Gulf Coast Energy Outlook

Transcription

1 Gulf Coast Energy Outlook Lakeshore Lions Club Meeting February 16, 2009 David E. Dismukes Louisiana State University 1

2 Take Way Points: Outlook & Issues Significant growth in storage positions for most all energy commodities and products. Price movements (decreases) reflecting these build-ups. Production positions getting better including GOM (crude and natural gas). Unconventional resources proving to be significant North American resource (shales, tight sands, CBM, tar sands, EOR). Additional frontier areas likely to become available that will open an exceptional amount of resources for development, 18 Bbbls and 77 Tcf of probable reserves. (i.e., moratoria areas) Conventional wisdom that economy is heading south, fast. Clearly a downturn worse that Question: will it look like or ? Could be significant downturns in industrial and power generation gas demand. Does OPEC matter? If so how and why? Dollar valuation versus supply/demand fundamentals. 2

3 Forecast: Supply, Infrastructure, Demand 3

4 US Crude Oil Stocks Crude oil stocks are above 5 year averages and maximum ranges Million Barrels Crude Oil Stocks 5-Year Average 5-Year Range Dec- 04 Apr- 05 Aug- 05 Dec- 05 Apr- 06 Aug- 06 Dec- 06 Apr- 07 Aug- 07 Dec- 07 Apr- 08 Aug- 08 Dec- 08 Source: Energy Information Administration, Department of Energy. 4

5 Forecast of US Crude Oil Production 6 Crude production forecasted to increase considerably due to deepwater GOM (900 MBbls/d to 1.5 MMBbls/d) and EOR. Forecast 5 Million Barrels per day Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q4 Source: Energy Information Administration, US Department of Energy Alaska Federal GOM Other Lower 48 5

6 Publicly Announced Lower Tertiary Trend Discoveries in the Gulf of Mexico During the last ten years, the average deepwater field has added over 67 MMBOE of proved and unproved reserves. About 60 billion barrels of oil found in deepwater fields to date. Some 8- to 10 billion barrels have already been produced. Yet-to-find potential could be 114 billion barrels of oil, and 68 billion barrels of oil equivalent (BOE) of gas. [Oil and Gas Investor, May 2006] Source: Minerals Management Service, US Department of the Interior 6

7 Forecast of US Gas Production 70 Gas production also forecasted to increase considerably given shale development and GOM deepwater. (44.7 to 52.9 Bcf/d, 18 percent) Forecast Bcf per day Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q4 Source: Energy Information Administration, US Department of Energy Alaska Federal GOM Other Lower 48 7

8 Unconventional Gas Production Bcf Source: Energy Information Administration, US Department of Energy 8

9 Major Shale Gas Basins in U.S. Note: Major shale gas basins in the United States with total resource potential of 500 to 1,000 tcf. Source: Schlumberger 9

10 Haynesville Shale / Horizontal Drilling The productive potential of the Haynesville Shale was not fully realized until horizontal drilling and hydrofracing technologies were demonstrated in other unconventional shale reservoirs. The hydrofracing process helps liberate gas from the shale and horizontal drilling allows a single well to drain a much larger volume of rock than a traditional vertical well. 10

11 Haynesville Shale Play Rock formation mainly composed of consolidated clay-sized particles deposited and buried in the north Louisiana geological basin more than 170 million years ago during the geologic Jurassic time. Characterized by ultra-low permeability in contrast with the conventional sandstone/limestone reservoir rocks that have high permeability. Regarded as the 4th largest natural gas field in North America, with the leading exploration company in the play announcing it is projecting 52 Bcf of gas per section in the Haynesville fairway. Major Players Chesapeake Energy holds at least 500,000 acres. Resource potential could range from 7.5 tcf to 20 tcf, depending on the ultimate size of the leasehold. Petrohawk Energy has 150,000 acres and estimates a resource potential of about 6 tcf. Devon Energy s Haynesville lease holdings total 483,000 acres. Exco Resources holds over 100,000 acres. XTO Energy has 100,000 acres. 11

12 Refinery Announcements Source: Tradepress and company websites.

13 Existing and Approved LNG Terminals Share of Gulf Coast Region Considerable development of LNG. Some 42.8 Bcf/d of capacity is current approved or under construction. Other US: 10.1 Bcf/d 24 percent Gulf Coast: 32.7 Bcf/d 76 percent Source: Federal Energy Regulatory Commission 13

14 Constructed Regasification Facilities 14

15 Unconventional Gas Production Source: ICF Consulting. 15

16 Recent Corrections and Adjustments 16

17 Dow Jones Industrial Average 14,000 The Dow Jones Wilshire 5000, which is the broadest measure of total market capitalization here in the United States, has lost over $10 trillion in market capitalization since the nominal highs of ,000 10,000 8,000 6,000 4,000 2,000 Source: Yahoo.com 0 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 17

18 Gross Domestic Product GDP Percent Change Based on Chained 2000 Dollars 2.0% 1.5% 1.0% 0.5% 1973 Quadrupling of oil prices by OPEC and Vietnam war Early 1980s Iranian revolution and tight monetary policy in the U.S. Early 1990s - Industrial production and manufacturingtrade sales decreased Collapse of the dot-com bubble, Sept-11 and accounting scandals. Credit crisis and global economic downturn 0.0% 1970q1 1976q1 1982q1 1988q1 1994q1 2000q1 2006q1-0.5% -1.0% Source: Bureau of Economic Analysis, U.S. Department of Commerce. 18

19 Unemployment Rate Quadrupling of oil prices by OPEC and Vietnam war Early 1980s Iranian revolution and tight monetary policy in the U.S. Early 1990s - Industrial production and manufacturingtrade sales decreased Collapse of the dot-com bubble, Sept-11 and accounting scandals. Credit crisis and global economic downturn Unemployment Rate (%) q1 1976q1 1982q1 1988q1 1994q1 2000q1 2006q1 Source: Bureau of Labor Statistics, U.S. Department of Labor 19

20 Manufacturing Activity (PMI) Current manufacturing indices indicating an industrial contraction with reading below Jan-89 Jul-89 Jan-90 Jul-90 Jan-91 Jul-91 Jan-92 Jul-92 Jan-93 Jul-93 Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Source: Institute for Supply Management 20

21 CLSA China Manufacturing PMI 58 Chinese manufacturing indices also showing contraction. 50 no change on previous month, S. Adj increasing rate of growth increasing rate of contraction Source: Estimated from CLSA.com 21

22 Short Term Outlook Henry Hub Natural Gas Spot Price EIA Short Term Energy Outlook 2009 Estimate Pre-Market Crash UBS 2009 Estimate $11.35 UBS Q Estimate $11.00 Deutsche Bank A.G Estimate $12.25 $11.00 EIA Short Term Energy Outlook (September 2008) $8.55 Post-Market Crash Global Insight Q Estimate $9.58 Stephen Smith Energy Associates 2009 Estimate $9.75 Deutsche Bank A.G Estimate $9.25 Raymond James 2009 Estimate $

23 Short Term Outlook WTI Crude Oil Price 140 Pre-Market Crash Post-Market Crash Goldman Sachs 2009 Estimate $140 Barclay s 2009 Estimate $123 Citigroup 2009 Estimate $88 Societe General 2009 Estimate $100 EIA Short Term Energy Outlook 2009 Estimate $126 Merrill Lynch 2009 Estimate $90 Goldman Sachs 2009 Estimate $

24 Regional Concerns: Central Gulf South (LA, MS) 24

25 Chemical Industry Capacity Utilization Chemical industry utilization on the downturn. Utilization - 3MMA Utilization - Monthly Percent (3MMA and Monthly) Jan-89 Jan-91 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Source: U.S. Census Bureau 25

26 Exhibit 4. Louisiana Chemical Industry Employment and Output Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul Louisiana Manufacturing Employment Manufacturing Employment (thousand jobs) Chemical Industry Employment (thousand jobs) Source: Louisiana Workforce Commission. Louisiana Chemical Industry Employment 10

27 Exhibit 5. Petrochemical and Manufacturing Announcements Dow Chemical announced it would cut 5,000 full-time jobs about 11 percent of its work force close 20 plants and sell several businesses to rein in costs amid the recession. Dow also will temporarily idle 180 plants and eliminate 6,000 contractors from its payroll. [New York Times, December 8, 2008] DuPont announced it would cut 2,500 jobs and eliminate 4,000 contractors. It also said it would idle 100 manufacturing units and warned that it would not make a profit in the fourth quarter because of a slowdown in the automotive and construction markets. [New York Times, December 8, 2008] Westlake Chemical Corporation, a petrochemical and fabricated products company, announced that it is idling one of its ethylene plants in Lake Charles, Louisiana due to significant customer inventory destocking and resulting weakened demand of the company's derivative products. [Marketwatch, December 17, 2008] In Shreveport, Louisiana, General Motors Corp. cut 798 jobs at its assembly plant in September [The News Star, December 23, 2008] International Paper Co. closed its Bastrop pulp mill in November, laying off 550 people. [The News Star, December 23, 2008] The Smurfit-Stone paper mill in Hodge, Louisiana which employs more than 500, has been idle since Dec. 12 with the temporary shutdown continuing through Jan. 14. [The News Star, December 23, 2008]

28 Ethylene Production Supply Curves In 2001, US plants were on the margin since Europe was cracking with naptha, US with gas. Who will be on margin in 2009 with downturn? $1,250 D (2008) Average Feedstock Basis $1,050 D (2009?) 2008 Dollars Per Ton $850 $650 $450 $250 Southeast Asia Southeast Asia Northeast Asia North America West Europe West Europe Northeast Asia North America Middle East $ D (2001) Source: CMAI Cumulative Ethylene Capacity (million tons) 28

29 Exhibit 3. Refinery Crack Spreads and Capacity Utilization Spread ($/bbl) Operable Utilization Rate (%) 0 60 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 3:2:1 Crack Spread Operable Utilization Rate (%) Source: Energy Information Administration, U.S. Department of Energy

30 Forecast Demand for This Winter Market Risk Likelihood Impact on Price Economic Slowdown Economic Recession (Moderate) Economic Recession (Severe) Future OPEC Production Cuts Colder than Average Winter Global Slowdown Global Recession (Moderate) Global Recession (Severe) Certain Certain Likely Likely Not Likely Certain Very Likely Possible (depends on magnitude) 30

31 Questions, Comments, & Discussion 31