Markets and Politics
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Transcript of Markets and Politics
Markets and Politics
Bob TippeeEditor, Oil & Gas JournalPVF Roundtable General Assembly MeetingAug. 18, 2009
Crude prices
Oil prices track stock prices
Source: KBC Market Services, Monthly Oil Market Outlook, Aug. 6, 2009
World oil demand (MMb/d)
0
10
20
30
40
50
60
70
80
90
100
2004 2005 2006 2007 2008 2009F
OECD
Non-OECD
Source: IEA
83.9
-2.8%
86.3
-0.2%FR: 85.4
IEA’s demand view
-3
-2.5
-2
-1.5
-1
-0.5
0
0.5
1
1.5
2
Jan Apr Jul Oct Jan Apr Jul
Y-Y change
Million
b/d
Forecast month
2008 vs. 2007
2009 vs. 2008
Source: IEA Monthly Oil Market Report for each month indicated
To 83.8 MMb/d for ‘09
World oil supply (MMb/d)
0
10
20
30
40
50
60
70
80
90
100
2004 2005 2006 2007 2008 2009F
Proc. Gain*
OECD
Non-OECD
OPEC**
*Plus other biofuels. Source: IEA
84.6
-2.2%FR: 85.7
Non-OPEC supply (MMb/d)
50.1
50.2
50.3
50.4
50.5
50.6
50.7
50.8
50.9
51
51.1
2006 2007 2008 2009F
Non-OPEC
Source: IEA; Note: Includes OPEC members as of 1-1-09. Angola (1.7 MMb/d), Ecuador (0.5 MMb/d) joined OPEC in ’07. Indonesia withdrew from OPEC in ’08.
OPEC NGL (MMb/d)
0
1
2
3
4
5
6
2004 2005 2006 2007 2008 2009F
OPEC
5.2 +11%
Source: IEA
2010:
6.1
Forcing balance (MMb/d)
Demand 83.9
Ex-OPEC supply
-51.0
OPEC liquids -5.2
Stock change +0.5*
OPEC crude -28.2 0*
Source: IEA *OGJ assumption.
Observations (MMb/d)
Call = 28.2 Quota = 24.85 Call - Iraq @ 2.4 = 25.8 June OPEC-11 crude = 26.12
OPEC’s market view
Source: OPEC Monthly Oil Market Report, January 2009
OPEC production/OECD stocks
Source: OPEC Monthly Oil Market Report, June 2009
OECD stocks (days’ supply; EIA)
OPEC spare capacity (EIA)
The market: a snapshot
Demand will be down in ’09 – but the amount of expected decline is stabilizing
Cushions thick: stocks, p’n capacity OPEC has tried to follow demand
down with production cuts Demand revival depends on economy
IMF’s World Economic Outlook*
*Updated July 8, 2009.
Percent; quarter-over-quarter; annualized.
The questions
What drives prices? Fundamentals (supply and demand) Investment flows Currency fluctuations
Will OPEC wait too long to raise output? Non-OPEC output? Role of speculators?
US energy shares
0%10%20%30%40%50%60%70%80%90%
100%
Hydro, other
Nuclear
Coal
Gas
Oil
Source: EIA for 2004-08
US product demand (MMb/d)
0
5
10
15
20
25
2004
2005
2006
2007
2008
2009
FR
2009
MY
Others
LPG, ethane
Resid
Distillate
Jet fuel
Mogas
18.76
-3.4%
Note: Before exports (1.76 in ’08; 1.85 in ’09). Source: EIA for 2004-08.
18.73
-3.9%
Gasoline, distillate demand (MMb/d)
0123456789
10
2004
2005
2006
2007
2008
2009
FR
2009
MY
Gasoline
Distillate
Source: EIA for 2004-08
3.76
-4.7%
9.01
+.02%
Gasoline, ethanol use (MMb/d)
0
1
2
3
4
5
6
7
8
9
10
2004 2005 2006 2007 2008 2009MY
Gasoline
Ethanol
’09 is mandate (724 Mb/d)
9.01
+0.2%
Source: EIA for 2004-08
EISA mandate: 2.4 MMb/d in 2022 (all biofuels)
ULSD, biodiesel use (MMb/d)
0
0.5
1
1.5
2
2.5
3
3.5
2006 2007 2008 2009MY
0-15 ppm S dist.
Biodiesel
Source: EIA for 2006-08
3.008
-6.2% Applied 80% factor to dist. demand
’08 production: 44,500 b/d;
’08 consumption: 20,900 b/d
’22 mandate:
326,160 b/d
Industry oil imports (MMb/d)
0
2
4
6
8
10
12
14
16
Products
Crude
12.15
-5.8%
65% of demand
Source: EIA for 2004-08
US refining
16.4
16.6
16.8
17
17.2
17.4
17.6
17.8
78
80
82
84
86
88
90
92
94
Capacity
Utilization
MMb/d %
Source: EIA for 2004-08
US total liquids production (MMb/d)
0
1
2
3
4
5
6
7
8
NGL, LRG
C and C
7.05 +4.6%
Source: EIA for 2004-08
US gas consumption (tcf)
20.5
21
21.5
22
22.5
23
23.5
24
Cons.
Fcst.
Source: EIA for 2004-08
22.75
-2.0%
Marketed gas production (tcf)
21.2 +5%
Source: EIA for 2004-08
0
5
10
15
20
25
Other
Fed GoM
Louisiana
Texas
21.23
-1.0%
US gas imports (tcf)
-2
-1
0
1
2
3
4
5
2004
2005
2006
2007
2008
2009
FR
2009
MY
Exports
LNG
Mexico
Canada
LNG 0.53
+50%
Source: EIA for 2004-08
US drilling--completions
0
10,000
20,000
30,000
40,000
50,000
60,000
2004
2005
2006
2007
2008
2009
FR
2009
MY
Comp.
Fcst
43,384 -16.7%
Source: API for 2004-08
36,788
-29.4%
US drilling – rig count
0200400600800
1,0001,2001,4001,6001,8002,000
Rigs
Fcst.
Source: Baker Hughes for 2004-08
1,503
-19.5% 1,235
-33.9%
The budget’s costs (ex. climate) Measure 2010-19 receipts
(billion $)
Superfund 17.2
GoM tax (deepwater) 5.3
IDC 3.3
Tertiary injectant 0.062
Passive loss 0.049
Manufacturers’ tax 13.3
G&G amortization 1.19
Percentage depletion 8.3
GoM (use or lose) 1.2
Total 49.9
Renewables instead of oil – 1
“The [measure or its result], like other oil and gas preferences the administration proposes to repeal, distorts markets by encouraging more investment in the oil and gas industry than would occur under a neutral system…”
From Treasury Department explanations of budget oil, gas provisions:
Renewables instead of oil – 2
“…To the extent the [measure or result] encourages overproduction of oil and gas, it is detrimental to long-term energy security and is also inconsistent with the administration’s policy of reducing carbon emissions and encouraging the use of renewable energy sources through a cap-and-trade program.”
Closing the gap takes money
Source: US Energy Information Administration
Arithmetic of subsidies - 1 Oil & gas in 1981
38.1 x 1015 btu $10.9 billion
subsidies (percentage vs. cost depletion and expensing E&D costs)
Ethanol in 2007 550 x 1012 btu $3.2 billion
subsidies
29¢/MMbtu $5.82/MMbtu
Source: “Federal Financial Interventions and Subsidies in Energy Markets 2007,” Energy Information Administration, April 2008
Arithmetic of subsidies - 2 Oil & gas in 2007
30.57 x 1015 btu $1.74 billion
subsidies (various, mostly for small producers)
Ethanol in 2007 550 x 1012 btu $3.2 billion
subsidies
5.7¢/MMbtu $5.82/MMbtu
Cost to displace oil and gas
By 5% from projected 2020 usage levels
Assuming $6/MMbtu subsidization of 2.93 quads of solar, wind, and biofuels
Requires subsidies totaling $17.6 billion
NOTE: 2007 subsidy levels: solar $7.16/MMbtu, wind $6.87/MMbtu (production), $5.82/MMbtu ethanol (consumption/blending)