august 2015 us crude oil and the interdependent … · 2015. 8. 12. · us crude oil &...

© 2015 IHS

IHS ENERGY & IHS ECONOMICS

US CRUDE OIL AND THE

INTERDEPENDENT SUPPLY CHAIN

US oil market developments and assessing the economic impact of a US

crude oil free trade policy

AUGUST 2015

Kurt Barrow

Vice President Oil Markets & Downstream

© 2015 IHS

Contents

U.S. Crude Market Response‏

U.S. Crude Oil Export Policy‏

Unleashing the Supply Chain with Crude Exports‏

US CRUDE OIL & INTERDEPENDENT SUPPLY CHAIN / AUGUST 2015

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© 2015 IHS 3

Oil prices have declined sharply creating a dramatic drop

in oil drilling

30

35

40

45

50

55

60

65

70

75

80

85

90

95

100

105

110

2012:1Q 2012:3Q 2013:1Q 2013:3Q 2014:1Q 2014:3Q 2015:1Q

WTI

Source: IHS © 2015 IHS

$/b

bl

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

Onshore oil rig count


Rig

s


© 2015 IHS

US Energy Revival


• Application of horizontal drilling and

hydraulic‏fracturing‏accessing‏“source‏rock”

• First applied to gas plays – now the US has

one of the lowest gas prices globally

• “Recently”‏applied‏to‏oil‏fields

• Complete reversal in energy outlook

• Crude production – long assumed to be in

decline – has nearly doubled since 2008

• LNG import assumption now exports

• “Unconventional”‏oil‏and‏gas‏has‏been‏one‏

of the major contributors to the US

economic recovery

• Estimated to have added nearly 1% to GDP on

average over past six years

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Add pix here

© 2015 IHS

The US has supplied most of the world’s growth – result

of new applied technology and innovation

-5

-4

-3

-2

-1

0

1

2

3

4

5

2008 2009 2010 2011 2012 2013 2014

Cumulative change in crude oil production from 2008-2014

Source: IHS Energy © 2014 IHS

Mill

ion

ba

rre

ls p

er

da

y

Net change for rest of the

world

Russia

Canada

Tight

oil

United States total

Saudi Arabia

US tight oil only

Note: Figures do not include OPEC condensate and OPEC/non-OPEC‏NGLs.‏The‏term‏“North‏America”‏in‏the‏title‏of‏this‏slide‏refers‏only to Canada and the United States.

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© 2015 IHS

The US has a new role in global crude markets – the

“inadvertent swing supplier”

• Historical market structure: OPEC as swing producer, non-OPEC at full

utilization

• OPEC is on sideline – at least for now

• High cost production will need to slow and accelerate to match demand

• US onshore tight oil is central to the rebalancing

• Financial markets also important as the ultimate funders of high cost

production

• We are in uncharted waters – pace and magnitude of response and

feedback loop unknown

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© 2015 IHS

Change in Total Production Efficiency of Capital

Productivity v 2014

90% 95% 100% 105% 110% 115% 120% 125% 130%

Co

st v

20

14

50% 180% 190% 200% 210% 220% 230% 240% 250% 260%

60% 150% 158% 167% 175% 183% 192% 200% 208% 217%

70% 129% 136% 143% 150% 157% 164% 171% 179% 186%

80% 113% 119% 125% 131% 138% 144% 150% 156% 163%

90% 100% 106% 111% 117% 122% 128% 133% 139% 144%

100% 90% 95% 100% 105% 110% 115% 120% 125% 130%

110% 82% 86% 91% 95% 100% 105% 109% 114% 118%

120% 75% 79% 83% 88% 92% 96% 100% 104% 108%

Capital Efficiency is keeping production from falling in

face of lower prices

• Compared with 2014, IHS expects capital to be 65% more efficient at the start

of 2016 than the start of 2015 due to compounding productivity and cost cuts.

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

Trend in Horizontal Rig Count since October 10, 2014

Peak - by County Productivity

High

productivity

Low

productivity

Medium

productivity

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© 2015 IHS

Cost deflation puts much of the Eagle ford, Bakken and

Permian at a WTI $60 or less breakeven

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

Bakken Eagle Ford Permian Horizontal Other Plays

Su

m o

f p

eak b

bl/d

Less than $30 $30-$40 $40-$50 $50-$60 $60-$70 $70-$80 $80-$90 $90-$100 $100-$110 $110-$120 $120+

WTI $/barrel breakeven ranges by quintile by play, 2014 volumes at 2015 cost structure

$50-$60/bbl

$50-$60/bbl

$50-$60/bbl

$50-$60/bbl

<$30/bbl$30-$40/bbl

$40-$50/bbl

$30-$40/bbl

$40-$50/bbl

<$30/bbl<$30/bbl

$30-$40/bbl

$30-$40/bbl

$40-$50/bbl

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© 2015 IHS

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2015 2016 2017 2018 2019

Deb

t re

paym

en

t sch

ed

ule

, $M

M

Small E&P's

Mid-sized E&P's

Large E&P's

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Great Wall of Debt

IHS E&P company coverage list debt repayment schedule

© 2015 IHSSource: IHS

Heavy‏debt‏repayment‏burden‏in‏&‏2017‏beyond‏If‏prices‏don’t‏turnaround


© 2015 IHS

Impairments (asset write downs) are rising quickly

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© 2015 IHS

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

$40

$50

$60

$70

$80

$90

$100

2013 2014 1Q 15 2Q 15 E 3Q 15 E 4Q 15 E

WTI Henry Hub

SEC benchmark pricing


WT

I,$/b

bl

He

nry

Hu

b,

$/m

cf

More impairments coming unless prices rebound

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© 2015 IHS

Outlook

• Expect low crude prices to remain rest of this year and in 2016

• Need two quarters below $45 WTI (HIS base case forecast)

• Rig count projected to drop further from ~600 to ~400

• Will add further pressure to state oil revenues

• Expect notable increase in mergers, bankruptcies and layoffs

• Consumers receive lower gasoline prices

• Past 2016, prices expected to increase notably but remain under $100

on average

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© 2015 IHS

Contents




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© 2015 IHS

IHS Crude Export

Decision

(first study)


• Oil industries Gridlocked by export policy

and refining system

• Large economic impact from capital

intensive business

• Benefits*:

• Jobs of 394,000 – 859,000 more per year

• Lower gasoline price by 8 – 12 cents per gallon

• Add $86 – $170b to GDP per year

• Cumulative government revenue of $1.3 – $2.8b

• Broad state-level benefits

• All states benefit, not just producing states

• One-quarter of benefits in non-producing

states

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* Range based on base and potential crude oil production cases

© 2015 IHS

Gasoline pricing

implications


• Added US crude production increases

global supply

• Reduces global oil prices – which are

closely linked to US gasoline

• Gasoline is freely traded – imported and

exported

• Analysis is clear – crude exports lower

gasoline prices

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© 2015 IHS

Contents





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© 2015 IHS

Unleashing the

Supply Chain

(second study)


• The Supply Chain impact is less well

understood but affects the entire country

• This study builds on macroeconomic

impact of changing US policy

• Examines the impact on an intricate and

interdependent supply chain that

supports the oil industry – and has made

the scale-up of tight oil production

possible

• The analysis quantifies granular impact

• 60 separate supply chain industries

• impact at the congressional district level

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© 2015 IHS

Supply chain employment impacts


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Source: IHS Economics

Employment distribution in 2017: US crude oil export supply chain

(percent, difference free trade vs. restricted trade)

Supply Chain

jobs of 124,000

to 240,000*

* On average over 15 years for base and

potential production cases

© 2015 IHS

What is the crude oil supply chain?


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© 2015 IHS 21

Supply Chain Examined: The pumping unit

Frac Unit/Truck Overview

Typical Equipment Description

Frac Pump Transmission Engine

■ A frac truck is the

central piece of

equipment at wellsite

■ The unit is highly

specialized and

assembled from three

primary components:

■ pump,

■ transmission, and

■ engine


© 2015 IHS

Many industries participate in crude oil supply chain


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Industrial equipment and

machinery26%

Construction and well services

21%

Information technology

8%

Logistics 4%

Materials 21%

Professional, financial, and other services

20%

Source: IHS

Average number of workers: 123,577

Base Production

Employment share by core group

(2016-2030 average, difference free trade vs. restricted trade)

• Direct suppliers – such as

construction and well services

– witness largest impact

• Indirect suppliers – such as

information technology and

finance – emerge as major

contributors of additional jobs,

value added to GDP, and

labor income

© 2015 IHS

Oil and gas sector multiplier effects


• The economic benefits of oil and gas activity throughout its extensive

supply chain far exceed benefits to the industry itself.

• Every new production job creates three jobs in the supply chain and

another six jobs in the broader economy.

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3 supply chain jobs

6 broader economy jobs

1 production job

© 2015 IHS

Free trade impacts on the supply chain


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•Add $26 – 47b to GDP per year

•Jobs of 124,000 – 240,000 more per year

•Labor income improves $158 – $285 per year for

each household

•Cumulative government revenue of $429 – $868b

•Above supply chain impact represents roughly

one-third of total impact for each category

© 2015 IHS

Supply chain impact diversity


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Supply chain employment impact – Base production

(2016-2030 average, difference free trade vs. restricted trade)

Construction and Well Services

37%

Materials16%

Industrial Equipment & Machinery

16%

Logistics5%

Professional, Financial, and Other Services

22%

Information Technology

4%

Texas

Source: IHS

Supply chain average impact:

13,226 Peak impact : 32,279

(number of workers)

Construction and Well Services

1%Materials

5%

Industrial Equipment &

Machinery60%

Logistics2%

Professional, Financial, and

Other Services

22%

Information Technology

10%

Florida

© 2015 IHS

Supply chain average impact:

6,138 Peak impact : 12,213

(number of workers)

© 2015 IHS

Why now?


• US crude price remains low relative to

global price

• Lower global oil prices have the effect of

increasing—rather than decreasing, as

some might expect—the impact of the

export ban.

• Every $3 per barrel change in a $50

environment can have the same effect as a

$10 change in a $100 environment

• Far-reaching macroeconomic benefits

begin immediately

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© 2015 IHS

Further information


• www.ihs.com\crudeoilexport

• www.ihs.com\unleashingsupplychain

• Link to interactive data tool to access

granular congressional district level

information on impact of export policy

decision

• Hardcopies available by request

• [email protected] / [email protected]

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http://www.ihs.com/crudeoilexport

http://www.ihs.com/unleashingsupplychain

mailto:[email protected]

mailto:[email protected]

august 2015 us crude oil and the interdependent … · 2015. 8. 12. · us crude oil &...

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