aspen dialogue on world economy energy: the coming back of ...€¦ · persistent price volatility:...
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Aspen Dialogue on World EconomyAspen Dialogue on World Economy
Energy: the coming back of the Gulf
FlorenceJuly 8, 2005
Dr. Adnan Shihab-EldinActing Secretary General
Organization of the Petroleum Exporting CountriesVienna, Austria
2
Main issuesMain issues
Key features of the present oil marketDemand surge OPEC & non-OPEC supply Persistent price volatility: enhanced by geopolitical tensions, increasing speculative activity in Futures market Upstream & downstream capacity Oil outlook beyond 2010Uncertainties & investment requirementsOPEC / Middle East oil & gas : Importance of investments
Cooperation: upstream & downstream
3
Strong economic growth in DCs (e.g, China, India): growing faster than the world with increasing share in global GDPGlobalization processRobust oil demand growth (particularly in Asia)Capacity adjustment across the supply chain, in particular downstream; conversion refining capacity
0.0
0.5
1.0
1.5
2.0
2.5
3.0
72-05 87-05 94-05 03-05
aagr %avg growth (mb/d)
Oil demand growth Rates of Economic Growth (real terms, at 1995 purchasing power parity)
0
1
2
3
4
5
6
7
8
9
10
OECD DCs China World
2004 2005
2006 2007
Twenty Year Average Growth Rate
Key features of the present marketKey features of the present market
4
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2000 2001 2002 2003 2004 2005* 2006**
USA China Others
Range of uncertainty
Largest contributors to growth in world oil demandyear-on-year change (mb/d)
Largest contributors to growth in world oil demandyear-on-year change (mb/d)
Last 3 years avg.: 2.2
Last 10 years avg.: 1.4
Last 20 years avg.: 1.2
China has become the2nd largest consumer
5
China has become the second largest oil consumer
China has become the second largest oil consumer
0
3
6
9
12
15
18
21
24
27
India
China
Brazil
UK USA
Oil demand, barrels per capita per year
0
1
2
3
4
5
6
7
197119741977198019831986198919921995199820012004
Germany Japan China
Oil demand, mb/d
6
-0.5
0.0
0.5
1.0
1.5
2.0
2000 2001 2002 2003 2004 2005*-0.5
0.0
0.5
1.0
1.5
2.0
C h i n a OECD Pacific OECD W.EuropeOECD N.America Total DCs Fsu- ex RussiaNon-OPEC
Russia
Source of non-OPEC supplyyear-on-year change (mb/d)
Source of non-OPEC supplyyear-on-year change (mb/d)
* Projected
1.0
0.8
0.4
7
0
250
500
750
1000
1250
Jan-03 Apr03 Jul03 Oct03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-050%
3%
6%
9%
12%
15%y-o-y absy-o-y %
Slowing pace of Russian oil supply growth(mb/d)
Slowing pace of Russian oil supply growth(mb/d)
• Yukos impact is now visible!• Export tariffs create disincentive • Fiscal regime uncertainties
8
OPEC crude oil production, 2002-2005(based on secondary sources, mb/d)
OPEC crude oil production, 2002-2005(based on secondary sources, mb/d)
25.4
27.0
29.129.8
3.7
4.4
1.6
21
23
25
27
29
31
2002 2003 2004 2005*0
1
2
3
4
5IraqOPEC-10OPEC-11 cumulative change
* / 1st half year.
9
Global oil demand & supply growth 2000-2009 (mb/d)
OPEC production as of 2006 reflects levels to balance the market.
10
2002 2003 2004 200520
25
30
35
40
45
50
12-step Forecasts WTI
WTI 12 m ahead forecasts and actual
2002 2003 2004 2005
20
25
30
35
40
45
50
Forecasts WTI
WTI 12 m ahead forecasts and actual
Speculation variable (proxied by Non Commercial Long Positions) providesa good explanation about the evolutionof the oil price during 2004 and 2005.
Source: Antonio Merino, Chief Economist, Repsol YPF‘The oil price premium: can non- commercial long positions help to explain the premium?”, June 2005.
The OPEC Spare Capacity could explain part of the price forecast, but not totaly the increase in price.
The extended models, NCLP and OPEC Spare Capacity:Forecast ability
The extended models, NCLP and OPEC Spare Capacity:Forecast ability
11
OPEC production vs. spare capacityOPEC production vs. spare capacity
23
2425
26
27
2829
30
31
1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q050
2
4
6
8
10
12
14
Required OPEC prod. OPEC Production Spare Capacity(%)
(%)(mb/d)
2004 04/03 1Q05 2Q05 3Q05 4Q05 2005 05/04
Demand (a) 82.2 2.6 83.8 82.3 83.7 85.9 83.9 1.8
Supply 82.8 3.5 83.9 84.7 84.7 85.3 84.7 1.9 Non-OPEC (b) 49.8 1.1 50.3 50.6 50.4 51.0 50.6 0.8 OPEC NGL (c) 3.9 0.2 4.1 4.2 4.2 4.3 4.2 0.2 OPEC Crude oil 29.1 2.1 29.5 30.0 30.0 30.0 29.9 0.8
a-(b+c) 28.4 1.2 29.3 27.6 29.1 30.6 29.2 0.7
Balance (d) 0.6 0.1 2.4 1.0 -0.6 0.7
Seasonal stock change: ('00-'04) -0.7 0.9 0.3 -0.6Stock change (e) 0.3 0.3 OECD commercial 0.1 0.0 OECD SPR 0.1 0.1 Oil in Water 0.1 0.2Remaining to Balance (d-e) 0.4 -0.2
12
30.3
33.1 33.9
38.7
35
24
27
30
33
36
39
42
Jan-03 Jan-04 Jan-05 end 2005 2006 201024
27
30
33
36
39
42Capacity additionCapacityCapacityProduction
40.0
32
Note: OPEC production as of 2005 reflects estimated required OPEC volumes.
(mb/d) Jan 04 Jan 05 End 05 2006
Production capacity 30.8 31.6 33.1 33.9Addition to capacity 0.4 0.9 1.5 0.7Production* 28.2 29.3 30.0Spare capacity (vol) 2.6 2.4 3.1Spare capacity (%) 8.4 7.4 9.4
*/ End 05 production is based on estimated required OPEC volumes.Note: Net capacity increase for Iraq is expected to be 0.5 - 1.0 mb/d by 2010.
Accelerated production capacity expansion plans
OPEC production capacity & additions(mb/d)
OPEC production capacity & additions(mb/d)
13
OPEC crude oil production capacity expansion(mb/d)
OPEC crude oil production capacity expansion(mb/d)
-0.5
0.0
0.5
1.0
1.5
2.02004/03 2005/04 2006/05
Algeria Indonesia Iran, I.R.Kuwait Libya NigeriaQatar Saudi Arabia UAEVenezuela Iraq
2004/03 2005/04 2006/05Algeria 0.10 0.13 0.00Indonesia -0.12 0.00 0.00Iran, I.R. 0.14 0.07 0.00Iraq 0.00 0.00 0.20Kuwait 0.15 0.26 0.04Libya 0.09 0.21 -0.05Nigeria 0.06 0.12 0.07Qatar 0.02 0.07 -0.06Saudi Arabia 0.12 0.48 0.28UAE 0.02 0.06 0.14Venezuela 0.11 0.13 0.11
Net increment (mb/d)
14
Overloading of Refining Industry Overloading of Refining Industry
*/Asia = Japan, South Korea, China, India and Singapore. For some Asian countries May is estimated.
Shrinking Refining Spare Capacity in key refinery regions
0
1
2
3
4
5
6
7
8
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
mb/d
EU15 & Norway USA Asia*
0
1
2
3
4
5
6
7
8
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
mb/d
EU15 & Norway USA Asia*
Increasing Refinery Utilization Rate in key markets
75
80
85
90
95
100
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
%
EU15 & Norway USA Asia*
75
80
85
90
95
100
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
%
EU15 & Norway USA Asia*
15
Oil outlook beyond 2010Oil outlook beyond 2010
Oil will remain single largest fuel in primary energy mixThe resource base is adequate to meet demand growth for decades to comeMajor part of the increase in world oil demand to come from developing countriesOPEC increasingly supplies incremental barrelUpstream investment challenge not dissimilar to the past: nevertheless, ensuring market stability will be complicated by considerable uncertainties driven by:
Growth of world economyEnergy policies (substantial downside risk to demand)Technological developmentsOil price path
Need to reduce uncertainties to ensure sufficient & timely investmentsGlobal downstream investments are critical to market stabilityReconcile/harmonize energy & environmental policy
16
Thomas Ahlbrandt, USGS, ‘Global Perspective on Petroleum Resources with a Middle East / North Africa Focus’, 2005.
World oil supply: cumulative production & reserve growth
World oil supply: cumulative production & reserve growth
17
A Prospective Depletion Curve for the World's Conventional and Non-Conventional Oil to 2080A Prospective Depletion Curve for the World's
Conventional and Non-Conventional Oil to 2080
Odell, 1998
0
500
1000
1500
2000
2500
3000
conventional unconventional
undiscoveredreserve growthremaining reservescumulative production
Billion bbl
18
26 2729
1310 12
0
10
20
30
40
2005 2015 2025Oil demand Oil import requirements
North Americamb/d
2530
38
31
23
16
0
10
20
30
40
2005 2015 2025Oil demand Oil import requirements
Asiamb/d
16 17 171412
10
0
10
20
30
40
2005 2015 2025Oil demand Oil import requirements
Europe mb/d
7
-25
-32
-44
9
-50
-40
-30
-20
-10
0
10
2005 2015 2025Oil demand Oil import requirements
OPEC mb/d 10
3 5 5
-8-10 -10
-20
-10
0
10
20
2005 2015 2025Oil demand Oil import requirements
FSU mb/d
(mb/d)2005 2015 2025 2005 2015 2025
North America 25 27 29 10 12 13Latin America 5 6 7 0 0 1Europe 16 17 17 10 12 14FSU 4 5 5 -8 -10 -10Asia 23 30 38 16 23 31 China 7 10 13 3 6 10M.East & Africa 3 4 5 -3 -3 -2OPEC 7 9 10 -25 -32 -44
Oil Demand Net Oil Import Req.
Regional oil demand & net import requirements(mb/d)
Regional oil demand & net import requirements(mb/d)
19
0
50
100
150
200
250
300
350
400
450
2010 2015 2020 2025
$(20
03) b
illion
$70-95bn
$122-173bn
$185-269bn
$258-382bn
Cumulative OPEC investment requirements:Huge uncertainties in future oil demand translate into huge
uncertainties and risks for future OPEC investment
Cumulative OPEC investment requirements:Huge uncertainties in future oil demand translate into huge
uncertainties and risks for future OPEC investment
If OPEC balances the market, the uncertain volume requirements translate into huge ranges of anticipated capital outlay needs
Already by 2010 an estimated uncertainty of $25 billion exists between the reference case and the low economic growth caseA unit of investment in OPEC country on average produce it 4X the additional capacity.
Impact of lower economic growth
20
Proven Crude Oil Reserves
15.0
21.3
Crude Oil Production
12.4
58.5
Proven GasReserves
9.8
51.0
Gas Marketed Production
7.8
83.0
0
10
20
30
40
50
60
70
80
90
100
Proven Crude Oil Reserves
Crude Oil Production
Proven GasReserves
Gas Marketed ProductionOPEC Middle East OPEC Rest Non-OPEC
ch63.7
29.1
39.2
9.2
OPEC oil & gas reserves vs. market share2004
OPEC oil & gas reserves vs. market share2004
What if the pictureis reversed!
21
Investment in OPEC Member CountriesInvestment in OPEC Member Countries
Numerous possibilitiesExtent of IOC involvement varies, from large to little or
noneCombination/partnership — IOCs + NOCs
AgreementsFair and workable
Open and transparentIncentives for investorAssurances for owner
Commitment to long-termMany uncertainties, which can be costly
Increasing attention on downstream
International oil companies (IOCs) National oil companies (NOCs)
22
OPEC medium term oil expansion 2006-2010OPEC medium term oil expansion 2006-2010
Over 60 oil projects (excluding Iraq)80% UD/advance planning stage
+45 oil projects involve IOC’sMajors account for the bulk
OPEC capacity expected to increase by 3.5 - 4 mb/dOther liquids to increase by 1.5 - 1.8 mb/d
Cumulative capex $75 - $90 bn
Additional projects beyond 2010 already being discussed
Iraq?
23
OPEC oil & gasin major IOC’s production profile
OPEC oil & gasin major IOC’s production profile
0%5%
10%15%20%25%30%35%40%
Total CVX Eni RD/Shell XOM Repsol BP Statoil
2000 2008
% of total oil & gas production in OPEC
0
1
2
3
2000 2001 2002 2003 2004 2005 2006 2007 2008
OPEC Oil, kboe/d OPEC Gas, kboe/d
OPEC oil & gas in IOC* production profile
*/Total, RD/Shell, Chevron/Texaco, ENI, Exxonmobil, Repsol, BP, Statoil.
24
0 10 20 30 40
Iraq
Libya
UAE
Kuwait
Algeria
Qatar
Iran
S. Arabia
US$ billion
Oil upstream Oil midstream Oil downstream
Gas upstream Gas midstream LNG-GTL
Petroch/Fertilizers Power generation
• Driven by strong demand growth (local & Asian market)
• 5-year (2005-09) investments in the MENA region: US$210 billion
• 80% in hydrocarbons sector & 20% in the oil-gas power generation sector
• Capital structure: oil upstream auto-financed, downstream 30% equity, 70% debt
(billion US$)Oil
chain Gas
chain Power
gen. Total
energy Iraq 2 1 1 4Libya 4 3 1 9UAE 3 6 4 12Kuwait 9 4 3 16Algeria 4 15 2 21Qatar 3 23 1 27Iran 5 18 12 35S. Arabia 15 16 7 38
Total 44 85 31 161
Energy investments: 2005-2009
Investment requirements: extends beyond oil!(2005-2009)
Investment requirements: extends beyond oil!(2005-2009)
Source: APICORP
25
0
5
10
15
20
25
30
35
NorthAmerica
LatinAmerica
Africa Europe FSU MEGulf
AsiaPacific
$ bi
llion
20.119.8
2.9
14.8 12.5 13.7
30.3
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2000
2001
2002
2003
2004
(mb/
d)Light Products * Oil Demand Growth
* Gasoline, Jet Kerosene and Distillate
increasing demand for lighter productslimited flexibility
Average Global Crude Slate2004 2015
API 33.36 33.12% SULPHUR 1.17 1.27
significant investment requirements (> $130 billion over the next decade)
Downstream challengesDownstream challenges
26
Dialogue and cooperationDialogue and cooperation
Continued cooperation & genuine dialogue: underlying consensus on handling major issues of mutual concern for the benefit of all.
International Energy Forum; International Energy Agency; EU-OPEC Energy Dialogue; Euro-Mediterranean Dialogue;EU-Gulf Cooperation Council; Asian Oil and Gas Ministers Round Table; Non-OPEC at OPEC Conferences; OPEC & Non-OPEC experts meetings …
Effective engagement on all interrelated issues:• Security of supply and demand• Price stability• Energy policies• Multilateral issues• Technology
27
OPEC R. Basket price in in real terms(Base: May 2005=100, US$ / b)
OPEC R. Basket price in in real terms(Base: May 2005=100, US$ / b)
?
0
10
20
30
40
50
60
70
80
90
100
Jan-
80
Jan-
82
Jan-
84
Jan-
86
Jan-
88
Jan-
90
Jan-
92
Jan-
94
Jan-
96
Jan-
98
Jan-
00
Jan-
02
Jan-
04
28
Concluding remarksConcluding remarks
Paradigm shifts do occur, and should- and do- result in changes
Unfortunately, they are cited and used to propel prices-in self fulfilling prophecies, beyond what is reasonably expected or implied by the paradigm shift itself. Examples:
Stock markets
Emerging markets
China (1994-2001)
GCC (2003 →
All players in the oil market should focus on discovering the real oil price development- no doubt occurred- in order to avail undesirable consequences to economic growth and prices.
29
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