navigating through the energy landscape.in the last ten years, global crude oil production has...

Navigating through the energy landscape.

Executive Director & ProfessorCenter for Energy StudiesLouisiana State University

Baton Rouge Rotary Club Luncheon, May 24, 2017.

David E. Dismukes, Ph.D.

ProfessorCollege of the Coast & EnvironmentLouisiana State University

Take-Aways

2© LSU Center for Energy Studies

Overview

• Lower prices reduced upstream activity, but a slow recovery has started given the OPEC-induced price increase. The bears, however, are starting to wander back out.

• 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.

Domestic Shale Gas Basins and Plays


Unlike conventional resources, shale plays

(natural gas, liquids, and crudes) are

located almost

ubiquitously throughout the U.S. and

are the primary

reason for the decrease in overall and

regional natural gas

prices.

Overview

Source: U.S. Energy Information Administration.

0

5

10

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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)


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

illion

Bbl

)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


Monthly global and U.S. crude oil production.

0%

2%

4%

6%

8%

10%

12%

14%

0

10

20

30

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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 Jan-17

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 12 percent.

Recent TrendsPercent of Total (%

)

OPEC attempts to undermine this loss of market share by flooding the market through the better part of 2015-2016


OPEC’s Compliance (January-February 2017)

January-February 2017 production estimates show that on average, OPEC members have achieved 98.5 percent compliance. Total OPEC cuts versus

October 2016 are at 1.24 million barrels per day.

8© LSU Center for Energy StudiesSource: Platts.com

0% 50% 100% 150%

Iraq

Venezuela

UAE

Gabon

Qatar

Algeria

Kuwait

Ecuador

Saudi Arabia

Angola

Percent Compliance

Overcompliance by Angola and Saudi Arabia are

compensating to overproduction of other

OPEC members like Iraq, Venezuela and UAE.

Recent Trends

U.S. crude oil prices and rig count.

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


Num

ber o

f Rig

s

$0

$20

$40

$60

$80

$100

$120

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800

1,000

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1,800

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

Crude Oil Rigs WTI Price

Crude O

il Price ($/Bbl)WTI Price Rig CountJan 2009 $42.40 340

Jan 2016 $31.48 514

Recent Trends


OPEC-induced recovery.

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

-

200

400

600

800

1,000

1,200


Baken 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.

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$20

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$160

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Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17

Crude Oil Production Crude Oil Price

U.S

. Cru

de O

il Pr

oduc

tion

(Milli

on B

blpe

r day

)

Source: U.S. Energy Information Administration. 11© LSU Center for Energy Studies

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

Crude O

il Price ($/BBl)

Strong production resiliency despite exceptional price decrease.

Monthly U.S. natural gas production.

$0

$2

$4

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$8

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$14

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Natural Gas Production Natural Gas Price


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 d

ay)


Natural G

as Price ($/Mcf)

Strong production resiliency despite exceptional price decrease.

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

(Billi

on B

bls)


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


Supply run-up attributable to anticipated January, 2017 OPEC cuts.

U.S. natural gas storage.

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1.0

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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.


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.

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1

2

3

4

5

6

7

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: U.S. Energy Information Administration. 16© LSU Center for Energy Studies

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

Recent Trends

BakkenEagle FordHaynesvilleMarcellusNiobraraPermianUtica

2016 Share of Wells

Wellhead breakeven prices for key shale plays.


Recent Trends

6658

40

29

85

7061

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.

U.S. crude oil drilling rig count.

Crude oil rig trends follow crude prices very closely. We are currently at 18 weeks of increases relative to the last trough. Currently levels, while down

relative to the 2012-2014 peak, are still above levels in 1990s.

18© LSU Center for Energy StudiesSource: Baker Hughes; and U.S. Energy Information Administration.

Num

ber o

f Rig

s

$0

$20

$40

$60

$80

$100

$120

$140

$160

0

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800

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1,600

1,800

Jul-87 Jul-90 Jul-93 Jul-96 Jul-99 Jul-02 Jul-05 Jul-08 Jul-11 Jul-14

Crude Oil Rigs Crude Oil Price

Recent TrendsC

rude Oil Price ($/BBl)

Recent Trends

U.S. crude oil rig “peak-to-trough” trends.

The U.S. oil rig count has increased by 7.9 rigs per week since the May 2016 low. This is faster than the 7.6 rig per week recovery from June 2009.

19© LSU Center for Energy StudiesSource: Baker Hughes.

Addi

tions

from

Tro

ugh

-Num

ber o

f Rig

s

0

100

200

300

400

500

600

700

800

900

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100Weeks

Feb-89 Feb-96 Aug-99 Jun-05 Jun-09 Jan-13 May-16

U.S. drilling rig productivity (total lagged production to total drilling rigs, 3 month lag).

U.S. drilling rigs are more productive, in this recovery, than any other recovery in history.

20© LSU Center for Energy StudiesSource: Baker Hughes and U.S. Energy Information Administration.

Prod

uctio

n pe

r Rig

(MM

BOE)

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0.8

1.0

1.2

1.4

1.6

1.8

2.0

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24Months

Feb-89 Feb-96 Aug-99 Jun-05 Jun-09 Jan-13 May-16

Market outlook.


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

GoldmanSachs, Q1:

$55.00

GoldmanSachs, Q2:

$57.50

GoldmanSachs$55.00

2017 2018

Deloitte$55.00

EIA$52.50

Jeffries$57.00

Bank ofAmerica$59.00

StreetConsensus

$59.00

RaymondJames$75.00

MorganStanley$64.00

MorganStanley$51.00

EIA$55.20

Outlook

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

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

WorldBank$3.00

WorldBank$3.50

WellsFargo$3.26

WellsFargo$3.41Deloitte

$3.25

2017 2018

Bloomberg$3.17

Bloomberg$3.14

IMF$3.00

IMF$3.10

Outlook

U.S. crude oil production trends and forecast.


Prod

uctio

n (M

MBb

lper

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

Outlook

Forecast period

U.S. natural gas production trends and forecast.


Prod

uctio

n (B

cfpe

r day

)

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

Outlook

Forecast period

Conclusions


Conclusions.

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

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

• Economic growth is likely the only near-term factor that will burn-offexcessive commodity storage levels. Likely to continue to crude oiland natural gas prices to be range-bound with likely lower relativepricing volatility.

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

Conclusions


Questions, Comments and Discussion.


David E. DismukesProfessor and Executive DirectorCenter for Energy StudiesEmail: [email protected]

Phone: 225-578-4343

URL: www.enrg.lsu.edu

Conclusions

mailto:[email protected]

http://www.enrg.lsu.edu/

navigating through the energy landscape.in the last ten years, global crude oil production has...

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