Global Oil and Gas Market Outlook Guy Caruso, Senior Advisor Presented to AABE Annual Meeting April 18, 2012 Long Beach, CA www.csis.org | 2 Key Factors in Oil Market Security • The oil market is globalized. • Production and reserves are highly concentrated and supply chain is vulnerable. Cheapest resources in the Middle East. • Continual investment in new supplies needed to offset declining production as well as to accommodate demand growth. • Global demand for oil will be driven by developing countries. • Resource nationalism will affect investment flows • However, unconventional oil and gas maywww.csis.org modify the narrative. | 140 Fukushima Release of SPR 130 Dollars/ Barrell 120 Q1 US GDP revised down from 1.8% to 0.4% Unrest In Libya Iran Threatens to Close Straight of Hormuz Greek Restructuring Announcement Q4 US GDP revised up Down Jones at highest level since 2008 France hints to SPR release Iran Nuclear Development New band? OPEC agrees to maintain output level 110 IEF meeting Riots in Egypt 100 90 80 Protests in Syria Clashes in Iran and Bahrain Libyan Rebels Seize Oil Facilities Expiration Euro crisis Reports of Of QE2 Eurozone and Col. Gaddafi captured US Debt Chinese Deal Libya Oil Manufacturing US AAA Resumption Contraction Rating Renewed concerns about Downgrade Greece’s default risk Chairman Bernanke testifies about the US economy and employment Saudi pledges to increase production www.csis.org | 5 www.csis.org | 6 Middle East and North Africa Critical to Oil Supply Chain World liquids production, 2010: 86.29 mmb/d MENA 2010 Liquids Production, 2010: 30.24 mmb/d MENA share of world liquids production, 2010: 35% www.csis.org | 7 Oil Market Uncertainty for 2012 What Will Happen with Iran? • • • • • • • Pressure on Iran is increasing. New US sanctions imposed. EU agreed to phase in ban on Iranian oil imports. Korea and Japan in discussions about the application of CBI restrictions. How much additional volume will China be willing to absorb? How will Saudi Arabia react? Iran reacting with continued saber rattling mixed with possible compromise. US military position clear – will not tolerate interference with international shipping. Iranian Oil Exports Total exports 2.15 MMb/d www.csis.org | The medium term in summary Weaker demand baseline & stronger supply lead to easier market balances Spare capacity to increase from 2013 onwards in the base case Uncertainties persist – eurozone, global economy, China, subsidies, supply risks, boom & bust refining Supply growth struggles to exceed +1 mb/d annually, so outlook hinges critically on economic growth Demand migration to nonOECD, & shift to more difficult oil needs better data for better forecasts mb/d Medium-Term Oil Market Balance (Base Case) 4.0 mb/d 8.0 3.0 6.0 2.0 4.0 1.0 2.0 0.0 0.0 -1.0 -2.0 -2.0 -4.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Effective OPEC Spare Capacity (RHS) mb/d 4.0 World Supply Capacity Growth Medium-Term Oil Market Balance (Lower GDP Case) mb/d 8.0 3.0 6.0 2.0 4.0 1.0 2.0 0.0 0.0 -1.0 -2.0 -2.0 www.csis.org | -4.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Effective OPEC Spare Capacity (RHS) Source: IEA Oil Market Report World Demand Growth World Demand Growth World Supply Capacity Growth The Shape Of The Economic Recovery Matters 10 Emerging and Developing Economies Annual GDP Growth (%) 8 6 World 4 2 Advanced Economies 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 -2 -4 Source: IMF data, 2000-2009 Average Global Oil Demand Growth 1998-2004/2004-2010/2010-2016 thousand barrels per day Europe Demand growth is all about non-OECD & transport North America 66 391 -110 -184 312 -100 -257 OECD vs. Non-OECD Cumulative Oil Demand Growth by Use, 1997-2015 15 Non-OECD - Other Non-OECD - Transportation OECD - Other OECD - Transportation 801 722 576 294 187 23 30 20 Asia Middle East 202 25 42 13 Africa Latin America m b/d FSU 19 Avg Global Demand Growth 176 77 100 103 (mb/d) 1998-2004 2004-2010 2010-2016 1.43 0.81 1.21 1.8% 1.0% 1.3% OECD demand peaked in 2005 Demand growth now focused in 3 regions: Asia, Mid.East & L.America 10 5 Asia alone generates 55% of the total and China 35% (5) (10) 1997 1999 2001 2003 2005 2007 Source: IEA Oil Market Report 2009 2011 2013 2015 Premium & subsidised markets sustain growth, despite high prices www.csis.org | Understanding market trends requires better non-OECD data Changing Supply Picture US Light Tight Oil Raises Non-OPEC Supply Estimates kb/d 1000 800 600 400 200 0 -200 -400 -600 -800 Non-OPEC Supply - Revisions 710 520 170 -100 -600 -490 -150 2010 2011 2012 2013 2014 2015 2016 North America Middle East Oth Asia Africa FSU China OECD Europe OECD Pacific Latin America Total Non-OPEC kb/d 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0380 2010 US Crude and Condensate Output 620 870 2011 2012 1,140 1,320 1,530 1,700 2013 2015 2016 2014 Total Light Tight Oil Gulf of Mexico Alaska Other L48 Crude and Condensate Downward revisions in 2011-2013 due to unplanned outages, project delays, difficult investment climate in some MENA countries. Upward revisions due to uptick in E&P spending (rises by 22% in 2011, 10% in 2012), rosier N. American outlook. www.csis.org | NGL supply revised up because producers are targeting liquids-rich tight oil plays. Source: IEA Oil Market Report 12 www.csis.org | 13 www.csis.org | 14 Wide Range of Uncertainty About Future Oil Prices 2009 History Projections world oil price paths real 2009 dollars per barrel 225 High Oil Price case 200 175 150 125 Reference case 100 75 50 Low Oil Price case 25 0 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 www.csis.org | 15 Source: EIA, International Energy Outlook 2011 2035 www.csis.org | 16 www.csis.org | 17 Demand Growth and Production Declines Cause Need for Large Investment in New Capacity 140 120 100 Range of GDP liquids demand based on GDP growth 80 2009 rate of liquid production (Existing supply) 60 40 20 0 www.csis.org | Source –EIA’s International Energy Outlook 2011 Source –EIA’s International Energy Outlook 2011 Replacement needs by 2030: 86-110 mmb/day Middle East and North Africa have World’s Lowest Cost Petroleum Resources www.csis.org | 19 Source: IEA World Energy Outlook 2009 Fiscal needs of key producing countries keep pressure on oil prices 60 40 Iran Russia Venezuela Angola Nigeria Ecuador 80 Iraq Budget breakeven Commercially attractive UAE Libya 100 Algeria 120 Saudi Arabia 5 10 15 20 25 30 35 40 45 0 5 10 Oil production (mb/d) Super majors Breakeven production cost Qatar Kuwait Dollars per barrel Breakeven costs, budget breakeven and commercially attractive prices for current oil production for selected producers, mid-2011 20 0 0 www.csis.org | N.A. Oil Supply Has Upside Potential But Risk of Decline High production opportunities enabled by access frameworks www.csis.org | North American Shale Resources are Wide Spread www.csis.org | N.A.Gas Resources Have Potential to Supply the Market for Decades High demand, advanced technology, moderate development cost Unconventional Resources are Distributed Globally www.csis.org | 24 IEA Estimate of Global Natural Gas Resources Implications of Shale Gas “Revolution” • Natural gas and oil prices have been delinked in the North American market. • Natural gas will be the fuel of choice for power generation. Affects coal, nuclear and renewables. • Petrochemical and gas based industries beginning to consider expanding operations in US. • Gas may begin to make serious penetration as a transportation fuel. • Natural gas exports from North America will being and may grow. Alaska gas export option being considered. BUT …realizing the full promise of shale resources is not a certainty and US domestic policy is important! Technical/Economic Challenges • All shales are not alike; application of drilling/reservoir fracturing technology & operational experience matters • Steep decline rates require ongoing investment and drilling; and repeated fracturing • Cost escalation and low commodity prices limit prospects Environmental/Regulatory/Societal Challenges • Well design and management of surface chemicals/materials are the best barriers to protecting water aquifers • Disclosure of components of fracking fluids should/is happening • Scale of water use, treatment & disposal are challenging • Community Issues – infrastructure, land use, population density, noise, haze, road congestion and repair are “real” and need to be addressed • Regulation and enforcement are essential POLICY MODEL Economic Objectives Reliable and Secure Affordable/Accessible Natural Gas Supports Economic Growth & Employment Oil Nuclear Defensible Coal Energy Efficiency Environmentally Benign Carbon Capture and Storage Environmental Objectives Low/no emissions Renewable Energy Security & Foreign Policy Promotes/Supports www.csis.org | Objectives Sustainable Environment Thank You www.csis.org | 28