Impact of a low oil price environment on supply, demand, stability - PowerPoint PPT Presentation

Special Presentation Impact of a low oil price environment on supply, demand, stability & growth 6 th IEA IEF OPEC Symposium on Energy Outlooks, Riyadh Alexander Pögl 16 February 2016

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The Current Picture Brent Spot Price FOB [$/bbl] Brent Spot Price (FOB) 140 -69.9% in Brent Spot Price (FOB) 5 months 120 100 -23.6% in 9 months 80 60 -37.5% in -42.5% in 15 months -49.6% in -57.4% in 14 months 8 months 28 months 40 20 -66.0% in 18 months Source: EIA 0 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 The current down cycle is unusually deep and long – although this is not unprecedented: Key questions are what to make out of the last decade of high prices (one-off anomaly vs. new norm?) as well as the industry losing out on ca $7billion on a daily basis compared to the period 2011-14 Tuesday, 16 February 2016 www.jbcenergy.com Slide 4

Supply Marginal Cost of Oil Production [million b/d; $/bbl] 140.00 Supply 2016 Demand 2016 130.00 Supply 2014 Demand 2014 120.00 110.00 Arctic 100.00 Biodiesel Cost to produce one barrel of oil This is a snapshot of volumes supplied / Ethanol 90.00 demanded on an annualised basis. Oil sands upgraded 80.00 Short term outages as well as future developments are not reflected. 70.00 Production costs (full cycle costs in this case) are only indicative as there are huge variations US Shale Oil 60.00 within each category. 50.00 Oil sands heavy reduction Cost North Sea 40.00 WAF Offshore 30.00 20.00 FSU onshore Middle East Onshore 10.00 Additional cheap crude 0.00 2 12 22 32 42 52 62 72 82 92 102 Source: JBC Energy Quantity of Oil Supplied / Demanded The question is how many of the marginal resources will be required going forward. Lower break-even costs are only one factor in the equation – the other is higher supplies from low-cost producers (OPEC & Russia). Equilibrium is also very sensitive to demand movements. Tuesday, 16 February 2016 www.jbcenergy.com Slide 5

Supply Big Six* IOCs Upstream CAPEX Cuts vs Cost Index [billion $; Index] 200 * BP, Chevron, ConocoPhillips, ExxonMobil, Shell, Total 180 160 12 140 24 120 100 80 Upstream CAPEX Average 2010-2014 Development of UCCI (2010 = 100) 60 Source: Company information, IHS UCCI, JBC Energy 40 2010 2011 2012 2013 2014 2015 2016 For the long-term supply outlook it will be crucial to what extent lower spending will be counterbalanced by lower costs. (*ExxonMobil, BP, Shell, Total, Conco, Chevron) Tuesday, 16 February 2016 www.jbcenergy.com Slide 6

Supply North America Crude Supply Scenario [million b/d] 2.0 2.5 Base case: - 550,000 b/d 1.5 2.0 Scenario: - 1.1 million b/d 1.0 1.5 0.5 1.0 0.0 0.5 0.0 -0.5 Mexico y-o-y Implied stock change annual Canada y-o-y average -0.5 -1.0 Implied stock change annual US y-o-y average scenario Total North America y-o-y Implied stock change scenario -1.0 -1.5 Implied stock change scenario -1.5 -2.0 Q1 14 Q3 14 Q1 15 Q3 15 Q1 16 Q3 16 Q1 14 Q3 14 Q1 15 Q3 15 Q1 16 Q3 16 The lower prices go and the longer they stay lower, the more pronounced will be the North American production slump. We could also imagine y-o-y declines to reach a level of 1.5 million b/d in H2, with a significant impact on the balance. Generally speaking America hosts a lot of high-cost output. Tuesday, 16 February 2016 www.jbcenergy.com Slide 7

Supply US Shale Growth Dynamics ['000 b/d] 1,200 3000 1,000 2500 800 2000 116 134 149 163 600 1500 208 265 382 400 1000 706 200 500 755 0 0 -200 -500 -426 y-o-y change relative output change compared to 12 months before -400 -1000 cumulative output change - right scale Source: JBC Energy -600 -1500 0 12 24 36 48 60 72 84 96 108 120 Efficiency gains and cost cutting measures could lower break even prices even further, which could spark a quick shale recovery. Also , higher prices (50-60 $/bbl range) could lead to a ramp up. However in longer term growth will become slower and will not compensate future shortfalls of conventional production. Tuesday, 16 February 2016 www.jbcenergy.com Slide 8

Demand Price Changes since January 1st, 2014 [%] 120.0% Diesel Gasoline 100.0% Price changes were 80.0% calculated using local currencies. 60.0% 92% 40.0% 46% 20.0% 0.0% -17% -16% -18% -19% -28% -32% -20.0% -38% -41% -62% -70% -70% -40.0% *Middle East data is an average of retail price changes in Saudi Arabia, Kuwait, Bahrain, Oman, and the UAE. -60.0% Sources: ICE, Various -80.0% Brent RBOB ICE gas oil China India US EU Middle East* Oil consumer prices have fallen only by a fraction of the oil price fall, limiting price and income effects. The Middle East has even seen rising retail prices as governments curtail subsidies to counterbalance lower oil income. Tuesday, 16 February 2016 www.jbcenergy.com Slide 9

Demand Revisions of Oil Demand Growth 2016 vs 2014 ['000 b/d] Title [unit] 2,000 1,000 LPG Oil Demand Growth - 2016/01 Naphtha Oil demand Growth - 2014/01 1,800 800 Gasoline Kero/Jet Product by 1,600 Total Product Gas Oil Product 600 Demand Fuel Oil Revisions from Comparison 1,400 Other 2014 to 2016 400 1,200 1,000 200 800 0 600 -200 400 -400 200 0 -600 2011 2012 2013 2014 2015 2016 2017 2018 2011 2012 2013 2014 2015 2016 2017 2018 Overall, we do not see oil demand much higher than before the price fall, but gasoline demand is now cumulatively 1.4 million b/d higher, while gas oil/diesel demand is 0.3 million b/d lower than assessed in early 2014. “Peak demand” is an issue – and limiting the upside for oil prices. Tuesday, 16 February 2016 www.jbcenergy.com Slide 10