gulf coast energy outlook: addendum. · 2 overview • the inaugural gulf coast energy outlook...

Gulf Coast Energy Outlook: Addendum.

Center for Energy Studies Louisiana State University

Addendum accompanying whitepaper. See full whitepaper here.

Economics & Policy Research Group E.J. Ourso College of Business Louisiana State University

David E. Dismukes, Ph.D. Gregory B. Upton, Jr., Ph.D.

Christopher Coombs, Ph.D. Dek Terrell, Ph.D.

http://www.lsu.edu/ces/publications/2017/GCEO2017.pd

Gulf Coast Energy Outlook

2 © LSU Center for Energy Studies

Overview

• The inaugural Gulf Coast Energy Outlook seeks to provide a broad overview of the current status of trends guiding energy markets with an emphasis on the Gulf Coast Region.

• The research initiative is a collaborative effort of Louisiana State University’s Center for Energy Studies and E.J. Ourso College of Business and focuses on the energy sector of the gulf Coast Region’s economy.

• This document is an addendum to the whitepaper that can be found on the LSU Center for Energy Study’s website.

• The whitepaper includes a number of graphs and figures and provides readers with a general understanding of the research vision and methodology.

• This addendum provides significantly more detailed figures for reader’s wanting a more supporting information.

http://www.ces.lsu.edu/

Take-Aways


Overview

• Lower prices reduced upstream activity, but a slow recovery has started given the OPEC-induced price increase.

• Natural gas experience shows that (crude oil) price recovery will be a long time coming.

• Recent crude oil drilling/production activity is contributing to a significant rebound in associated gas production that will likely sink the recent, short-lived natural gas price rebound.

• U.S. producers are very efficient and have reduced costs, increased capital & operating efficiencies, and increased well productivity (“the best solution for low prices is low prices.”)

• Crude oil and natural gas prices likely to remain range-bound with lower relative pricing volatility.

• Continued positive investment/development activity in mid-stream, refining, and processing/manufacturing – as well as energy exports.

0

5

10

15

20

25

30

0

50

100

150

200

250

300

350

400

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Natural Gas Reserves Natural Gas Production

U.S. natural gas reserves and production.

Natural gas production and reserves are at levels not seen since the 1970s and both U.S. natural gas production and reserves are now at an all time recorded peak.

U.S

. Dry

Nat

ural

Gas

Pr

oved

Res

erve

s (T

cf)

U.S. N

atural Gas

Marketed Production (Tcf)

Source: Energy Information Administration, U.S. Department of Energy. 4 © LSU Center for Energy Studies

2012 reserve estimates mark the first decline in 14

years.

Overview

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

-

5

10

15

20

25

30

35

40

45

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Crude Oil Reserves Crude Oil Production

U.S. crude oil reserves and production.

U.S

. Cru

de O

il Pr

oved

Res

erve

s (B

illio

n Bb

l) U

.S. Crude O

il Production (Billion Bbl)


Crude oil production and reserves are climbing back to levels not seen since the early 1980s (reserves).

Overview

Recent Market Trends


Recent energy market drivers/changes.


Recent market changes: • Non-OPEC production surge.

• OPEC floods market with predatory production action.

• Post-price-crash industry restructuring and resiliency.

• Recent OPEC production cuts.

• U.S. drilling/production response.

Recent Trends

Monthly global and U.S. crude oil production.

0%

2%

4%

6%

8%

10%

12%

14%

0

10

20

30

40

50

60

70

80

90

100

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

World U.S. U.S. as a Percent of Total World

Prod

uctio

n (M

Bbl/d

)


In the last ten years, global crude oil production has increased at an average annual rate of 1.2 percent. The U.S. share has increased from seven percent

to over 11 percent.

Recent Trends Percent of Total (%

)

OPEC crude oil production agreements.

The recent OPEC agreements have had the largest most recent impact on supply and prices


Note: *Indonesia has suspended its OPEC membership. Non-OPEC countries include Azerbaijan, Kingdom of Bahrain, Brunei Darussalam, Equatorial Guinea, Kazakhstan, Malaysia, Mexico, Sultanate of Oman, the Russian Federation, Republic of Sudan, and Republic of South Sudan Source: http://www.opec.org/opec_web/static_files_project/media/downloads/press_room/OPEC%20agreement.pdf

ProductionReference Level

Production Effective EstimatedCountry Level Adjustment January 2017 Change

(%)

OPEC CountriesAlgeria 1,089 -50 1,039 4.6%Angola 1,751 -87 1,664 5.0%Ecuador 548 -26 522 4.7%Gabon 202 -9 193 4.5%Indonesia*Iran 3,975 -178 3,797 4.5%Iraq 4,561 -210 4,351 4.6%Kuwait 2,838 -131 2,707 4.6%LibyaNigeriaQatar 648 -30 618 4.6%Saudi Arabia 10,544 -486 10,058 4.6%UAE 3,013 -139 2,874 4.6%Venezuela 2,067 -95 1,972 4.6%

Total OPEC Adj. 31,236 -1,441 29,795 4.6%

Non-OPEC Countries -558Total Adjustment -1,999

-------- (MBbl/day) --------

Recent Trends

U.S. crude oil prices and rig count.

Rig counts have fallen precipitously, but are back on the rise.

10 © LSU Center for Energy Studies Source: Energy Information Administration, U.S. Department of Energy; and Baker Hughes.

Num

ber o

f Rig

s

$0

$20

$40

$60

$80

$100

$120

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Jan-09 Jan-11 Jan-13 Jan-15 Jan-17

Crude Oil Rigs WTI Price

Crude O

il Price ($/Bbl)

WTI Price Rig Count Jan 2009 $42.40 340

Jan 2016 $31.48 514

Recent Trends

Monthly U.S. horizontal drilling rig activity (per major basin).

-

200

400

600

800

1,000

1,200

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

Bakken Eagle Ford Marcellus Permian

Rig

Cou

nt


Horizontal rig activity increased by 400 percent to 2015 but fell by over half during the ensuing price collapse. Current rebound is highly concentrated in

the Permian basin.

Recent Trends

Monthly U.S. crude oil production.

-

2

4

6

8

10

12


U.S

. Cru

de O

il Pr

oduc

tion

(Mill

ion

Bbl p

er d

ay)


U.S. crude oil production volumes are up by over 75 percent relative to historic trends. While production is down, it is still resilient and relatively

strong.

Recent Trends

Bakken

Eagle Ford

Marcellus

Permian

Other

Share of Production, 2016

Monthly U.S. natural gas production.

0

10

20

30

40

50

60

70

80

90



Recent Trends

Bakken

Eagle Ford

Marcellus

Permian

Other

Share of 2016 Production

U.S. natural gas production has increased 42 percent in the last 10 years.

U.S

. Nat

ural

Gas

Pro

duct

ion

(Bcf

per

day

)

U.S. crude oil stocks.

0.80

0.85

0.90

0.95

1.00

1.05

1.10

1.15

1.20

1.25


Crude Oil Stocks 5-Year Average

U.S

. Cru

de O

il St

ocks

(Bill

ion

Bbls

)


U.S. crude oil stocks have increased at an average annual rate of two percent. Between 2014 and 2015 stocks increased eight percent; and another five

percent in 2016.

Recent Trends

U.S. natural gas storage.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

Working Gas 5-Year Min 5-Year Max 5-Year Average

U.S

. Nat

ural

Gas

Sto

rage

(Tcf

)


Current natural gas storage levels are 16 percent above five year averages and 18 percent below the recent five year maximum.

Recent Trends

Associated natural gas production (shale production).


0

2

4

6

8

10

12

14

16


Bcf /

MM

Bbl

Growth in associated natural gas is rebounding quickly and tanking the short-lived rebound in natural gas prices.

Source: Energy Information Administration, U.S. Department of Energy

Associated natural gas production is starting to rebound with revived crude oil production,

particularly in the Permian Basin.

Recent Trends

Monthly drilled but uncompleted wells.

-

1

2

3

4

5

6

Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16

Thou

sand

Wel

ls

Note: Share of wells is the average of the last six months, September 2016 through February 2017. Source: Energy Information Administration, U.S. Department of Energy. 17 © LSU Center for Energy Studies

Drilled but uncompleted wells have increased by almost 50 percent in the last few years.

Recent Trends

BakkenEagle FordHaynesvilleMarcellusNiobraraPermianUtica

Share of Wells

Wellhead breakeven prices for key shale plays.


Recent Trends

66 58

40

29

85

70 61

38

73

62

45

34

81

65

49

33

98

83

55

39

0

20

40

60

80

100

120

2013 2014 2015 2016

Bakken Eagle Ford Niobrara Permian Delaware Permian Midland

$ pe

r Bbl

Since 2013, the average wellhead break-even price for key shale plays has decreased from $80 per barrel to $35 per barrel, representing an average

decrease of over 55 percent.

Note: Author’s estimate from source. Source: Rystad Energy NASWellCube.

Source: Energy Information Administration, U.S. Department of Energy.

Crude oil price outlook.

Most crude oil price projections for 2017 are around $55 per barrel. Prices are expected to increase in 2018, but remain below $75 per barrel.


$93.26

$48.69 $43.14

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

2014 2015 2016

Perc

ent

Goldman Sachs, Q1:

$55.00

Goldman Sachs, Q2:

$57.50

Goldman Sachs $55.00

2017 2018

Deloitte $55.00

EIA $52.50

Jeffries $57.00

Bank of America $59.00

Street Consensus

$59.00

Raymond James $75.00

Morgan Stanley $64.00

Morgan Stanley $51.00

EIA $55.20

Recent Trends


Natural gas price outlook.

Natural gas prices are expected to stay below $3.55 per MMBtu in 2017 and under $3.75 in 2018.


$4.39

$2.63 $2.52

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

2014 2015 2016

Perc

ent

EIA $3.55

EIA $3.73

World Bank $3.00

World Bank $3.50

Wells Fargo $3.26

Wells Fargo $3.41 Deloitte

$3.25

2017 2018

Bloomberg $3.17

Bloomberg $3.14

IMF $3.00

IMF $3.10

Recent Trends

U.S. crude oil production trends and forecast.


Prod

uctio

n (M

MBb

l per

day

)

US crude production will likely increase to over 10 MMBbls/d by 2020.

0

2

4

6

8

10

12

14

2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029

Recent Trends

Forecast period

Gulf coast crude oil production trends and forecast.


Prod

uctio

n (M

MBb

l per

day

)

The Gulf Coast forecast, which includes all Texas Permian production, accounts for a significant share of the gain in U.S. crude oil production.

0

1

2

3

4

5

6

7

8

9

10

2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029

Recent Trends

Forecast period

U.S. natural gas production trends and forecast.


Prod

uctio

n (B

cf p

er d

ay)

U.S. natural gas production continues to be resilient and shows continued strong growth through 2020 and beyond.

0

20

40

60

80

100

120

2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029

Recent Trends

Forecast period

U.S. natural gas production trends and forecast.


Prod

uctio

n (B

cf p

er d

ay)

The Gulf Coast makes a significant contribution to the 80 Bcf/d U.S. market, but the Marcellus accounts for the largest relative share.

0

5

10

15

20

25

30

35

40

45

2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029

Recent Trends

Forecast period

Industrial outlook


Industrial outlook

Natural gas pricing trends and volatility.

New Natural Gas End Uses & Fuel Diversity Concerns


$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

$20


Shale-based resources have changed natural gas price volatility.

$/M

cf

Average 2001-2008: $6.24 (standard deviation: $2.39)

Average 1997-2000: $2.89

(standard deviation: $1.46)

Average post 2008: $3.52 (standard deviation: $0.93)


An estimated $240 billion in new energy-based manufacturing development is expected, most of which should occur between 2015 and 2019.

Billi

on $

$0$5

$10$15$20$25$30$35$40$45$50

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Louisiana Texas Alabama/Mississippi

Source: Louisiana State University, Center for Energy Studies.

Gulf of Mexico region: energy manufacturing capital expenditures (by state).

5.0 Manufacturing Renaissance

27

Industrial outlook

Of the proposed facility expansions in the Gulf of Mexico region, LNG export facilities comprise the majority of proposed capital spending.

LNG Export, 59%

Cracker/Polymer, 22%

Methanol/Ammonia, 11%

Other, 8%

Source: Louisiana State University, Center for Energy Studies.

Gulf of Mexico region: total proposed capital expenditures by sector.

5.0 Manufacturing Renaissance

28

Industrial outlook

Louisiana energy manufacturing total capital expenditures by sector.

The continued low natural gas price outlook has facilitated considerable development of over $142 billion: $46 billion already completed, $96 billion remaining, but heavily

concentrated in LNG export facilities.


Billi

on $

$0

$5

$10

$15

$20

$25

$30

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

LNG Export Methanol/Ammonia Cracker/Polymer Other

Source: David E. Dismukes (2013). Unconventional Resources and Louisiana’s Manufacturing Development Renaissance. Baton Rouge, LA: Louisiana State University, Center for Energy Studies and author’s updates.

Industrial outlook

Ammonia demand and capacity outlook.

Excess global supply may start to build through 2020. The degree to which the market potentially becomes over-supplied will be function of project cancellations (if any) and

continued growth.

0

20

40

60

80

100

120

140

160

180

200

2013 2014 2015 2016 2017 2018 2019 2020

Demand World Capacity U.S. Capacity GOM Capacity

Mill

ion

met

ric to

ns

Source: Author’s construct from previous slides.

1. Ammonia/Nitrogen Manufacturing Industrial outlook

30

These projections do not account for the relative competitiveness of proposed capacity additions. In most instances, US-GOM commodity chemical production ranks relatively “low” on the global supply

curve (i.e., is very competitive).

Methanol demand and capacity outlook.


continued growth.

0

50

100

150

200

250

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022


Mill

ion

met

ric to

ns


1. Ammonia/Nitrogen Manufacturing

31

Industrial outlook

These projections do not account for the relative competitiveness of proposed capacity additions. In most instances, US-GOM commodity chemical production ranks relatively “low” on the global

supply curve (i.e., is very competitive).

Ethylene demand and capacity outlook.


continued growth.

0

50

100

150

200

250

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020


Mill

ion

met

ric to

ns


1. Ammonia/Nitrogen Manufacturing

32

Industrial outlook

These projections do not account for the relative competitiveness of proposed capacity additions. In most instances, US-GOM commodity chemical production ranks relatively “low” on the global supply

curve (i.e., is very competitive).

GOM LNG capacity.

A

C

Existing

I E

Existing A. Everett, MA: 1.035 Bcfd B. Cove Point, MD: 1.8 Bcfd C. Elba Island, GA: 1.6 Bcfd (+0.5 Expansion) D. Lake Charles, LA: 2.1 Bcfd E. Northeast Gateway, Offshore MA: 0.8 Bcfd F. Freeport, TX: 1.5 Bcfd (+2.5 Expansion) G. Sabine, LA: 4.0 Bcfd H. Hackberry, LA: 1.8 Bcfd (+0.85 Expansion) I. Neptune, Offshore MA: 0.4 Bcfd J. Sabine Pass, TX: 1.0 Bcfd (+ 1.0 Expansion) K. Pascagoula, MS: 1.5 Bcfd Under Construction L. Corpus Christi, TX: 2.14 Bcfd Approved M. Fall River, MA: 0.8 Bcfd N. Port Arthur, TX: 3.0 Bcfd O. Logan, NJ: 1.2 Bcfd P. Port Lavaca, TX: 1.0 Bcfd Q. Port Baltimore, MD: 1.5 Bcfd R. LI Sound, NY: 1.0 Bcfd

G J

Regasification

Under Construction

Approved

Existing

Liquefaction

Under Construction

Approved

F

M R

N

O

P

Industrial outlook

© LSU Center for Energy Studies 33

K H

B Q

L D

Source: U.S. Department of Energy.

U.S. LNG capacity development outlook.

If all of the LNG export applications currently filed with the Department of Energy were to come online, U.S. liquefaction capacity would exceed 50 Bcf

per day by 2025. Most of this capacity would come online in 2020.


0

10

20

30

40

50

60

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Existing Capacity Additional Capacity

Cap

acity

(Bcf

/d)

Industrial outlook

Source: U.S. Department of Energy.

GOM LNG capacity development outlook.

If all of the LNG export applications currently filed with the Department of Energy were to come online, the GOM liquefaction capacity would exceed 45

Bcf per day by 2025. Most of this capacity would come online in 2020.


0

5

10

15

20

25

30

35

40

45

50

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025


Cap

acity

(Bcf

/d)

Industrial outlook

U.S. refining capacity and utilization.


Operable capacity at U.S. refineries has increased nearly 20 percent since 1995 while utilization has remained stable at 90 percent.


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

13,500

14,000

14,500

15,000

15,500

16,000

16,500

17,000

17,500

18,000

18,500

1985 1989 1993 1997 2001 2005 2009 2013Operable Capacity Utilization

Surp

lus

Cap

acity

(MM

Bbl/d

) Industrial outlook

Gulf Coast petroleum net exports.


Gul

f Coa

st P

etro

leum

Impo

rts a

nd E

xpor

ts

(MM

Bbl p

er d

ay)

The Gulf Coast region became a net exporter of petroleum products at the end of 2008. Since then net exports have increased at an average annual rate of 40 percent.


-3

-2

-1

0

1

2

3

4

5

Jan-2004 Jan-2006 Jan-2008 Jan-2010 Jan-2012 Jan-2014 Jan-2016

Imports Exports Net Exports

Industrial outlook

U.S. petroleum product imports and exports.


Petro

leum

Pro

duct

Impo

rts a

nd E

xpor

ts

(MM

Bbl p

er d

ay)

In 2011, the U.S. became a net exporter of petroleum products. Net exports have increased 360 percent since then.


-4

-3

-2

-1

0

1

2

3

4

5

1980 1984 1988 1992 1996 2000 2004 2008 2012 2016

Imports

Exports

Net exports

Distillate Motor gasoline Other petroleum products

Industrial outlook

GOM refinery capacity outlook.

GOM refinery capacity has been increasing annually at an average rate of 1.5 percent per year.


Industrial outlook

6

7

8

9

10

11

12

2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025


Cap

acity

(MM

Bbl p

er d

ay)

Energy Employment Outlook



Key Industries • Oil and Gas

• NAICS 211: Oil and Gas Extraction • NAICS 213: Support Activities for Mining

• Refinery and Chemical Manufacturing • NAICS 324: Petroleum and Coal Products Manufacturing

(refineries) • NAICS 325: Chemical Manufacturing

Relative energy sector sizes as measured by employment.


Percent of State Total Employment Percent of Industry Employment in US

Region

Oil and Gas Refining and Chemical

Manufacturing

Oil and Gas Refining and Chemical Manufacturing

Alabama 0.1% 0.7% 0.2% 1.4%

Florida 0.0% 0.3% 0.1% 2.3%

Louisiana 2.3% 1.9% 7.9% 4.0%

Mississippi 0.4% 0.8% 0.8% 0.9%

Texas 2.2% 0.9% 46.7% 11.1%

Gulf Total 1.3% 0.7% 55.7% 19.8%

US Total 0.4% 0.7% 100.0% 100.0%

Source: U.S. Bureau of Labor Statistics, 2015 annual Quarterly Census of Employment and Wages data.

Relative energy sector sizes as measured by GSP.


Percent of State Total Employment Percent of Industry Employment in US

Region

Oil and Gas Refining and Chemical

Manufacturing

Oil and Gas Refining and Chemical Manufacturing

Alabama 0.5% 3.1% 0.2% 1.1%

Florida 0.0% 0.9% 0.0% 1.4%

Louisiana 7.7% 16.7% 4.6% 7.7%

Mississippi 1.5% 3.5% 0.4% 0.7%

Texas 14.3% 6.0% 56.7% 18.4%

Gulf Total 8.4% 5.1% 61.9% 29.4%

US Total 2.4% 3.0% 100.0% 100.0%

Source: U.S. Bureau of Economic Analysis.

Louisiana oil and gas employment forecast


Jobs

30,000

35,000

40,000

45,000

50,000

55,000


Employment

Texas oil and gas employment forecast


Jobs

100,000

150,000

200,000

250,000

300,000


Employment

Louisiana refinery and chemical sector employment forecast


Jobs

30,000

31,000

32,000

33,000

34,000

35,000

36,000

37,000

38,000

39,000

40,000


Employment

Texas refinery and chemical sector employment forecast


Jobs

90,000

95,000

100,000

105,000

110,000

115,000


Employment

Conclusions


Conclusions

• Crude oil and natural gas markets continue to be resilient. Prices anticipated to remain affordable and less volatile.

• Natural gas supply growth increasingly driven by “associated” natural gas – a byproduct of increasing production coming from higher hydrocarbon-based production (Permian, Eagle Ford, Bakken). Crude production developments will continue to have implications for natural gas markets.

• Economic growth is likely the only near-term factor that will burn-off excessive commodity storage levels. Likely to continue to crude oil and natural gas prices to be range-bound with likely lower relative pricing volatility.

• Continued positive investment/development activity in mid-stream, refining, and processing/manufacturing – as well as energy exports.

Conclusions


Acknowledgements


Acknowledgement: The E.J. Ourso College of Business and the Center for Energy Studies appreciate the financial support provided by Regions Bank in the development of this inaugural Gulf Coast Energy Outlook.

Addition Employment Forecasts


Alabama Oil and Gas Employment Forecast


Jobs

1,000

1,200

1,400

1,600

1,800

2,000


Employment

Florida Oil and Gas Employment Forecast


Jobs

300

400

500

600

700

800


Employment

Mississippi Oil and Gas Employment Forecast


Jobs

2,500

3,000

3,500

4,000

4,500

5,000

5,500

6,000

6,500


Employment

Gulf Total Oil and Gas Employment Forecast


Thou

sand

jobs

150

200

250

300

350

400


Employment

Alabama Refinery and Chemical Manufacturing Employment Forecast


Jobs

10,000

10,500

11,000

11,500

12,000

12,500

13,000

13,500

14,000

14,500


Employment

Florida Refinery and Chemical Manufacturing Employment Forecast


Jobs

20,000

20,500

21,000

21,500

22,000

22,500

23,000

23,500

24,000

24,500


Employment

Mississippi Refinery and Chemical Manufacturing Employment Forecast


Jobs

8,000

8,200

8,400

8,600

8,800

9,000

9,200

9,400

9,600

9,800

10,000


Employment

Gulf Total Refinery and Chemical Manufacturing Employment Forecast


Jobs

165,000

170,000

175,000

180,000

185,000

190,000

195,000

200,000


Employment

gulf coast energy outlook: addendum. · 2 overview • the inaugural gulf coast energy outlook...

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