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Markets and Politics

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) 83.9 -2.8% 86.3 -0.2% FR: 85.4

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Markets and Politics

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

  2. Crude prices

  3. Oil prices track stock prices Source: KBC Market Services, Monthly Oil Market Outlook, Aug. 6, 2009

  4. World oil demand (MMb/d) 83.9 -2.8% 86.3 -0.2% FR: 85.4 Source: IEA

  5. IEA’s demand view 2009 vs. 2008 Million b/d 2008 vs. 2007 To 83.8 MMb/d for ‘09 Forecast month Source: IEA Monthly Oil Market Report for each month indicated

  6. World oil supply (MMb/d) 84.6 -2.2% FR: 85.7 *Plus other biofuels. Source: IEA

  7. Non-OPEC supply (MMb/d) 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.

  8. OPEC NGL (MMb/d) 5.2 +11% 2010: 6.1 Source: IEA

  9. Forcing balance (MMb/d) Source: IEA *OGJ assumption.

  10. Observations (MMb/d) • Call = 28.2 • Quota = 24.85 • Call - Iraq @ 2.4 = 25.8 • June OPEC-11 crude = 26.12

  11. OPEC’s market view Source: OPEC Monthly Oil Market Report, January 2009

  12. OPEC production/OECD stocks Source: OPEC Monthly Oil Market Report, June 2009

  13. OECD stocks (days’ supply; EIA)

  14. OPEC spare capacity (EIA)

  15. 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

  16. IMF’s World Economic Outlook* Percent; quarter-over-quarter; annualized. *Updated July 8, 2009.

  17. 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?

  18. US energy shares Source: EIA for 2004-08

  19. US product demand (MMb/d) 18.76 -3.4% 18.73 -3.9% Note: Before exports (1.76 in ’08; 1.85 in ’09). Source: EIA for 2004-08.

  20. Gasoline, distillate demand (MMb/d) 9.01 +.02% 3.76 -4.7% Source: EIA for 2004-08

  21. Gasoline, ethanol use (MMb/d) 9.01 +0.2% EISA mandate: 2.4 MMb/d in 2022 (all biofuels) ’09 is mandate (724 Mb/d) Source: EIA for 2004-08

  22. ULSD, biodiesel use (MMb/d) 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 Source: EIA for 2006-08

  23. Industry oil imports (MMb/d) 65% of demand 12.15 -5.8% Source: EIA for 2004-08

  24. US refining MMb/d % Source: EIA for 2004-08

  25. US total liquids production (MMb/d) 7.05 +4.6% Source: EIA for 2004-08

  26. US gas consumption (tcf) 22.75 -2.0% Source: EIA for 2004-08

  27. Marketed gas production (tcf) 21.23 -1.0% 21.2 +5% Source: EIA for 2004-08

  28. US gas imports (tcf) LNG 0.53 +50% Source: EIA for 2004-08

  29. US drilling--completions 43,384 -16.7% 36,788 -29.4% Source: API for 2004-08

  30. US drilling – rig count 1,503 -19.5% 1,235 -33.9% Source: Baker Hughes for 2004-08

  31. The budget’s costs (ex. climate)

  32. Renewables instead of oil – 1 From Treasury Department explanations of budget oil, gas provisions: “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…”

  33. 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.”

  34. Closing the gap takes money Source: US Energy Information Administration

  35. 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 Arithmetic of subsidies - 1 29¢/MMbtu $5.82/MMbtu Source: “Federal Financial Interventions and Subsidies in Energy Markets 2007,” Energy Information Administration, April 2008

  36. 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 Arithmetic of subsidies - 2 $5.82/MMbtu 5.7¢/MMbtu

  37. 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)

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