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The Global oil outlook (and why it matters to Appalachian gas)

This article explores the global oil outlook for 2019 and its implications for the Appalachian gas industry. Topics covered include the forecast and review of oil and gas markets, pipeline construction outlook, long-term market changes, and the importance of gas producers paying attention to oil. The article also discusses global oil demand, supply, OPEC production, the IMO 2020 rule, US oil demand and supply, Permian basin developments, US oil imports and exports, US refining, US gas production and trade, debottlenecking Permian gas and NGL, and Appalachian gas pipeline delays.

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The Global oil outlook (and why it matters to Appalachian gas)

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  1. The Global oil outlook(and why it matters to Appalachian gas) Bob Tippee, Editor, Oil & Gas Journal Appalachian pipeliners association January 15, 2019

  2. On these subjects in OGJ… • Forecast & Review (January 7) • Conglin Xu, Senior Editor-Economics • Laura Bell, Statistics Editor • Worldwide Pipeline Construction (February 4) • Christopher Smith, Managing Editor-Technology • Midyear Forecast (July 6) Forecast & Review Webcast, January 25, 2019

  3. The plan • Global oil markets in 2019 • US oil, gas markets in 2019 (with pipeline notes) • Pipeline construction outlook • Long-term oil and gas market changes (why policy matters) • Why gas producers should pay attention to oil (and vice versa)

  4. global oil demand (MMb/d) Quarterly growth Growth in oil demand is slowing. Growth dominated by China, other non-OECD (developing countries). Source: OGJ Forecast & Review, Jan. 7, 2019

  5. global oil supply (MMb/d) Quarterly growth OPEC is yielding to non-OPEC supply: North American unconventionals, Brazil Source: OGJ Forecast & Review, Jan. 7, 2019

  6. Will opec+ keep market balanced?(MMbd) Key uncertainties: Demand growth (and, therefore, global economy) OPEC restraint after agreement expires in June Source: IEA Oil Market Report, December 2018 with OGJ projection for OPEC crude

  7. Oil supply management The oil market seems to crave coordinated supply management December 2018 agreement: Cut 1.2 MMb/d from October levels, 800 Mb/d OPEC, 400 Mb/d non-OPEC OPEC production; world supply Inventories * Source: OGJ F&R *OPEC+ cuts started Jan. 2017 Vienna, Dec. 2016: Cuts of 1.2 MMb/d by 12 OPEC members, 600 Mb/d by 10 nonmembers, effective Jan. 2017. Production surged late 2018 to compensate for losses from Venezuela, others, expected from Iranian sanctions scheduled for November but waived for 6 months.

  8. The oil market’s uncertain variables • Middle Eastern unrest • US disengagement • Saudi turbulence (Yemen quagmire, Jamal Khashoggi murder, economic and cultural reform, Aramco IPO) • Blockade of Qatar and weakening of GCC • Iranian expansionism (Yemen, Syria, Iraq, Lebanon) and sanctions • Maneuvers for influence by Russia, China, Turkey • Eastern Mediterranean gas discoveries • Global economic growth • IMO 2020

  9. The IMO 2020 rule International Maritime Organization regulation effective Jan. 1, 2020 Lowers sulfur limit in marine bunker fuel to 0.5 wt % from 3.5 wt % Lower limits already apply in four emission control areas (ECAs) What happens to ~3.4 million b/d of high-sulfur fuel oil? What happens to sweet-sour price spreads? Source: Ken Cowell et al., Muse, Stancil & Co., in OGJ, July 2, 2018

  10. Us oil demand Gasoline is no longer the growth market Source: OGJ Forecast & Review, Jan. 7, 2019

  11. US oil supply Unless oil prices crash, growth constraint is physical until Permian pipelines open in 2H 2019 Source: OGJ Forecast & Review, Jan. 7, 2019

  12. Permian basin Crude pipeline projects • Phillips 66, Enbridge; Gray Oak, 385,000 b/d to Corpus, Freeport, Houston, 2019 • EPIC Crude; 700-mile, 550,000 b/d, 2019, to Corpus • Magellan; 600-mile, 24-in. OD, 350,000 b/d, to Nederland/East Houston, 2020 • PAA; Cactus II, 515-mile, 24-in. OD, Wink-to-McCamey-Ingleside/Corpus, 585,000 b/d, 2019 • JupiterMLP; 650-mile, to Brownsville, 2020 • ExxonMobil, PAA, Lotus, Midland-to-Houston/Beaumont

  13. Us OIL IMPORTS AND EXPORTS Net-exporter status is in view Source: OGJ Forecast & Review, Jan. 7, 2019

  14. US refining High refinery utilization reflects margins widened by US crude price discount to Brent

  15. US gas production and trade Exports will grow with LNG project starts Source: OGJ Forecast & Review, Jan. 7, 2019

  16. US LNG export projects, 2016-21

  17. US gas: More gas, more liquids Source: US Energy Information Administration, 2018 Annual Energy Outlook

  18. Debottlenecking Permian Gas • NAmerico Partners; Pecos Trail, 468-mile 1.85 bcfd to Corpus, 2020 • Kinder Morgan, DCP, Targa; Gulf Coast Express, 430-mile, Waha to Agua Dulce, 1.92 bcfd, October 2019 • Sempra, Boardwalk; Permian-Katy, 470-mile, 2 bcfd, phased in starting December 2019 • Tellurian; Permian Global Access, Waha to Gillis, La., 625-mile, 2 bcfd, 2022 • Targa, NextEra, MPLX; Whistler, Waha to Agua Dulce, 450-mile, 2 bcfd, 2020 • Kinder Morgan, ExxonMobil; Permian Highway, Waha-to-Katy, 430-mile, 2 bcfd, 2020

  19. Debottlenecking Permian ngl • EPIC Y Grade; 650-mile, DLK Black River to Corpus Christi 220,000 b/d, 2019 • Enterprise; Shin Oak, 571-mile, Hobbs to Mont Belvieu 250,000 b/d, 2019 • PermicoEnergia; Companero, 510-mile, to Corpus Christi, 300,000 b/d, 2020 • Energy Transfer; Lone Star Express extension, 352-mile, Wink to Fort Worth interconnect, Q4 2020 • Targa; Grand Prix, Permian and Oklahoma to Mont Belvieu

  20. Appalachian gas pipeline delays • Northern Access (97 miles, Pennsylvania-NY) approved early 2017, blocked by NY court • PennEast (115 miles, Pennsylvania-NJ) approved Jan. 2018, NJ judge OKs eminent domain • Mountain Valley (303 miles, WV-Virginia) approved Oct. 2017, 70% complete, Virginia AG filed suit, year-end 2019 in-service • Atlantic Coast (600 miles, WV-NC) approved Oct. 2017, work halted after Virginia court stays F&WS permit

  21. OGJ pipeline construction: 2019 only* • Global - 14,387 miles (Flat from 2018 but maintaining a return to 2013 levels) • US – 6,334 miles, +79% (of which, 1,315 miles NGL) Land pipeline construction costs: 2018, $9.95 million/mile 2017, $5.94 million/mile *Projects planned to be completed in 2019. Source: OGJ World Pipeline Construction, Feb. 4, 2019

  22. OGJ pipeline construction: 2019 and beyond* • Global – 31,917 miles, -5% (Continuing general decline since 2009) • US, Canada – 10,396 miles, -4.7% • Natural gas, 4,865 miles • Crude, 4,115 miles • Products, 1,416 miles *Projects under way at start of or set to begin in 2019 and be completed after 2019. Also includes some large projects not yet under construction but expected to advance. Source: Worldwide Pipeline Construction, OGJ, Feb. 4, 2019

  23. Global crude • Liberty (Phillips 66, Bridger) – Bakken-to-Corpus, 1,300 miles, 2020 • Basra-Aqaba – Export Iraqi crude – 1,043 miles, 2020 • Uganda-Indian Ocean – roughly 930 miles, 2020 • Keystone XL?

  24. Global natural gas projects • SCP/TANAP/TAP (Shah Deniz II) – Caspian to Europe • TAP = 800 km, incl. 115 offshore, 2020 • Xinjiang to Guangdong-Zhejiang (Sinopec) – Gasified coal to market – 5563 miles, 2020 • Power of Siberia (CNPC, Gazprom) – Russian gas to China – 2,465 miles, 2019 • Trans Alaska Gas Pipeline?

  25. The long term: IEA’s World Energy Outlook 2018 • New Policies Scenario • Current and planned policies, including Paris 2015 country commitments • Sustainable Development Scenario • “a pathway to meeting various climate, air quality and universal access goals in an integrated way. “ • Energy-related, global emissions of CO2 peak in 2020 then decline in trajectory needed to meet goals of Paris Climate Agreement.

  26. Long-Term Energy in IEA/WEO 2018 2017-40: Oil -29% Gas +11% 2017-40: Oil +10% Gas +43% Sustainable Development Scenario New Policies Scenario Source: International Energy Agency World Energy Outlook 2018

  27. Long-term oil demand in iea/weo 2018 Sustainable Development Scenario New Policies Scenario Source: International Energy Agency World Energy Outlook 2018

  28. Long-Term oil production in IEA/WEo 2018 Policy is important! 103.4 MMb/d 2017: 92.8 MMb/d Change vs. 2017: New Policies +11.4% Sustainable Development -26.7% 68 MMb/d Source: International Energy Agency World Energy Outlook 2018

  29. Oil-demand growth leader: petrochemicals Net petrochem change: 4.81 MMbd Source: International Energy Agency World Energy Outlook 2018

  30. Long-term gas outlook: ‘new policies’* Source: International Energy Agency World Energy Outlook 2018

  31. Long-term gas sensitive to policy(but demand grows in both cases) Source: International Energy Agency World Energy Outlook 2018

  32. Lng requirements under ‘new policies’ LNG will overtake pipeline share of gas trade in this period US LNG growing rapidly under uniquely flexible contracts Economically, gas will act increasingly like oil (but never totally) Source: International Energy Agency World Energy Outlook 2018

  33. IEA models: chemical feedstock demand Chemical feedstock share of oil demand grows in both scenarios Feedstock demand: RTS vs. CTS* Oil demand for feedstock: RTS vs. CTS* *RTS=Reference Technology Scenario, aligned with New Policy Scenario in WEO 2017 *CTS=Clean Technology Scenario, aligned with Sustainable Development Scenario in WEO2017 Source: IEA ,”The Future of Petrochemicals,” October 2018.

  34. IEA: Chemicals can use more Ethane *RTS = reference technology scenario. Source: IEA, “The Future of Petrochemicals, October 2018

  35. What it means • Oil market remains dependent on supply management • Middle Eastern instability hampers but hasn’t impaired supply management • Shale makes US a net gas exporter, nearly a net oil exporter, a growing exporter of NGL • NGL dominates US pipeline construction outlook • Long-term oil demand very sensitive to climate-related regulation • Long-term growth in oil demand dominated by petrochemicals • Gas-production growth means more NGLs, which will compete with oil in petrochemical market

  36. Contact Information Bob Tippee, Editor, Oil & Gas Journal 1455 W. Loop S., Suite 400 Houston, TX 77027 bobt@ogjonline.com Ogj online: www.ogj.com Oil & Gas Community: www.ogj.com/oilandgascommunity

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