31.5 32.3
Global Oil Demand
Non‐OPEC Oil Supply
OPEC Oil Supply
Global Oil Balance Outlook in mmb/d
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U.S. Crude Oil Exports in the Global Market
Factors that Shape U.S. Light Crude Exports
(1,000)
(800)
(600)
(400)
(200)
‐
200
400
600
800
1,000
2014 2015 2016 2017 2018 2019 2020
Light Crude Available for Export000 b/d
U.S. Ligth Crude Imports U.S. Light crude Exports to Canada
U.S. Light Crude/Cond Balance Light Crude for Export Beyond Canada
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• Light Crude Imports
• Light crude Exports to Canada
• Internal Supply and Demand for Light crude
U.S. Crude Trade‐ Geographical Factors
Alaskan Crude Cheaper to Asia
Foreign Crude Replacing Alaskan Foreign Crude
Replacing Bakken
Eastern Canada Taking More Canadian and Bakken
Eagle Ford, Permian crude to Europe, Asia, Latin AmericaCopyright @2016, ESAI Energy, LLC 12
What Determines Foreign Demand for U.S. Crude?
Pricing:Quality DifferentialsArbitrage between Regions
Refiners Appetite:Refining KitProduct specificationsSubsidies, taxes, import fees, quotas
Availability:Supply of crudeQuality of crudeCost of transport
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Global Crude Oil Quality 2014
Condensate
Light Very Sweet
Light Sweet
Light Sour
Medium Very Sweet
Medium Sweet
Medium Sour
Heavy Very Sweet
Heavy Sweet
Heavy Sour
Heavy Very Sour
Extra Heavy Very Sweet
Extra Heavy Sweet Extra Heavy Sour
Extra Heavy Very Sour
• 38% light/Cond• 41% Medium• 21% Heavy & Extra Heavy
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Global Barrel 2014‐2020: Barbell Growth
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(1,500) (1,000) (500) ‐ 500 1,000 1,500
CondensateLight Very Sweet
Light SweetLight Sour
Medium Very SweetMedium SweetMedium Sour
Heavy Very SweetHeavy SweetHeavy Sour
Heavy Very SourExtra Heavy Very Sweet
Extra Heavy SweetExtra Heavy Sour
Extra Heavy Very Sour
000 b/d
Global Change in Crude Oil Quality: 2014‐2020
Demand For Heavy End of Barrel Growing
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‐1,000
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
2015 2016 2017 2018 2019 2020
Cumulative Growth in CDU Capacity by Region 000 b/d
Asia
North America
Middle East
FSU
Europe
Latin America
Africa
‐1,000
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
2015 2016 2017 2018 2019 2020
Cumulative Growth in Crude Demand by Quality 000 b/d
Extra Heavy
Heavy
Medium
Light
Condensate
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Final Thoughts• Oil demand growth slowing down from the 2015 spike• Crude market will require dramatic reduction in supply to return to balance• US shale industry may be most at risk for significant rationalization and
production decline, but also most nimble and resilient over the long haul
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• U.S. Exports of crude oil will depend on crude quality, refining appetite, price arbitrage and geography:
• Growing global demand for heavier end of barrel• Ample global light/condensate supply
• US will grow exports through quality balancing and geographic expediency , • Export light, import more medium or heavy? • Offset imports to East and West Coasts
• 2016 Wildcards: Greater than 50% probability• U.S. crude production will fall significantly• Terror attack on oil facility in Arab Gulf• Left of center President will Be elected in U.S.• Humanitarian crisis in an oil producing country
Thank You