150227_Halff

naturgas1

150227_Halff

Center for Strategic & International Studies

Washington, DC

27 February 2015

© OECD/IEA 2015

© OECD/IEA 2015


USD/bbl

USD/bbl

Oil price plunge triggers market reset

Historical Brent crude oil prices

IEA import price assumptions

160

140

120

100

80

60

40

20

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Brent

120

110

100

90

80

70

60

50

40

108

102

100

98

95 93

91 87

67 70

71 73

62

55

2014 2015 2016 2017 2018 2019 2020

MT February 2015 MT June 2014

• 60% drop in crude oil prices June 2014 - early January 2015

• Partial rebound since then, but market does not expect full recovery

• From backwardation to contango

• Is the age of triple-digit oil prices over?

© OECD/IEA 2015


IMF backpedals on economic recovery

4.2%

4.0%

3.8%

3.6%

3.4%

3.2%

3.0%

2014 2015 2016 2017 2018 2019 2020

MTOMR 2015 IMF Jan-15 IMF Oct-14 IMF Jul-14

2015 economic growth revised from 4% to 3.8% and again to 3.5%

over a six-month period

© OECD/IEA 2015


mb/d

Business as unusual

7

6

5

4

3

2

1

0

- 1

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Implied OPEC spare

capacity

World demand growth

World supply capacity

growth

The market response to lower prices is asymmetrical

Supply has become more price-elastic, demand less so

© OECD/IEA 2015


Supply

© OECD/IEA 2015


mb/d

Slowing supply growth

2.5

2.0

1.5

1.0

0.5

0.0

-0.5

2014 2015 2016 2017 2018 2019 2020

OPEC crude capacity

OPEC NGLs

Non-OPEC

World

Global capacity growth cut to annual average 860 kb/d through 2020,

down from 1.4 mb/d in 2008-14

© OECD/IEA 2015


kb/d

Non-OPEC growth drops from

record high

2500

2000

1500

1000

500

0

-500

-1000

-1500

Annual non-OPEC supply growth

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

PG and biofuels

Other Asia

China

Middle East

Africa

Latin America

Other Europe

FSU

OECD Pacific

OECD Europe

OECD Americas

Total

• Non-OPEC supply grows by 3.4 mb/d to 60 mb/d by 2020

• Annual growth slows to average 560 kb/d vs 1.9 mb/d in 2014

© OECD/IEA 2015


kb/d

US, Brazil and Canada top sources of

growth

1 000

800

600

400

200

0

- 200

- 400

- 600

Not shown: US supply to grow 2.2 mb/d

Main growth sources remain the same as before the price drop

© OECD/IEA 2015


Low price cuts mid-term non-OPEC

growth expectations by 2.8 mb/d

Change in 6-year growth outlook (kb/d)

Russia

US

Canada

Non-OPEC Africa

Norway

Colombia

Non-OPEC Middle East

China

Other FSU

-800 -600 -400 -200 0

© OECD/IEA 2015


mb/d

mb/d

Diverging supply paths

2.0

Change in US liquids production

0.30

Change in Russian liquids production

1.5

0.20

1.0

0.10

0.00

0.5

-0.10

0.0

2009 2011 2013 2015 2017 2019

Feb 2015

3Q2014

-0.20

2009 2011 2013 2015 2017 2019

Feb 2015 3Q2014

• US production growth slows in 2015-17, then rebounds

• Russian output contracts by 560 kb/d by 2020

© OECD/IEA 2015


mb/d

mb/d

North America remains backbone of

non-OPEC growth

14

US total oil production

6

Canada total oil production

12

5

10

8

6

4

3

4

2

2

1

0

2008 2010 2012 2014 2016 2018 2020

LTO Gulf of Mexico NGLs Other liquids Other crude and cond.

0

2013 2014 2015 2016 2017 2018 2019 2020

NGLs Alberta L&M Bitumen Synthetics Other

• US production nears 14 mb/d, Canada 5.0 mb/d by 2020

• Most of US output is LTO and NGL by the start of next decade

• Bitumen, synthetics make up 60% of Canada’s production by 2020

© OECD/IEA 2015


US LTO and shale-play condensate

breakevens rise

100%

80%

60%

40%

20%

0%

2014 2015 2016 2017 2018 2019 2020

USD/b

below 40

USD/b

40-60

USD/b

60-80

USD/b

80-100

USD/b

above

100

Source: Rystad Energy

• About 41% of US LTO and shale condensate breakeven prices at

$50/bbl or lower in 2014

• Depletion of sweet spots to offset efficiency gains and lower costs

© OECD/IEA 2015


Brazil hit by project delays, low prices

kb/d

400

300

200

100

0

-100

-200

-300

2010 2012 2014 2016 2018 2020

Campos Santos Other

Brazil total

2014 forecast

• Supply swung back into growth in 2H14

• Petrobras debt and legal problems raise hurdles

© OECD/IEA 2015


mb/d

Russia biggest casualty of price fall

11.25

11.00

10.75

10.50

10.25

10.00

9.75

9.50

2014 2015 2016 2017 2018 2019 2020

Current data June 2014

• Ruble collapse partially offsets drop in dollar prices

• Tax regime blunts impact on companies; government takes biggest hit

• Greenfield startups delayed

• Sanctions hit Arctic and LTO

© OECD/IEA 2015


mb/d

Thousands

North Sea suffers setback

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

-0.5

-1.0

2012 2013 2014 2015 2016 2017 2018 2019 2020

UK Norway Other Ann. Change (rhs)

1.4

1.2

1.0

0.8

0.6

0.4

0.2

0.0

-0.2

-0.4

Price slump delays projects, production contracts through 2020

© OECD/IEA 2015


mb/d

Low price delays impact of Mexican

reform

3.0

2.9

2.8

2.7

2.6

2.5

2.4

2.3

2.2

2014 2015 2016 2017 2018 2019 2020

Current data June 2014

Growth expected to kick in in 2018-20

© OECD/IEA 2015


mb/d

kb/d

Caspian growth elusive

2.0

Kazakhstan total oil production

900

Azerbaijan total oil production

1.8

850

1.6

800

750

1.4

700

1.2

650

1.0

2014 2015 2016 2017 2018 2019 2020

600

2014 2015 2016 2017 2018 2019 2020

• Production gains post-2017 after Kashagan comes online

• Limited success in stemming rapid declines in Azerbaijan’s ACG fields

© OECD/IEA 2015


mb/d

China’s production holds steady on EOR

5

4

3

2

1

0

2007 2009 2011 2013 2015 2017 2019

Daqing Shengli Changqinq Other

Legacy fields, especially Daqing and Changqing,

see EOR benefits through 2020

© OECD/IEA 2015


Biofuels production inches higher

mb/d

mb/d of oil equivalent

3.0

2.5

2.0

Volumetric

2.0

1.5

Adjusted for energy content

4%

3%

1.5

1.0

0.5

1.0

0.5

2%

1%

0.0

2013 2014 2015 2016 2017 2018 2019 2020

0.0

2013 2014 2015 2016 2017 2018 2019 2020

0%

United States biofuels

OECD Europe biofuels

Brazil biofuels

Rest of the world biofuels

World Biofuels, energy adjusted

As % of global road transport fuel demand

Biofuel consumption is mandate-driven

© OECD/IEA 2015


mb/d

Price drop curbs OPEC crude capacity

growth

37

36

35

34

2014 2015 2016 2017 2018 2019 2020

Current data June 2014

Growth expectations reduced to 200 kb/d annually,

vs 350 kb/d prior to the price drop

© OECD/IEA 2015


OPEC wins back some market share

Share of total supply inches back up,

but not the share of global capacity

© OECD/IEA 2015


OPEC growth hinges on Iraq

mb/d

0.6

0.4

0.2

0.0

-0.2

-0.4

-0.6

-0.8

2014 2015 2016 2017 2018 2019 2020

Iraq Rest of OPEC OPEC

• Price drop, ISIL add to Iraq institutional and infrastructure constraints

• Total Iraq growth estimated at 1.1 mb/d in 2014-2020; elevated risks

• Low prices can be double-edged

© OECD/IEA 2015


mb/d

kb/d

UAE to post notable growth

3.3

3.2

3.1

80

60

40

3.0

20

2.9

0

2.8

-20

2.7

2014 2015 2016 2017 2018 2019 2020

-40

2014 2015 2016 2017 2018 2019 2020

Offshore growth Onshore growth Total

• Abu Dhabi, IOCs press ahead with expansion plans

• Upper Zakum due to add 250 kb/d by 2017

• Stakes in giant onshore Adco concession being awarded

© OECD/IEA 2015


Nigerian capacity to contract

• Low oil price further delays costly deep-water projects

• Investment already set back by long-running deadlock over Petroleum

Industry Bill

© OECD/IEA 2015


Libya: OPEC’s wildcard

mb/d

2.0

1.5

1.0

0.5

0.0

2010 2012 2014 2016 2018 2020

• Militants target energy industry

© OECD/IEA 2015


Battle for market share just starting

• How will OPEC make room for expanding Iraq and an Iran freed from

sanctions?

© OECD/IEA 2015


Demand

© OECD/IEA 2015


Mixed demand response

Revised demand growth prospects 2014-2019

FSU

Middle East

Africa

Latin America

India

US

• Low price dampens outlook for oil exporters

• Oil importers enjoy benefits but …

-600 -400 -200 0 200 400 600 800 1000

kb/d

• … weak economic recovery, subsidy cuts, forex, fuel-switching

provide offset

© OECD/IEA 2015


Currency weakness dampens price

effect in many countries

Domestically-priced Brent crude indices, 2008-14

180

160

140

120

100

80

60

40

20

0

Jan2008 Jul2008 Jan2009 Jul2009 Jan2010 Jul2010 Jan2011 Jul2011 Jan2012 Jul2012 Jan2013 Jul2013 Jan2014 Jul2014

US

Europe

Russia

China

© OECD/IEA 2015


mb/d

Modest demand growth still foreseen

3.5

2.5

3.5%

2.5%

Other NonOECD

1.5

1.5%

NonOECD Asia

0.5

0.5%

-0.5

-0.5%

OECD

-1.5

-2.5

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

-1.5%

-2.5%

World Growth Rate

• +1.2% per annum, 2014-20

• Below pre-Great Recession trend (1.9%, 2001-07)

• Net gain of 6.6mb/d, nearly 1 mb/d above supply capacity growth

© OECD/IEA 2015


Eastward pull unabated

1998-06

2006-14

2014-20

36

Europe

-296

-79

34

FSU

103 23

Asia/Pacific

345

Americas

158

Middle East

180 255 227

680 672

633

-1

Africa

76 121 142

Average global demand growth

(kb/d)

1998-06 1 352 1.7%

2006-14 853 1.0%

2014-20 1 104 1.2% © OECD/IEA, 2015

This map is w ithout prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

© OECD/IEA 2015


mb/d

OECD share of demand continues to

decline

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

-0.5

-1.0

-1.5

-2.0

-2.5

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

60%

55%

50%

45%

40%

Other non-OECD

Middle East

Former Soviet Union

Other Asia

China

OECD

OECD share

• Non-OECD demand overtook OECD in 2014

• OECD declines further overall

• Non-OECD continues to grow, but at slower rate

© OECD/IEA 2015


Middle Eastern demand growth

expectations reduced by turmoil, price

Change to prior demand forecast

• Still key growth area at 2.6% gains per annum, or 1.4 mb/d total

over 2014-20

• War and unrest take toll

• Lower price cuts exporter-country GDP

• Countries with low buffers harder hit

• Subsidy reductions

© OECD/IEA 2015


mb/d

China shifting gears

1.2

1.0

0.8

0.6

LPG

Naphtha

Motor gasoline

0.4

0.2

0.0

-0.2

-0.4

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Jet and kerosene

Gasoil/diesel

Residual fuel

Other products

• +2.6% per annum, 2014-20

• Slower stage of economic growth, IMF foresees sub-7% GDP trend

• Focus shifts from oil-intensive exports to consumer sector

• Diesel less dominant

© OECD/IEA 2015


mb/d

Indian demand seen gaining momentum

0.4

0.3

0.2

Other products

Residual fuel

Gasoil/diesel

0.1

0.0

-0.1

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Jet and kerosene

Motor gasoline

Naphtha

LPG

• +3.4% per annum, 2014-20

• Growing confidence in economy

• ‘Worst’ of subsidy cuts has passed

© OECD/IEA 2015


mb/d

OECD Asian demand contracts further

0.50

0.40

0.30

0.20

Other products

Residual fuel

Gasoil/diesel

0.10

0.00

-0.10

-0.20

-0.30

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Jet and kerosene

Motor gasoline

Naphtha

LPG

• Non-OECD Asia Oceania -0.6% per annum, 2014-20

• Ongoing power-sector switching, out-of-oil

• Weak macroeconomic momentum and heady efficiency gains

© OECD/IEA 2015


mb/d

European demand outlook weak on slow

rebound

16

14

12

10

Other products

Residual fuel

Gasoil/diesel

8

6

4

2

0

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Jet and kerosene

Motor gasoline

Naphtha

LPG

• -0.7% per annum, 2014-20

• Persistent macroeconomic weakness curbs demand

• Deflation concerns

• Efficiency gains

© OECD/IEA 2015


mb/d

US bucks the OECD demand trend

0.6

0.4

0.2

Other products

Residual fuel

Gasoil/diesel

0.0

-0.2

-0.4

-0.6

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Jet and kerosene

Motor gasoline

Naphtha

LPG

• +0.3% per annum, 2014-20

• Supported by robust macroeconomic backdrop

• Efficiency gains trim gasoline and jet/kerosene

© OECD/IEA 2015


Lower prices at the pump lift US

gasoline demand outlook

Efficiency gains still cuts use

© OECD/IEA 2015


Marine Bunkers

© OECD/IEA 2015


Emission rules catch up with marine sector

• 0.1% sulphur-content cap in ECAs effective 1 January 2015

• Elsewhere 3.5% cap since 2012, to be cut to 0.5% in 2020 or 2025

• Uncertainty on timing

© OECD/IEA 2015


Bunker fuel mix to undergo step change

mb/d

4.50

4.00

3.50

3.00

2.50

2.00

1.50

1.00

0.50

0.00

Oil-based marine fuel consumption in international navigation

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Gasoil

Residual Fuel Oil

• As the global cap is implemented, 3 options available to ship owners: gasoil,

scrubbers, LNG

• Up to 2.2 mb/d could switch from fuel oil to marine gasoil:

• Marine gasoil notionally set to rise to 3.1 mb/d

• Residual fuel oil set to decrease to 1 mb/d

© OECD/IEA 2015


Oil Trade and Refining

© OECD/IEA 2015


mb/d

Crude trade has peaked

36.0

Inter-regional crude trade

35.5

35.0

34.5

34.0

33.5

33.0

2006 2008 2010 2012 2014 2016 2018 2020

• Crude trade peaked at 36 mb in 2012 and declined swiftly over 2012-2014

on lower US import needs, higher Middle East runs

• Declines expected to moderate and partially reverse in the medium term

© OECD/IEA 2015


World crude markets fragmenting

Crude Exports in 2020 and Growth in 2014-20 for Key Trade Routes 1

(million barrels per day)

OECD

Americas 2

OECD

Europe

3.6

(-0.5)

0.5 (-0.1)

0.4 Asia

0.2

Oceania

(+0.1) 2.0 3

(+0.2)

(-0.5) 1.4

1.1 (+0.3)

0.5

4.2

(-0.1)

(+0.1)

(-0.6)

China

OECD

0.2

(+0.1)

1.5 (+0.1)

-0.2

1.5

1.7 (+0.5)

(-0.3)

5.5

(+0.1)

Other Asia

3.8

1.4 (+0.6)

0.6

(+0.4)

Red number in brackets denotes growth in period 2014-20 0.7

1 Excludes Intra-Regional Trade (+0.1)

2 Includes Chile

3 Includes Israel

Crude trade will continue to shift eastwards

© OECD/IEA 2015


kb/d

Non-OECD crude imports expected to

overtake the OECD in 2020

kb/d

1 500

Regional crude exports, yearly change

1 000

Regional crude imports, yearly change

1 000

500

500

0

0

- 500

-1 000

- 500

-1 000

-1 500

-1 500

-2 000

2014 2015 2016 2017 2018 2019 2020

2014 2015 2016 2017 2018 2019 2020

Africa FSU Latin America Middle East OECD Europe OECD Americas OECD Asia Oceania Other Asia Other Europe China

• Later than previously expected following:

• Impact of low prices on North American and North Sea production

• Slowing non-OECD demand growth

© OECD/IEA 2015


Middle Eastern producers compete for

market share in Asia

Middle East export growth, 2014-20

China

Oth Asia

OECD Eur

Africa

FSU

Oth Eur

L. America

OECD Am

OECD AO

-0.60 -0.40 -0.20 0.00 0.20 0.40 0.60 0.80

mb/d

End in sight for the “Asian premium”?

© OECD/IEA 2015


Russia’s “pivot to Asia”

FSU export growth, 2014-20

China

Oth Asia

Oth Eur

Mid East

L. America

OECD Am

Africa

OECD AO

OECD Eur

-0.60 -0.40 -0.20 0.00 0.20 0.40

mb/d

• Rosneft supply deals with CNPC, Sinopec, Essar, PetroVietnam

• European crude demand attrition

© OECD/IEA 2015


kb/d

Refining surplus lingers despite scaling

back

2 000

1 500

1 000

Global crude distillation capacity additions

OECD Americas

OECD Europe

OECD Asia Oceania

500

0

- 500

-1 000

2014 2015 2016 2017 2018 2019 2020

China

Other Asia

Middle East

Other non-OECD

Total Net

• New capacity of 6.4 mb/d by 2020, led by non-OECD Asia, Middle East

• Brief margin respite in 2014 on shutdowns

© OECD/IEA 2015


Non-OECD accounts for 90% of growth

Others

14%

OECD

10%

Latin America

8%

China

24%

Middle East

26%

Other Asia

18%

• Non-OECD Asia adds 42% of total, or 2.7 mb/d of crude distillation capacity

• Middle East expands capacity by a further 1.7 mb/d, taking total capacity to

10.3 mb/d at the end of the decade

© OECD/IEA 2015


mb/d

Non-OECD expansions front-loaded

1.8

1.6

Non- OECD refinery capacity additions

China

1.4

1.2

1.0

0.8

0.6

Other Asia

Middle East

FSU

0.4

0.2

0.0

2014 2015 2016 2017 2018 2019 2020

Latin America

Africa

• Projects planned during boom years are now being completed –

strong growth in 2014 despite weak product demand

• Expansions slow at the end of the forecast period, but many projects

could be revived if conditions allow

© OECD/IEA 2015


mb/d

$/bbl

Lower surplus capacity props up margins

7.0

6.0

5.0

4.0

3.0

2.0

1.0

0.0

Global surplus refinery capacity

2006 2008 2010 2012 2014 2016 2018 2020

Simple refining margins

8

6

4

2

0

-2

-4

-6

-8

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

Med Urals NWE Brent NWE Urals Singapore Dubai

• Surplus global refining capacity hit 6-year low ~3 mb in 2014 as

OECD refinery closures offset new non-OECD capacity

• Refinery margins gets significant boost from mid-year

• New capacity puts system under renewed pressure from 2015

onward

© OECD/IEA 2015


mb/d

More OECD closures in the cards

1 400

OECD refinery closures

100%

OECD refinery utilisation rates

1 200

1 000

800

600

400

200

90%

80%

70%

60%

0

2008 2010 2012 2014 2016

Americas Europe Asia Oceania

50%

2007 2009 2011 2013 2015 2017 2019

Americas Europe Asia Oceania

• Total of 4.8 mb/d of capacity shut in OECD since 2008

• Additional 450 kb/d announced in Asia Oceania through 2017

• More shutdowns likely to be announced

© OECD/IEA 2015


Light distillate surplus emerge

Product supply balances: naphtha / gasoline

Regional balances in 2014 and 2020 (kb/d)

• OECD Americas turning naphtha/gasoline net exporter

• European excess persist despite refinery shutdowns

© OECD/IEA 2015


mb/d

mb/d

Looming diesel wall

Middle distillate supply/demand balance

Fuel oil supply/demand balance

40.0

10.0

38.0

9.0

36.0

8.0

34.0

7.0

32.0

6.0

30.0

2012 2020

Refinery Supply

Demand

5.0

2012 2020

Refinery Supply

Demand

• Further refinery investments are required to produce the necessary gasoil

• Higher middle distillate demand will increase distillate cracks and shipping costs

• Adjustments in midstream infrastructure required

© OECD/IEA 2015


Europe’s middle distillate import

dependence

Product supply balances: gasoil / kerosene

Regional balances in 2014 and 2020 (kb/d)

• Asia set to become a middle distillate net-importer

• China to become a gasoil exporter?

© OECD/IEA 2015


Fuel oil challenges

Product supply balances: fuel oil

Regional balances in 2014 and 2020 (kb/d)

• Fuel oil tightens ahead of 2020, as refiners upgrade

but then become massively oversupplied on marine shift

• Global fuel oil demand remains remarkably stable through 2019

© OECD/IEA 2015


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