Markets and Politics Bob Tippee Editor, Oil & Gas Journal PVF Roundtable General Assembly Meeting Aug. 18, 2009.

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Presentation transcript:

Markets and Politics Bob Tippee Editor, Oil & Gas Journal PVF Roundtable General Assembly Meeting Aug. 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) Source: IEA % % FR: 85.4

IEA’s demand view Million b/d Forecast month 2008 vs vs Source: IEA Monthly Oil Market Report for each month indicated To 83.8 MMb/d for ‘09

World oil supply (MMb/d) *Plus other biofuels. Source: IEA % FR: 85.7

Non-OPEC supply (MMb/d) Source: IEA; Note: Includes OPEC members as of Angola (1.7 MMb/d), Ecuador (0.5 MMb/d) joined OPEC in ’07. Indonesia withdrew from OPEC in ’08.

OPEC NGL (MMb/d) % Source: IEA 2010: 6.1

Forcing balance (MMb/d) Demand83.9 Ex-OPEC supply OPEC liquids-5.2 Stock change+0.5* OPEC crude-28.20* Source: IEA *OGJ assumption.

Observations (MMb/d)  Call = 28.2  Quota =  Call = 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, 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 Source: EIA for

US product demand (MMb/d) % Note: Before exports (1.76 in ’08; 1.85 in ’09). Source: EIA for %

Gasoline, distillate demand (MMb/d) Source: EIA for % %

Gasoline, ethanol use (MMb/d) ’09 is mandate (724 Mb/d) % Source: EIA for EISA mandate: 2.4 MMb/d in 2022 (all biofuels)

ULSD, biodiesel use (MMb/d) Source: EIA for % 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) % 65% of demand Source: EIA for

US refining MMb/d % Source: EIA for

US total liquids production (MMb/d) % Source: EIA for

US gas consumption (tcf) Source: EIA for %

Marketed gas production (tcf) % Source: EIA for %

US gas imports (tcf) LNG % Source: EIA for

US drilling--completions 43, % Source: API for , %

US drilling – rig count Source: Baker Hughes for , % 1, %

The budget’s costs (ex. climate) Measure receipts (billion $) Superfund17.2 GoM tax (deepwater)5.3 IDC3.3 Tertiary injectant0.062 Passive loss0.049 Manufacturers’ tax13.3 G&G amortization1.19 Percentage depletion8.3 GoM (use or lose)1.2 Total49.9

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 x btu $10.9 billion subsidies (percentage vs. cost depletion and expensing E&D costs)  Ethanol in x 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 x btu $1.74 billion subsidies (various, mostly for small producers)  Ethanol in x 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)