Perspectives on US Energy Outlook, Cocktail Party Issues and Impacts on E&C Players

Transcription

1 Perspectives on US Energy Outlook, Cocktail Party Issues and Impacts on E&C Players October 4, 211

2 1 World Oil Outlook 2 US Refining and Gasoline Outlook 3 US Natural Gas Outlook 4 US NGL Outlook Wood Mackenzie 2

3 Oil supply, outside OPEC increases markedly North Sea Russia Canada Kazakhstan US China Egypt Mexico Oman Total Non-OPEC Supply * 21: 5.48 m b/d 22: 56.6 m b/d m b/d *including unconventionals Yemen Thailand Indonesia Ghana Brazil Argentina Australia and Indonesia Unconventionals Source: Wood Mackenzie.1<.25.25<.5 m b/d m b/d.5< m b/d Note: Countries included where change is greater than 1, b/d Wood Mackenzie 3

4 Million b/d OPEC spare crude oil capacity ensures demand can be met 7 7.5% 7.% Forecast of OPEC Crude oil Capacity Minus Call on OPEC Crude oil 6 % of global oil demand 5 4.7% % 3.9% 3.6% 3.5% 3.6% 3.2% 3.2% 3.2% 3.% 3.3% 3.4% 2.9% 2.5% 2 1 Source: Wood Mackenzie *Call on OPEC crude oil is world oil demand forecast compared with our forecasts for non-opec production, OPEC and non-opec natural gas liquids, world refining processing gains, and our definition of unconventionals (consisting of biofuels, CTL,GTL, and shale oil). Source: Wood Mackenzie Wood Mackenzie 4

5 Million b/d million b/d World oil demand forecast shows strong growth Demand by Region Demand by Major Sectors 15 1 FSU 6 95 Africa 9 85 Latin America 5 8 Middle East Other Asia India China Advanced Asia Europe North America Transport Petrochemical Feedstock Source: History-IEA, EIA; Forecast-Wood Mackenzie Industry & Pow er Generation Residential/Commercial Wood Mackenzie 5

6 US$/bbl Brent price forecast to 22 shows increase from about $ Price volatility risk Financial investors shifting stance Inflation and weak US dollar hedges Upward price risk Political turmoil in key producing nations Attack on Iran nuclear facilities Inadequate upstream investment Downward price risk Recovery from financial crisis lags expectations Slower than expected GDP growth Iraq supply wildcard Source: History - Thomson Datastream, Forecast - Wood Mackenzie Brent Real Brent Nominal Wood Mackenzie 6

7 Jan-8 Apr-8 Jul-8 Oct-8 Jan-9 Apr-9 Jul-9 Oct-9 Jan-1 Apr-1 Jul-1 Oct-1 Jan-11 Apr-11 Jul-11 COCKTAIL PARTY ISSUE #1: What s up with WTI? Cushing constraints dislocate WTI from global oil markets Brent WTI spread has multiple drivers Rising North America light crude production (WTI ) US refineries re-positioning (WTI ) Strong Asian oil demand growth (Brent ) Libya production off-line (Brent ) $/bbl Brent WTI Price Spread Widening spread helps inland refiners Buy crude on a WTI basis Product import competition (from USGC) indexed off Brent 5-5 Source: Platts, Wood Mackenzie Wood Mackenzie 7

8 MILLENIUM KOCH USGC connectivity is primarily inbound to Cushing impacting the WTI - Brent differential Nanticoke Guernsey Cheyenne KEYSTONE Lockport Chicago Detroit Platteville Flanagan Wood River Patoka Robinson El Dorado Coffeyville Ponca City Cushing McKee Borger Memphis El Paso Slaughter Co. City Wichita Falls El Dorado Longview Midland Eagle Ford Corsicana St. Charles Legend: Inbound Outbound Outbound planned Corpus Christi` Houston Port Arthur/ Beaumont Free port New Orleans St James Source: Wood Mackenzie April 211 Wood Mackenzie 8

9 Jan-4 Jul-4 Jan-5 Jul-5 Jan-6 Jul-6 Jan-7 Jul-7 Jan-8 Jul-8 Jan-9 Jul-9 Jan-1 Jul-1 Jan-11 Jan-4 Jul-4 Jan-5 Jul-5 Jan-6 Jul-6 Jan-7 Jul-7 Jan-8 Jul-8 Jan-9 Jul-9 Jan-1 Jul-1 Jan-11 Cushing storage utilizations influence the price dynamics of Brent WTI differentials Cushing Stock & Shell Capacity (24-21) Brent WTI diff vs. Storage utilization (24-21) 1' bbls 7, 6, 5, 4, (Utiliz. %) 1% 8% 6% WTI $/bbl Recent differentials suggest other factors are governing the dynamics of WTI (Utiliz. %) 1% 8% 6% 3, 4% % 2, -3 2% 1, 2% -4-5 % % Capacity Stock Utilization Brent-WTI Utilization Wood Mackenzie 9

10 1 World Oil Outlook 2 US Refining and Gasoline Outlook 3 US Natural Gas Outlook 4 US NGL Outlook Wood Mackenzie 1

11 Additional CDU Capacity, kbd. Global capacity additions are concentrated in emerging Asia and the Middle East, with closures in the developed world 6, 5, 4, 3, Refinery Capacity Additions kb/d -5 Refinery Closures and Capacity Reductions , -1 1, , Asia Pacific Middle East North America Latin America by end Greater Europe FSU Sub- Saharan Africa Greater Europe N. America Asia Pacific Source: Wood Mackenzie Product Markets Service Wood Mackenzie 11

12 Cumulative change, Mbd On a cumulative basis demand just outpaces capacity growth 12 Global Demand and Capacity to Supply Non-refinery supply Refinery expansions New refineries Demand Excludes capacity creep and utilisation rate changes Source: Wood Mackenzie Product Markets Service Wood Mackenzie 12

13 North American Oil Product Demand shows decreased Gasoline and Naphtha Demand Million barrels per day United States LPG (excl C2) Naphtha Gasoline Jet/Other Kero Gas/Diesel Oil Fuel Oil Other US-5 Total Sources: EIA & IEA (history), WM (forecast) Wood Mackenzie 13

14 Global capacity utilization equalizes, but margins improve in Asia, where oil demand is growing $/bbl Percent 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % Northwest Europe ($/bbl) Mediterranean ($/bbl) USGC LLS Cracking, $/bbl Singapore Dubai ($/bbl) Northwest Europe Mediterranean USGC Singapore Wood Mackenzie 14

15 CP ISSUE #2: What is happening on USEC refining? USEC continues to suffer from global competition Gasoline Trade Gasoline flows from Europe to North America are forecast to continue North America Latin America Europe continues to export to Africa and the Middle East Europe Africa Middle East FSU Asia Growing surplus of gasoline in FSU as refiners invest in improving octane levels Asian exports to the Middle East decline Current key trade (kbd) New net trade 215 (kbd) Source: Wood Mackenzie Analysis Wood Mackenzie 15

16 Opportunity may be for USEC players to play a larger role in supplying diesel/gasoil to Europe Diesel/Gasoil Trade North America US exports of diesel to Europe should increase European imports Europe from Middle East should increase FSU Russia continues to export diesel/gasoil to Europe US exports of diesel to Latin America should decline Current key trade (kbd) Latin America Africa Middle East Asia Middle East diesel/gasoil exports to Asia fall later in the forecast period New net trade 215 (kbd) Source: Wood Mackenzie Analysis Wood Mackenzie 16

17 Run cut losers are in the Atlantic Basin USGC utilisations manage to stay fairly constant % 9 % USGC Utilisation US East Coast Utilisation % Europe Utilisation Source: Wood Mackenzie Product Markets Service Wood Mackenzie 17

18 miles per gallon CP ISSUE #3: Why are these utilizations so low? Improved vehicle efficiency is a restraint on gasoline demand 4 Average light vehicle efficiency is below CAFÉ standards which measure vehicles in optimum driving conditions not typical driving conditions By 225 CAFÉ standards are proposed to move towards 54 mpg Existing vehicle stock means the average fleet efficiency takes longer to improve Average Fleet Average Light Vehicles Revised Cafe Standard Wood Mackenzie 18

19 kb/d Carbon intensity, gco2e/mj Compliance with RFS and LCFS regulation substitutes with Ethanol Forecast Compliance With the US RFS The Californian LCFS Carbon Intensity Requirements vs Two Gasoline Ethanol Blends 2, CARBOB + 1% Brazilian Ethanol CARBOB + 2% Brazilian Ethanol 2, 94 1, , Ethanol Biodiesel Renewable Fuel Standard CARBOB - California Reformulated Gasoline Blendstock for Oxygenate Blending Wood Mackenzie 19

20 1 World Oil Outlook 2 US Refining and Gasoline Outlook 3 US Natural Gas Outlook 4 US NGL Outlook Wood Mackenzie 2

21 bcfd Natural gas supply anticipated to grow (Bcfd, dry) 12 1 Supply overall increases by 27 Bcfd in the US The largest increases are in the Gulf Coast and the Northeast Rockies San Juan Gulf Coast Gulf of Mexico MidContinent Permian Fort Worth Northeast West Coast Alaska WCSB East Coast Arctic Wood Mackenzie 21

22 Shale gas reserves are key to growth Horn River Shale Horn River Montney TGS Monteney Columbia TGS Mannville CBM Horseshoe Canyon CBM WCSB CANADA UNITED STATES OF AMERICA Utica Shale Pacific Ocean Woodford Barnett km West Coast Lance Pinedale TGS Almond TGS Baxter Shale Wasatch TGS Mancos TGS Honaker Trail TGS Gothic Shale Hovensweep Big George CBM Fruitland CBM Wyodak CBM Mesaverde CBM Mesaverde Piceance TGS Mesaverde- San Juan Rockies Pierre Shale Vermejo CBM Niobrara TGS Anadarko Woodford Shale Northeast Cherokee CBM Fayetteville Shale Pennsylvanian CBM Granite Wash TGS Caney Shale Palo Duro Shale Arkoma Woodford Barnett Travis Peak TGS Floyd Shale Permian Shale Haynesville Shale Gulf Coast Barnett-Woodford Deep Haley Shale TGS Selma Chalk Cotton Valley Deep Bossier Shale TGS Austin Chalk TGS Wilcox TGS MEXICO Eagle Ford Shale Lobo Wilcox TGS Mid-Continent Lower Vicksburg Shale New Albany Shale Gulf of Mexico Antrim Shale Berea Oriskany Huron Shale Chatanooga Shale Eagle Ford Marcellus Shale Atlantic Ocean Fayetteville Haynesville Marcellus Source: Wood Mackenzie Wood Mackenzie 22

23 bcfd CP ISSUE #4: Will we be allowed to get to it? The supply mix depends on shales, and hydraulic fracturing 45 Close to 5% of supply longer term will be affected by regulations on hydraulic fracturing. Still, strong growth potential Bcfd in the known shale plays by 225! Barnett Fayetteville Woodford Haynesville Marcellus Eagle Ford Horn River Montney & Duverney Wood Mackenzie 23

24 TWh bcfd Power is still the largest and a growing use of natural gas in the US Initially, rapid growth, but a longer term slowing US Power Demand for Gas Coal retirements, a resumption of economic growth drive 1.5 Bcfd growth annually through 22 6, 5, 4, Post 22, efficiencies and renewables reduce growth to < 1 Bcfd yearly. 3, 2, 1, Nuclear Hydro Coal Gas Renew ables Other Gas demand Wood Mackenzie 24

25 21 $/mmbtu New-drill cost curves indicate higher long-term Henry Hub price requirement, but well below recent years US new drill gas supply stack* Marcellus Pinedale tight gas Barnett Pinedale tight gas Barnett Haynesville Haynesville Lower Bossier tight gas Eagle Ford Fayetteville Fayetteville Lower Bossier tight gas Cotton Valley tight gas Cotton Valley tight gas 1 Eagle Ford Marcellus bcfd *Assumes development breakeven economics (not including land lease costs) at a 1% real IRR adjusted to a Henry Hub- equivalent price Source: Wood Mackenzie (North America Gas Service) Wood Mackenzie 25

26 1 World Oil Outlook 2 US Refining and Gasoline Outlook 3 US Natural Gas Outlook 4 US NGL Outlook Wood Mackenzie 26

27 (Thousand bbl/d) Middle East continues to dominate the LPG production while the US supply remains steady 4 Regional NGL Production US FSU Europe Asia Africa Latin America Middle East Wood Mackenzie 27

28 Given the infrastructure of regional demand, the USGC is the hub for Propane and Butane for Chemical use US North West Europe Middle East Asia Ethane Propane Butane Naphtha Gasoil Other Wood Mackenzie 28

29 LPG petchem demand expected to increase in the Middle East while other regions demand profile remains nearly unchanged US Europe Middle East Asia 1% 1% 1% 1% 9% 9% 9% 9% 8% 8% 8% 8% 7% 7% 7% 7% 6% 6% 6% 6% 5% 5% 5% 5% 4% 4% 4% 4% 3% 3% 3% 3% 2% 2% 2% 2% 1% 1% 1% 1% % % % % Industry Petchem Feedstock Residential Commercial Agriculture Road Other Wood Mackenzie 29

30 bcfd CP ISSUE #5: Why is everybody s talking about Ethane? With all these shales NGL content ( richness ) is a key driver 35 US Shale Gas Production by Play High oil-gas price differential has increased the attractiveness of liquids-rich shale gas plays Increased focus on wetter shale plays in 21/ Lean Shifting upstream strategies and capital allocation across independents 1 5 Wet Barnett Eagle Ford Montney Marcellus Fayetteville Woodford Haynesville Horn River Source: Wood Mackenzie Unconventional Gas Service Wood Mackenzie 3

31 Thousand Bbl/day North America s Liquids Fairway unveils an ethane supply story US NGL Production (27-22) 2, 1,8 1,6 1,4 1,2 Aux Sable Sarnia 1, Conway Liquids Fairway Mont Belvieu Ethane Propane Butane Source: Wood Mackenzie 31

32 Feedstocks $/MMBtu USGC petchems may focus on maximizing Ethane feedstock Feedstock demand to produce 1 ton of Ethylene 18 Ethane Price Projection ($/MMBtu) Naphtha Butane Propane 8 Ethane ton Naphtha Ethane Natural Gas Wood Mackenzie 32

33 In summary, how do the broader trends in the energy industry impact the E&C business? Macro-Fundamentals E&C Impact Oil supply is stable and more from non-opec sources Gasoline demand declining Overall demand CAFÉ RFS/LCFS Natural gas volumes increased with (wet) shale plays NGL supply stable, but ethane will grow significantly Mega projects in the upstream remain in the mix (Brazil deepwater and Canada) Infrastructure plays become the more important in future Refining projects to be smaller more geared to regulatory compliance vs. profitability Gas fired power plants win the day Ethylene units may already have too many announced Wood Mackenzie 33

34 THANKS Any Questions? Wood Mackenzie 34

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