Navigating through the energy landscape.

Transcription

1 Navigating through the energy landscape. Baton Rouge Rotary Club Luncheon, May 24, David E. Dismukes, Ph.D. Executive Director & Professor Center for Energy Studies Louisiana State University Professor College of the Coast & Environment Louisiana State University

2 Overview Take-Aways Lower prices reduced upstream activity, but a slow recovery has started given the OPEC-induced price increase. The bears, however, are starting to wander back out. Natural gas experience shows that (crude oil) price recovery will be a long time coming. Recent crude oil drilling/production activity is contributing to a significant rebound in associated gas production that will likely sink the recent, short-lived natural gas price rebound. U.S. producers are very efficient and have reduced costs, increased capital & operating efficiencies, and increased well productivity ( the best solution for low prices is low prices. ) Crude oil and natural gas prices likely to remain range-bound with lower relative pricing volatility. Continued positive investment/development activity in mid-stream, refining, and processing/manufacturing as well as energy exports. 2

3 Overview Domestic Shale Gas Basins and Plays Unlike conventional resources, shale plays (natural gas, liquids, and crudes) are located almost ubiquitously throughout the U.S. and are the primary reason for the decrease in overall and regional natural gas prices. Source: U.S. Energy Information Administration. 3

4 Overview U.S. natural gas reserves and production. Natural gas production and reserves are at levels not seen since the 1970s and both U.S. natural gas production and reserves are now at an all time recorded peak U.S. Dry Natural Gas Proved Reserves (Tcf) reserve estimates mark the first decline in 14 years U.S. Natural Gas Marketed Production (Tcf) Natural Gas Reserves Natural Gas Production Source: U.S. Energy Information Administration. 4

5 Overview U.S. crude oil reserves and production. Crude oil production and reserves are climbing back to levels not seen since the early 1980s (reserves). U.S. Crude Oil Proved Reserves (Billion Bbl) U.S. Crude Oil Production (Billion Bbl) Crude Oil Reserves Crude Oil Production Source: U.S. Energy Information Administration. 5

6 Recent Market Trends 6

7 Recent Trends Monthly global and U.S. crude oil production. Production (MBbl/d) In the last ten years, global crude oil production has increased at an average annual rate of 1.2 percent. The U.S. share has increased from seven percent to over 12 percent OPEC attempts to undermine this loss of market share by flooding the market through the better part of % Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 World U.S. U.S. as a Percent of Total World 14% 12% 10% 8% 6% 4% 2% Percent of Total (%) Source: U.S. Energy Information Administration. 7

8 Recent Trends OPEC s Compliance (January-February 2017) January-February 2017 production estimates show that on average, OPEC members have achieved 98.5 percent compliance. Total OPEC cuts versus October 2016 are at 1.24 million barrels per day. Angola Saudi Arabia Ecuador Kuwait Algeria Qatar Gabon UAE Venezuela Overcompliance by Angola and Saudi Arabia are compensating to overproduction of other OPEC members like Iraq, Venezuela and UAE. Iraq Source: Platts.com 0% 50% 100% 150% Percent Compliance 8

9 Recent Trends U.S. crude oil prices and rig count. Rig counts have fallen precipitously, but are back on the rise. 1,800 OPEC-induced recovery. $120 Number of Rigs 1,600 1,400 1,200 1, WTI Price Rig Count Jan 2009 $ Jan 2016 $ $100 $80 $60 $40 $20 Crude Oil Price ($/Bbl) 0 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 $0 Crude Oil Rigs WTI Price Source: U.S. Energy Information Administration. 9

10 Recent Trends Monthly U.S. horizontal drilling rig activity (per major basin). Horizontal rig activity increased by 400 percent to 2015 but fell by over half during the ensuing price collapse. Current rebound is highly concentrated in the Permian basin. 1,200 1,000 Rig Count Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Baken Eagle Ford Marcellus Permian Source: U.S. Energy Information Administration. 10

11 Recent Trends Monthly U.S. crude oil production. U.S. crude oil production volumes are up by over 75 percent relative to historic trends. While production is down, it is still resilient and relatively strong. U.S. Crude Oil Production (Million Bbl per day) Strong production resiliency despite exceptional price decrease. 0 $0 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Crude Oil Production Share of Production, 2016 Crude Oil Price Source: U.S. Energy Information Administration. 11 Bakken Eagle Ford Marcellus Permian Other $160 $140 $120 $100 $80 $60 $40 $20 Crude Oil Price ($/BBl)

12 Recent Trends Monthly U.S. natural gas production. U.S. natural gas production has increased 42 percent in the last 10 years. U.S. Natural Gas Production (Bcf per day) Strong production resiliency despite exceptional price decrease. 0 $0 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Natural Gas Production Share of 2016 Production Natural Gas Price Bakken Eagle Ford Marcellus Permian Other $14 $12 $10 $8 $6 $4 $2 Natural Gas Price ($/Mcf) Source: U.S. Energy Information Administration. 12

13 Recent Trends U.S. crude oil stocks. U.S. crude oil stocks have increased at an average annual rate of two percent. Between 2014 and 2015 stocks increased eight percent; and another five percent in U.S. Crude Oil Stocks (Billion Bbls) Supply run-up attributable to anticipated January, 2017 OPEC cuts Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Crude Oil Stocks 5-Year Average Source: U.S. Energy Information Administration. 13

14 Recent Trends U.S. natural gas storage. Current natural gas storage levels are 16 percent above five year averages and 18 percent below the recent five year maximum U.S. Natural Gas Storage (Tcf) Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Working Gas 5-Year Min 5-Year Max 5-Year Average Source: U.S. Energy Information Administration. 14

15 Recent Trends Associated natural gas production (shale production). Growth in associated natural gas is rebounding quickly and tanking the shortlived rebound in natural gas prices Bcf / MMBbl Associated natural gas production is starting to rebound with revived crude oil production, particularly in the Permian Basin. 0 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Source: U.S. Energy Information Administration. 15

16 Recent Trends Monthly drilled but uncompleted wells. Drilled but uncompleted wells have increased by almost 50 percent in the last few years. 7 6 Thousand Wells Share of Wells Bakken Eagle Ford Haynesville Marcellus Niobrara Permian Utica - Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Note: Share of wells is the average of the last six months, September 2016 through February Source: U.S. Energy Information Administration. 16

17 Recent Trends Wellhead breakeven prices for key shale plays. Since 2013, the average wellhead break-even price for key shale plays has decreased from $80 per barrel to $35 per barrel, representing an average decrease of over 55 percent. 120 Bakken Eagle Ford Niobrara Permian Delaware Permian Midland $ per Bbl Note: Author s estimate from source. Source: Rystad Energy NASWellCube. 17

18 Recent Trends U.S. crude oil drilling rig count. Crude oil rig trends follow crude prices very closely. We are currently at 18 weeks of increases relative to the last trough. Currently levels, while down relative to the peak, are still above levels in 1990s. 1,800 $160 Number of Rigs 1,600 1,400 1,200 1, $140 $120 $100 $80 $60 $40 $20 Crude Oil Price ($/BBl) 0 Jul-87 Jul-90 Jul-93 Jul-96 Jul-99 Jul-02 Jul-05 Jul-08 Jul-11 Jul-14 Crude Oil Rigs Crude Oil Price $0 Source: Baker Hughes; and U.S. Energy Information Administration. 18

19 Recent Trends U.S. crude oil rig peak-to-trough trends. The U.S. oil rig count has increased by 7.9 rigs per week since the May 2016 low. This is faster than the 7.6 rig per week recovery from June Additions from Trough - Number of Rigs Weeks Feb-89 Feb-96 Aug-99 Jun-05 Jun-09 Jan-13 May-16 Source: Baker Hughes. 19

20 U.S. drilling rig productivity (total lagged production to total drilling rigs, 3 month lag). U.S. drilling rigs are more productive, in this recovery, than any other recovery in history Production per Rig (MMBOE) Months Feb-89 Feb-96 Aug-99 Jun-05 Jun-09 Jan-13 May-16 Source: Baker Hughes and U.S. Energy Information Administration. 20

21 Market outlook. 21

22 Outlook Crude oil price outlook. Most crude oil price projections for 2017 are around $55 per barrel. Prices are expected to increase in 2018, but remain below $75 per barrel. Percent $100 $90 $80 $70 $60 $50 $40 $30 $93.26 $48.69 $43.14 EIA $52.50 Goldman Sachs, Q1: $ Deloitte $55.00 Morgan Stanley $51.00 Jeffries $57.00 Bank of America $59.00 Goldman Sachs, Q2: $57.50 Street Consensus EIA $59.00 $55.20 Goldman Sachs $55.00 Raymond James $75.00 Morgan Stanley $64.00 $20 $10 $ Source: Energy Information Administration, U.S. Department of Energy. 22

23 Outlook Natural gas price outlook. Natural gas prices are expected to stay below $3.55 per MMBtu in 2017 and under $3.75 in Percent $5.00 $4.50 $4.00 $3.50 $3.00 $2.50 $2.00 $4.39 $2.63 $2.52 EIA $3.55 IMF $3.00 Wells Fargo $ Deloitte $3.25 Bloomberg $3.17 World Bank $3.00 EIA $3.73 IMF $3.10 Wells Fargo $3.41 Bloomberg $3.14 World Bank $3.50 $1.50 $1.00 $0.50 $ Source: Energy Information Administration, U.S. Department of Energy. 23

24 Outlook U.S. crude oil production trends and forecast. US crude production will likely increase to over 10 MMBbls/d by Production (MMBbl per day) Forecast period

25 Outlook U.S. natural gas production trends and forecast. U.S. natural gas production continues to be resilient and shows continued strong growth through 2020 and beyond Production (Bcf per day) Forecast period

26 Conclusions 26

27 Conclusions Conclusions. Crude oil and natural gas markets continue to be resilient. Prices anticipated to remain affordable and less volatile. Natural gas supply growth increasingly driven by associated natural gas a byproduct of increasing production coming from higher hydrocarbon-based production (Permian, Eagle Ford, Bakken). Crude production developments will continue to have implications for natural gas markets. Economic growth is likely the only near-term factor that will burn-off excessive commodity storage levels. Likely to continue to crude oil and natural gas prices to be range-bound with likely lower relative pricing volatility. Continued positive investment/development activity in mid-stream, refining, and processing/manufacturing as well as energy exports. 27

28 Conclusions Questions, Comments and Discussion. David E. Dismukes Professor and Executive Director Center for Energy Studies Phone: URL: 28