natural gas and oil outlook

forestsaintregisOil and Offshore

Nov 8, 2013 (3 years and 7 months ago)

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Natural Gas & Crude Oil:

supply/demand & prices

outlook to 2015

February 2009

knowledge to bridge the gap

Page #
2

Petral Consulting Company

knowledge to bridge the gap

Waiver of Liability


Petral Consulting Company (PCC) is not liable for any use
or misuse of the contents of this presentation


PCC provides no express or implied warranty regarding the
accuracy of the information contained in this segment of the
presentation.


PCC does not advocate trading strategies, feedstock
acquisition strategies, or feedstock marketing strategies.
Any actions taken by attendees to the ISM Feb 2009 meeting
based on this presentation are at your own risk.

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Petral Consulting Company

knowledge to bridge the gap


Sir, where should we look for oil?

question posed by young geologist



Oil is found within the minds of men

Wallace Pratt
--

chief geologist for Esso

Petral forecasts account for technology improvements
in seismic, exploration, and production …

we are not members of the peak oil club

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4

Petral Consulting Company

knowledge to bridge the gap

HISTORICAL FACTOID


an official Senate inquiry concluded in
1916

that U.S. crude oil production had already
passed its peak and would be exhausted by
1941



»
U.S. production in 1916 averaged 824
thousand

bpd

»
production increased for 55 years to a peak of
9.6
million bpd

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5

Petral Consulting Company

knowledge to bridge the gap

Natural Gas Supply/Demand & Price Outlook

what do you believe?

most other consulting firms

»
nothing goes right


pessimists are right and gas
production IS declining

»
in spite of premium prices


merchant power producers
expand capacity
continuously

»
gas inventories do not grow
in spite of repeated price
spikes

Petral View

»
higher prices stimulate
exploration & production
grows

»
higher prices discourage
demand growth in power
generation & industrial
markets

»
higher prices encourage
LNG production; imports
increase, gas inventories
reach higher levels & ease
fears during winter months

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6

Petral Consulting Company

knowledge to bridge the gap

U.S. Natural Gas Reserves

historical trends & 2008 forecast

30
80
130
180
230
280
330
2000
2010
billion cubic ft per day
actual
2008 forecast
90-99 avg.

When gas prices increased to levels
that supported more aggressive
exploration activity (Dec 2000/Jan
2001), exploration companies
immediately recorded increases in
producing reserves


In 2007, proven reserves increased
in all regions by 8
-
10% except the
Rocky Mountains which recorded a
25% increase


Exploration companies perfected
shale reservoir technology & shale
plays popped up all over

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Petral Consulting Company

knowledge to bridge the gap

Growth in Natural Gas Reserves:

new fields, new reservoirs, & extensions

(lower 48 only)

0
5
10
15
20
25
30
35
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
trillion cubic feet
new fields
new reservoirs
extensions
Avg 87-99
production
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8

Petral Consulting Company

knowledge to bridge the gap

U.S. Natural Gas R/P Ratio

historical trends

U.S. Reserves/Production Ratio
4
5
6
7
8
9
10
11
1990
1995
2000
2001
2002
2003
2004
2005
2006
2007
reserves/production ratio

For 12 years, the ratio of
reserves to production was
relatively flat at 8.5
-
9.0 years


As the jump in exploration
activity began to pay off, the R/P
ratio began to increase because



reserves additions outpaced the
industry’s capability to
construct new natural gas
gathering system pipelines to
bring discoveries to the market

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9

Petral Consulting Company

knowledge to bridge the gap

U.S. Natural Gas Production

historical trends & 2008 forecast

30
35
40
45
50
55
60
65
70
1990
1995
2000
2002
2004
2006
2008
2010
2015
billion cubic ft per day
actual
forecast

Even though exploration activity
was at “maintenance” during 1985
-
1999, total natural gas production in
the U.S increased to 58 bcfd in 2001


The exodus of offshore drilling rigs
from the shallow water Gulf of
Mexico led to a steady decline in
GOM production during 2002
-
2006
--

hurricane Katrina also caused
extensive supply disruption for
several months


As production from new discoveries
began to kick in, total production
increased to about 60 bcfd in 2008

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10

Petral Consulting Company

knowledge to bridge the gap

U.S. Natural Gas Demand

2008 forecast & comparison vs 2005

30
35
40
45
50
55
60
65
70
75
2008
2009
2010
2011
2012
2013
2014
2015
billion cubic ft per day
2008 forecast
2005 forecast

2008 forecast for power
generation demand is
higher than 2005 forecast

»
supply growth exceeded
expectations & pricing
incentives supported stronger
demand growth


2008 forecasts for demand
in the industrial &
residential/commercial
sectors are nearly
unchanged

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11

Petral Consulting Company

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U.S. Natural Gas Demand

electric power generation market

Natural Gas Demand:
power generation markets
10
12
14
16
18
20
22
2000
2005
2008
2009
2010
2011
2012
2013
2014
2015
billion cubic ft per day
2008 forecast
2005 forecast

Demand in the power
generation market is
sensitive to relative price
strength

»
residual fuel oil is the
alternative fuel supply of
choice for power plants with
dual fuel capability

»
demand response to price
spikes is nearly
instantaneous

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12

Petral Consulting Company

knowledge to bridge the gap

Important Natural Gas Price Drivers

Balanced or Tight Supply

»
Producers flow wells at full
rates year
-
round

»
Buyers worry that
inventories will not reach
levels that will cover peak
winter demand

»
Colder winters strain the
capability to withdraw
supply from storage fast
enough

Adequate to Plentiful Supply

»
Some producers have to
curtail production during the
late summer & early fall

»
Full production rates push
inventories to storage
capacity; some storage
operators have containment
problems

»
Inventories are sufficient to
meet demand even during
colder winters

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13

Petral Consulting Company

knowledge to bridge the gap

Natural Gas Pricing

Houston Ship Channel minus 1% S resid

Houston Ship Channel
minus 1%S Resid
-5
-4
-3
-2
-1
0
1
2
3
2000
2005
2008
2009
2010
2011
2012
2013
2014
2015
$ per MMBtu
2008 forecast
2005 forecast

Market balance was tight during
2000
-
2005 & prices maintained
premiums versus 1%S resid


Supply growth began to outstrip
demand growth in 2007 & prices
weakened with persistent
discounts versus 1%S resid


Prices are forecast to remain
discounted versus resid through
2015

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14

Petral Consulting Company

knowledge to bridge the gap

Natural Gas Pricing

Houston Ship Channel price forecasts

Houston Ship Channel Natural Gas
0
2
4
6
8
10
2000
2005
2010
2015
dollars per MMBtu
actual
forecast
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15

Petral Consulting Company

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Crude Oil Demand/Supply & Pricing

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Petral Consulting Company

knowledge to bridge the gap

30
35
40
45
50
55
60
65
1975
1980
1985
million bbl per day

Before 1978, oil prices were
generally $12
-
15 per barrel.


After the Iranian Revolution,
prices spiked to $45 per barrel


Before the price spike, global oil
demand growth averaged 2.6%
per year or 1.65
-
1.75 million bpd


As prices moved sharply higher,
demand began to decline in 1980
and fell by a total of 8 million
bpd (1980
-
1983)


Equally important, high prices
sparked a global surge in
exploration & discovery

Global Crude Oil Demand

what happens when prices spike?

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17

Petral Consulting Company

knowledge to bridge the gap

non-OPEC production
20
22
24
26
28
30
32
34
36
38
40
1975
1980
1985
million bbl per day

As crude oil prices moved
sharply higher after the Iranian
revolution, exploration activity
surged & non
-
OPEC producers
made major discoveries all over
the world
--

North Sea, Mexico,
Alaska


Non
-
OPEC production increased
by 12 million bpd during 1975
-
1985


growth in non
-
OPEC
production was the bane of
OPEC’s existence during 1985
-
1999

Global Crude Oil Supply

what happens when prices spike?

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Petral Consulting Company

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OPEC production
0
5
10
15
20
25
30
35
40
1975
1980
1985
million bbl per day

Non
-
OPEC producers flow at full
capacity all the time


During this period of declining
demand, OPEC producers bore the
full brunt of both falling demand and
rising non
-
OPEC supply


OPEC producers had more than 10
million bpd of spare capacity by
1985


Saudi Arabia saw its production fall
to a low of 3.4 million bpd in 1985 or
more than 6 million bpd less than in
1979


the Saudi royal family
learned some very hard lessons
during 1979
-
1985

Global Crude Oil Supply

what happens when prices spike?

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Petral Consulting Company

knowledge to bridge the gap

OECD Crude Oil Demand
30
32
34
36
38
40
42
44
46
1995
2000
2005
2008
million bbl per day

Crude oil demand in the OECD
countries (the mature economies of
North America, Western Europe,
Japan & S Korea) began to decline
when prices began to accelerate
after 2004


Government intervention becomes
virtually certain as consumers
complain about rising prices


U.S. mandates for boosting the
average automobile fuel efficiency
to 35 mpg by 2020 were in place
prior to the election


Demand in OECD countries will
continue to decline for several years

Global Crude Oil Demand

what happens when prices spike?

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20

Petral Consulting Company

knowledge to bridge the gap

OPEC production
20
22
24
26
28
30
32
34
1995
2000
2005
2008
million bbl per day

Before 2005, four countries in the
Middle East had measureable spare
production capacity; no one country
had control


During 2005
-
2007, only Saudi Arabia
had spare capacity & exercised
control


Does the Saudi royal family
remembers the lessons of 1978
-
1985?

»
Saudi Arabia increased
production capacity to 11.5
mmbpd during 2007
-
2008 &
Kuwait added 0.5 mm bpd of
capacity in 2008

Global Crude Oil Supply

what happens when prices spike ?

Page #
21

Petral Consulting Company

knowledge to bridge the gap

non-OPEC production
20
25
30
35
40
45
50
1995
2000
2005
2008
million bbl per day

Production from non
-
OPEC
sources increased steadily
during 1995
-
2005 but production
growth began to accelerate after
2006
--

in response to high
prices


U.S. production is forecast to
increase by 0.5
-
1.0 mm bpd
during 2010
-
2015
--

after 25
years of decline


Canadian production is forecast
to grow by 0.75
-
1.0 mm bpd
--

not as fast as expected in 2007
but production will continue to
grow

Global Crude Oil Supply

non
-
OPEC production trends

Page #
22

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knowledge to bridge the gap


the recession:
how deep, how long, how widespread & how much
impact on crude oil demand?


government mandates
: how fast will auto manufacturers shift to
producing hybrids and all
-
electric vehicles?


falling oil prices
: how do they impact development of high cost supply
sources like the Alberta oil sands & deepwater offshore reserves?


resurgent Russia and nuclear Iran
: will they act together to restrict
supply development in the Caspian Sea & Middle East?


Iraq
: will Iraq achieve political stability & attract foreign capital needed to
boost production to 4 to 5 million bpd by 2020?


Saudi Arabia
: increased production capacity to 11.5 million bpd but will
produce only 7.5
-
9.0 million bpd for several years; Saudi royal family will
TRY to use surplus production capacity to control prices to its
geopolitical advantage

Crude Oil Prices

1986 to 1999 déjà vu?

OR
a more complex world?

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Petral Consulting Company

knowledge to bridge the gap

Petral Chronicles

Fantasy Headlines


WTI spikes to $45 per bbl


Feb 7, 2004



Sep 2004


WTI spikes to $60 per bbl


Aug 7, 2004


Aug 2005

PCC
--

WTI spikes to $100 per bbl


Feb 7, 2005

Goldman Sachs $105 per bbl


Apr 1, 2005


Mar 2008

PCC
--

Bull Rally Pushes WTI to $150 per bbl


Nov, 2007


July 2008 ($145.91)



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WTI at Cushing: Cash Market

WTI at Cushing: cash market prices
0
20
40
60
80
100
120
2000
2005
2010
2015
dollars per bbl
actual
forecast