Oil Price Outlook:
Critical Market Drivers…and Questions…Ahead
April 2015
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1
Who is FGE?


For over 30 years, FGE has delivered strategic advice on the oil and gas markets to clients around the
world. The company was the first consulting firm to specialize in the downstream oil and gas markets with
a focus on the East of Suez region.
FGE provides studies and advisory services to national governments, national oil and gas companies,
major oil and gas companies, independent oil and gas companies, financial institutions, international and
intergovernmental organizations, utilities, consultancies, and engineering design firms.
Over 270 Clients Around the Globe
London
California
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Tokyo
Dubai
Mumbai
Singapore
Honolulu
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Global/Asian Headquarters
Main Offices
Rep/Branch Offices
Please visit our website,
www. FGEnergy.com for more information.
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Oil Price Outlook
Next Month?
Next Year?
2020?
3
Oil Price Outlook: Three Critical Legs
OPEC/Saudi
Strategy
Long Term:
Where should
market “hang
its hat”?
Short Term:
Supply/Demand
…Inventories
Oil
Price
4
Potential Outlook: Global Supply/Demand & Stocks
mmb/d
98
8
97
7.5
96
7
95
94
6.5
93
6
92
5.5
91
90
5
Global Commerical Stocks (RHS)
Supply
Demand
• If OPEC output stays unchanged, growing gap on trend vs demand – continued stockbuild
5
bn bbl
www.FGEnergy.com
Monthly supply, demand and stocks for 2014-2015
How Much Longer Can Stocks be Built?
• Total OECD company stocks on land now back up to very high levels seen in 2008-09
www.FGEnergy.com
• Stocks elsewhere (i.e., Singapore, China, Saldanha Bay) also at multi-year highs
• Some 60 mmb of crude tankers now booked potentially for floating storage
• At current levels of supply, capacity constraints could be hit in Q2
OECD On-Land Company Stocks Outlook to Q2 2015
No. of days'
supply
66
64
2009
62
2010
2011
60
2012
58
2013
56
2014
54
2015
52
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
6
Dissecting Price Impact on US Tight Oil
11.5
www.FGEnergy.com
$80-100/bbl
10.5
$70-80/bbl
9.5
8.5
$50-70/bbl
mmb/d
7.5
$30-50/bbl
6.5
$0-30/bbl
5.5
Tight Oil Base
4.5
3.5
GOM
2.5
Conventional
kb/d
US Production
Onshore Conventional Crude
Offshore GOM
Tight Oil
Condensate
NGL
Total
2010
3,114
1,545
575
227
2,074
7,534
2011
3,084
1,316
935
306
2,215
7,855
2012
3,075
1,267
1,747
394
2,408
8,891
2013
3,186
1,253
2,540
455
2,605
10,040
2014
3,308
1,400
3,437
499
2,961
11,605
7
2015
3,070
1,525
4,079
583
3,406
12,662
2016
2,990
1,646
3,895
592
3,652
12,776
2017
2,905
1,666
4,289
588
3,705
13,153
2018
2,837
1,708
4,564
583
3,743
13,435
2019
2,773
1,736
4,618
579
3,780
13,486
2020
2,737
1,709
4,871
577
3,818
13,712
Most Retail Consumers Seeing Limited Price Reductions
Pump Price Changes in Local Currencies, June 2014-February 2015
www.FGEnergy.com
Brent
Turkey
Russia
Argentina
Brazil
Mexico
US
EU
Indonesia
Thailand
India
Gasoline
Diesel
China
-60%
-50%
-40%
-30%
8
-20%
-10%
0%
10%
Air Transport—Efficiency Gains Driven by High Oil Price
Average Increase in Air Traffic 2003-2014
Cumulative Jet Fuel Demand Growth 2013-2030
16%
www.FGEnergy.com
2.5
OECD Asia
Africa
FSU
Latin America
14%
2.0
mmb/d
12%
10%
8%
6%
4%
0%
Africa
1.0
0.0
2013
Asia Europe South Middle North World
Pacific
America East America
•
Jet Fuel Demand vs Efficiency 2003=100
200
160
1.5
0.5
2%
180
Non-OECD Asia
Middle East
Europe
North America
Fuel efficiency
Jet fuel demand
Air travel
•
140
•
120
100
80
60
9
2016
2019
2022
2025
2028
Jet fuel demand will grow in all regions, as
aviation activity will grow
Bulk of the demand will come from nonOECD Asia (+940 kb/d) and the Middle East
(+315 kb/d); Europe also strong (+250 kb/d)
Main factors to shape the future of jet fuel
demand
• Regional shift towards East of Suez
will continue
• Fuel efficiency (litres of jet fuel/100
RPK) increases around 3% p.a.
Five Key Oil Demand Growth Centers
(Year-on-Year Oil Demand Growth, kb/d)
www.FGEnergy.com
1
500
400
300
200
100
0
China
2
3
4
Latin America
500
400
300
200
100
0
5
500
400
300
200
100
0
500
400
300
200
100
0
Africa
10
Middle East
500
400
300
200
100
0
India
Supply/Demand Outlook - 2020
www.FGEnergy.com
mmb/d
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
2014
2015
USA
2016
Canada
Brazil
2017
2018
Other Non-OPEC
11
2019
Demand Growth
2020
Iraq Crude Outlook – More Potential Volume from North & South
www.FGEnergy.com
Turkey
Tawke
750 mmb
Current-2015
120-150 kb/d
Fishkabur
Syria
Dohuk
7
Shaikan
2700 mmb
Current-2015
23-150 kb/d
6
Iran
Atrush
650mmb
Current-2015
10-50 kb/d
5
Bijeel
2400 mmb
Current-2015
5-50 kb/d
4
mmb/d
Kurdistan Region of Iraq
Bina Bawi
500 mmb
Current-2015
10-50 kb/d
Federal Iraq
KRG pipeline
reaching 400
kb/d by year
end and 700
kb/d in 2015
Project
West Qurna 1
West Qurna 2
Majnoon
Rumalia
Zubair
Halfaya
*All figures in kb/d
Khurmala
Current - 2015
80-250 kb/d
Taq Taq
650 mmb
Current - 2015
115-220 kb/d
Kirkuk
1700 mmb
200-250 kb/d
3
2
1
0
2010
Kirkuk
connected to
KRG pipeline
Operator
Current Output Original Target Revised Target FGE 2020
ExxonMobil
300
2,830
1,600
620
Lukoil
330
1,800
1,200
480
Shell
220
1,800
1,000
540
BP
1,300
2,850
2,100
1,450
ENI
250
1,200
850
680
CNPC
200
540
400
300
2,600
11,020
7,150
4,070
12
2012
Rumaila
Halfaya
NOC
2014
2016
West Qurna 1
West Qurna 2
KRG
2018
2020
Majnoon
Other SOC
Marginal Development Costs
www.FGEnergy.com
Development costs are expected to reduce greatly over the next 12 months as operators renegotiate service
contracts. North Sea rig rates have already seen declines of up to 20%. Governments are expected to play
their part too; UK tax changes could give up to $10/bbl relief on breakeven prices.
$/bbl
140
New Field Development Costs for IOCs
120
100
80
60
40
20
0
Development Cost ($/bbl)
13
Lifting Costs ($/bbl)
Diminishing Global Supply Role for Saudi Crude???
www.FGEnergy.com
mmb/d
12
Available for other buyers
10
Asia (China, South Korea, Japan)*
8
US*
6
S. Arabia + Bahrain
4
Non refinery
2
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
*Represents the proportion of crudes shipped to Saudi Aramco’s JV refineries outside Saudi Arabia
(based on its equity stake)
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Long-Term Oil Price
www.FGEnergy.com
Finding A New Equilibrium After Sharp Fall
Brent (Jan 2015-Dec 2015)
Brent Outlook through 2030
US$/bbl
$70
$60
$50
$40
$120
$30
$110
US$/bbl
$100
$90
$80
$70
$60
$50
Base Case
$40
Low Cost Case
$30
$20
Note: 2005–2014: actual, forecast in $2015 thereafter
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