Energy & Impact on Process Industry Part 1 Crude oil Alan ...

Energy & Impact on Process

Industry

Part 1 – Crude oil Alan Gelder

February 2016

Trusted commercial intelligence www.woodmac.com


2

This crude oil price collapse has been different – more akin to the

mid 1980s

Brent price historical comparison - index

0

20

40

60

80

100

120

0 25 50 75 100 125 150 175 200 225 250 275 300 325 350 375 400

Index (

peak c

rude o

il price =

100)

Days from price peak

2008 crash 2014 crash

Source: Argus

Trusted commercial intelligence © Wood Mackenzie

3

Lower prices supported strong demand growth, particularly in US, Europe

and China in 2015

Global growth to remain relatively high in 2016, supported by resilience in China

Annual growth in demand (mil b/d) Annual growth in global oil demand (mil b/d)


4

In 2015 oil was resilient compared with other commodities in China.

-5,0%

-2,5%

0,0%

2,5%

5,0%

7,5%

Natural Gas Coal Power Oil

An

nu

al gro

wth

rate

2014 2015

Source: China NBS, NDRC, industrial sources, and Wood Mackenzie

China commodity demand growth: 2014 vs 2015


5

Underpinned by our expectation of robust household consumption,

China’s oil demand growth remains strong.

-100

-

100

200

300

400

500

600

2011 2015 2016

Dem

an

d c

ha

nge

, kb

/d

Gasoline LPG Jet/kerosene Naphtha Fuel Oil Gasoil/Diesel Others

China’s oil demand growth by product

Consumption-oriented

demand growth

Making up 90% of

total demand growth

in 2016

Oil demand is expected to grow by 3.8% (or 430,000 b/d) in 2016, contributing 1/3 of our projected global oil demand

over the same period.

Source: IEA Energy Stats, China NBS, NDRC and industry sources (history), and Wood Mackenzie (outlook).


6

Expenditure is being cut across all major oil sectors (Q4 2014 to Q4

2015 is US$286 billion over 2015 and 2016) in response to low prices

US$30-40 billion

US$20-25 billion

US$5-20 billion

US$1-5 billion

< US$1 billion

US$150+ billion

Capex reduction

2015 & 2016

Wood Mackenzie’s view: reduction in 2015/16 global capital investment from Q4 2014 to Q4 2015


7

Momentum shift led by the US onshore in 2016; bigger impact from

other non-OPEC in 2017

44

46

48

50

52

54

56

-2,0

-1,5

-1,0

-0,5

0,0

0,5

1,0

1,5

2,0

2,5

3,0

Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017

To

tal n

on

-OP

EC

pro

du

cti

on

(m

illio

n b

/d)

Millio

n b

/d

Other non-OPEC Mexico North Sea Brazil Russia Canada Oil Sands United States Total non-OPEC (right axis)

Source: Wood Mackenzie

Reduced maintenance and field

start-ups bolster North Sea supply

China, Canada (non-oil sands),

Indonesia and Vietnam drive decline

Brazil: committed to projects

maintain near term growth

Year-on-year change in non-OPEC supply, by quarter

Near term oil sands growth

protected: average +220,000 b/d

growth in 2016 and 2017

Pace of other non-OPEC decline forecast to increase as investment cuts bite


8

Record upstream investment saw decline rates almost halve in 2013

and 2014; set to increase towards 5% in 2017

0

20

40

60

80

100

120

0

50

100

150

200

250

300

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

Bre

nt

Oil

Pri

ce

(U

S$

pe

r b

arr

el)

No

n-O

PE

C C

ap

ex

($

US

Billi

on

s)

Non-OPEC capex* (US$ Billions)

Brent (nominal) US$/barrel

Source: Wood Mackenzie *producing oil and oil and gas fields; excludes North America tight oil

0%

1%

2%

3%

4%

5%

6%

7%

8%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

No

n-O

PE

C d

ec

lin

e r

ate

Source: Wood Mackenzie Note: excludes North America tight oil

Non-OPEC capex and Brent oil price Non-OPEC oil decline rate

Pace of oil price recovery will play key role in determining pace of decline increases


9

Oil market starts tightens in the second half of 2016

Supply and demand fundamentals (y-o-y change)

-0,5 0,0 0,5 1,0 1,5 2,0 2,5 3,0

Global Supply

Global Demand

Million b/d

2014 2015 2016 2017



10

More than half of pre-sanction conventional production in 2025 does

not breakeven below US$60 per barrel Brent

Pre-sanction greenfield projects by breakeven band Split of high cost probable developments in 2025

0

1

2

3

4

5

6

7

8

20

16

20

17

20

18

20

19

20

20

20

21

20

22

20

23

20

24

20

25

mil

lio

n b

/d

>$80

$75-$80

$70-$75

$65-$70

$60-$65

$55-$60

$50-$55

$45-$50

$40-$45

<$40


0

100

200

300

400

500

600

700

800

900

1.000

Bra

zil

An

go

la

US

(G

oM

D

ee

pw

ate

r)

Can

ad

a (

Oil

Sa

nd

s)

Norw

ay

UK

Nig

eri

a

Ka

za

kh

sta

n

'00

0 b

/d

>$80

$75-$80

$70-$75

$65-$70

$60-$65


High cost developments in Angola, US GoM and Nigeria at risk of deferral

Oil prices expressed in terms of Brent equivalent. Project economics run on a fully taxed, stand-alone basis using the appropriate fiscal terms for each sector - internal rate of return of 15% in nominal

terms for offshore projects and 10% for onshore projects. The economics are not run on a full-cycle basis and do not include prior signature bonuses or acreage costs and exploration/appraisal costs.

Conversely, potential synergies that can also be significant on a corporate basis are excluded.


11

0

5

10

15

20

25

Supply gap Planned pre-FID

projects + new US

L48 drilling <$40

Planned pre-FID

projects + new US

L48 drilling >$40<$60

Planned pre-FID

projects + new US

L48 drilling >$60<$80

Non-OPEC Reserves Growth +

Other Disc. + YTF

OPEC capacity increase

Millio

n b

/d

60

65

70

75

80

85

90

95

100

105

Millio

n b

/d

Supply gap exceeds 20 million b/d by 2025, supporting higher prices

Half from projects with currently US$80/bbl (or below) break even

Supply gap – 2015 to 2025, million bpd


12

Conclusions

Key

takeaways

Low oil prices have had a material adverse impact on

Corporate earnings, which are cutting expenditure in

response

Oil price recovery is anticipated in the medium term, but

there are many uncertainties:

Demand growth

Non-OPEC supply response, particularly the US

Structural cost reductions and efficiency improvements

are required across the supply chain for European

companies to effectively compete


13

Q A

&

Q A

&

Q&A


14

Alan Gelder

Alan is VP Refining, Chemicals and Oil Markets. He is responsible for formulating Wood Mackenzie’s

research outlook and integrated cross-sector perspectives on this global sector.

Alan Gelder joined Wood Mackenzie’s Downstream Consulting team in 2005 and became global head in

2009. He transitioned into research upon his return from Houston in 2011 and was Global Head of

Refining and Chemicals.

Prior to joining Wood Mackenzie, Alan had 10 years of industry consulting after working for ExxonMobil

in a variety of project planning and technical process design roles.

Alan has a first class Master Degree in Chemical Engineering from Imperial College, London,

supplemented by an MBA from Henley Management College.

VP Refining, Chemicals and Oil Markets

E [email protected]

T +44 20 3060 0520


15

Disclaimer

This report has been prepared by Wood Mackenzie Limited. The report and its contents

and conclusions are confidential and may not be disclosed to any other persons or

companies without Wood Mackenzie’s prior written permission.

The information upon which this report is based has either been supplied to us or

comes from our own experience, knowledge and databases. The opinions expressed in

this report are those of Wood Mackenzie. They have been arrived at following careful

consideration and enquiry but we do not guarantee their fairness, completeness or

accuracy. The opinions, as of this date, are subject to change. We do not accept any

liability for your reliance upon them.

Strictly Private & Confidential


16

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