Oil outlook: challenges & opportunities

Transcription

1 1 Organization of the Petroleum Exporting Countries Oil outlook: challenges & opportunities Dr. Adnan Shihab-Eldin Acting Secretary General National Academies Workshop Washington, D.C October 2, 25

2 Outline 2 Current oil market assessment Medium-to-long term outlook Oil outlook beyond 21 Resource availability Uncertainties Energy technology in the oil equation

3 3 Current oil market assessment Key features of the present oil market Resilient economic growth & high demand Supply chain tightness OPEC & non-opec oil supply Downstream bottlenecks Persistent price volatility: enhanced by geopolitical tensions, increasing speculative activity in Futures market Destructive impacts of Hurricane Katrina & Rita

4 Economic & oil demand growth Rates of Economic Growth (real terms, at 1995 purchasing power parity) Twenty Year Average Growth Rate Strong economic growth in DCs (e.g, China, India): growing faster than the world with increasing share in global GDP Globalization process (export-led growth, increasing role of FDI) 1 OECD DCs China World Robust oil demand growth (particularly in Asia) China has become the 2 nd largest consumer Expected growth is higher than historical trend (last 1 years avg:1.4 mb/d), but lower than the average for last 3 years (1.9 mb/d) * USA China Others Last 3 years avg: 1.9 Last 1 years avg: 1.4 Last 2 years avg: 1.2 BACK 4

5 Strong growth in Chinese oil demand China s share in world oil consumption (%) % USA: 25.7% China: 8.1% Japan: 6.5% Germany: 3.2% India: 3.% China has become the second largest oil consumer Oil demand, barrels per capita per year USA UK Brazil China India Structural change in the economy - growing faster than the rest of the world, fueled by strong growth in oil Long-way to go: in line with rising per capita income levels, low per capita oil demand is yet to approach levels of other countries! 5

6 6 Non-OPEC supply year-on-year change, mb/d Russia 1.3 Last 3y avg:.9 Last 1y avg: : estimated production losses (mb) 1 81 It would equate to ~ 65tb/d..3 Last 2y avg: * C h i n a OECD Pacific OECD W.Europe OECD N.America Total DCs Fsu- ex Russia Net Non-OPEC 2 North Sea US Canada Mexico 12 KZ India Ecuador Russian oil supply growth mb/d Jan-4 Feb-4 Mar-4 Apr-4 May-4 Jun-4 Jul-4 Aug-4 Sep-4 Oct-4 Nov-4 Dec-4 Jan-5 Feb-5 Mar-5 Apr-5 May-5 Jun-5 Jul-5 Aug-5 Sep-5 Oct-5 Nov-5 Dec-5 11% 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % -1% y-o-y growth, % While growth in non-opec supply up to 23 were exceeding that of demand, since then had been significantly below demand growth However, Non-OPEC supply in 25 has been affected by unplanned shut-downs & a lower rate of growth from Russia Gradual recovery & growth in West Africa, Brazil, Canada & FSU Volume % growth

7 OPEC response: higher production leading to significant stock build up Iraq OPEC-1 3. OPEC-11 cumulative change (since 22) Call of OPEC OPEC response: additional supplies on the market by 1.6 using the spare capacity (>4mb/d) accelerated projects to expand production capacity to meet rising demand & maintain spare capacity * Note: OPEC production excludes OPEC NGL & non-conventional oil (estimated to be 4.3 mb/d in 25). */ based on actual OPEC production until September and then maintaining September levels for the rest of the year. 29 Closing levels, mb mb/d Source: OPEC OECD commercial oil stocks Cumulative increase: Demand, OPEC, Non- OPEC (mb/d) Demand OPEC (Crude + NGLs) Non OPEC Total Supply Days of forward cover Avg Avg Min-Max range: Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 48 BACK 7

8 Tightness in global refinery system % % mb/d 9 8 7% 5% 8 5 Refinery utilization trend: shrinking refinery spare capacity! USA OECD WORLD Source: BP Statistical Review, 25. Overloading Refinery of utilization Refining trend: USA Industry and Canada 8% shrinking refinery spare Mediterranean capacity! Asia USA and Canada 7% Northern Europe 6% Mediterranean Rate Asia in key markets % 75 3 m b / d 3% % 5 1 % 6 Capacity in key refinery regions USA OECD WORLD C J a n - 2 Source: BP Statistical Review, 25. 5% % 4% 3% 2% 1% J u l - J a n - J u l - J a n - J u l - J a n - J a n - J u l- J a n - J u l- J a n - J u l- J a n - EU15 & Norway USA Asia* EU15 & Norway USA Asia* % OPEC S t i t Ratio of conversion total refinery capacity Ratio of conversion total refinery capacity Shrinking Refining Spare Northern Europe O v e r l o a d i n g o f R e f i n i n g I n d u s t r y S h r i n k i n g R e f i n i n g S p a r e a p a c i t y i n k e y r e f i n e r y r e g i o n s 4 1% 65 3 Jan- 2 2 Jul- 2 Jan- 3 Jul- 3 Jan- 4 Jul- 4 Jan E U 1 5 & N o r w a y U S A A s i a * In c re a s in g R e fin e ry U tiliz a tio n R a te in k e y m a rk e ts */Asia = Japan, South Korea, China, India and Singapore. For some Asian countries May is estimated. * / AOPEC s i a = SJ a p a n, i S o u t h K o r e a, C h i n a, I n d i a a n d S i n g a p o r e. F o r s o m e A s i a n c o u n t r i e s M a y i s e s t i m a t e d % Increasing Refinery Utilization Jan- 2 Jul- 2 Jan- 3 Jul- 3 Jan- 4 Jul- 4 Jan- 5 E U 1 5 & N o r w a y U S A A s ia * 8

9 Increasing activity in the Futures market 9 Growing use of oil futures as a form of financial instrument NYMEX hit a record high in 25 surpassing the record in 24.The average volume of contracts rose in 25 to 237 million contracts compared to 179 million contracts in 23 OPEN interest also shows a higher record in 25 of 792 million contracts compared to 542 million contracts in 23 (US$/bbl) NYMEX open interest (futures) vs. WTI price Open interest WTI 5-Oct-4 3-Nov-4 25-Jan-5 22-Mar-5 17-May-5 12-Jul-5 6-Sep Open interest (futures) ' contracts US $/b Nymex open interest (futures) vs. WTI price R 2 = Open interest (futures)

10 Medium-to-long term outlook 1 Mid-term upstream & downstream capacity Resource availability Oil outlook beyond 21 OPEC / Middle East oil & gas : Importance of investments Uncertainties & investment requirements Energy technology in the oil equation

11 11 OPEC medium term capacity expansion end 24 end 21 Upstream Over 1 projects (excluding Iraq) 8% UD/advance planning stage Mix of light, medium, and some heavy grades All Member Countries have projects > 5 projects involve IOC s Cumulative capex ~ $1 bn Net capacity expected to increase mb/d Production of other liquids to increase mb/d Iraq production expected to recuperate progressively Downstream Expansions are underway 4.6 mb/d new capacity (i.e. about 3.8 mb/d refinery capacity and 8, b/d condensate splitter).

12 Accelerated OPEC capacity expansion plans OPEC-1 capacity expansion (by country) (end 24 end 25) (end 25 end 26) Algeria Indonesia Iran Kuwait Libya Nigeria Qatar KSA UAE Ven Source: OPEC Non-OPEC supply : Increase in non-opec supply up to 21 is expected to be ~5 mb/d, or even more according to some other sources. Accordingly, increase in total oil supply capacity is expected to reach ~12 mb/d, or more OPEC 1 Iraq Base NGL High OPEC High (in NGL NGL) High High (in NGL) 12

13 Production, capacity growth & quality 13 1% 14 9% 12 8% 7% 1 6% 5% 4% 3% 2% 1% % Heavy Medium Light Net Capacity Addition (mb/d)

14 OPEC downstream expansion OPEC is attending to rising product demand both domestic & Asia-pacific region, as well as to meet higher product specifications Pursue global downstream investments, particularly in Asia-pacific region By implementing of these plans, they would be able to install over 4.6 mb/d new capacity (i.e. about 3.8 mb/d refinery capacity and 8, b/d condensate splitter). Major part of these new capacities will be invested by Saudi Arabia and Kuwait. Similarly most of these projects would be either in the Middle East or in Asia. BACK 14

15 Incremental product demand compared with crude and refining capacity expansion mb/d mb/d Heavy Light Demand (tight market) Medium Demand (reference) Refining Capacity Sources: Capacity estimates based on published reports by different sources as well as Secretariat assessment 15

16 Oil outlook beyond Oil will remain single largest fuel in primary energy mix Major part of the increase in world oil demand to come from developing countries OPEC increasingly supplies incremental barrel Upstream investment challenge not dissimilar to the past: nevertheless, ensuring market stability will be complicated by considerable uncertainties driven by: Growth of world economy Energy policies (substantial downside risk to demand) Technological developments Oil price path Importance of reducing uncertainties to ensure sufficient & timely investments Global downstream investments are critical to market stability

17 17 Oil Demand Outlook, mb/d Reference OECD DCs Transition economies Total World Tight market scenario Soft market scenario Four-fifths of the increase in demand of 3 mb/d over the period comes from developing countries Transportation continues to be the dominant source of growth (~6 %) Many uncertainties: GDP, technology, policy substantial downside risks

18 Oil production outlook, mb/d Reference OECD DCs excl. OPEC Russia & Caspian Non-OPEC OPEC (incl. NGLs) World OPEC Market Share % OPEC (incl. NGLs) Tight market scenario Soft market scenario Key sources of non-opec increase: Latin America, Africa, Russia and Caspian OPEC increasingly supplies incremental barrel Significant medium- to long-term uncertainties BACK 18

19 Regional oil demand & net import requirements (mb/d) 4 mb/d Europe 2 mb/d FSU mb/d North America Oil demand Oil import requirements Oil demand Oil import requirements mb/d OPEC Oil demand Oil import requirements mb/d 23 Asia (mb/d) Oil Demand Net Oil Import Req North America Latin America Europe FSU Asia China M.East & Africa OPEC Oil demand Oil import requirements M.East OPEC contribution to world oil trade is expected to increase from ~3% to ~4% in Oil demand Oil import requirements 19

20 Oil resources & uncertainties 2 Current & evolution of oil reserves in OPEC MCs Potential and best practices Iraq Saudi Arabia Venezuela Uncertainties Evolution of URR Reserve growth Unconventional oil Energy technology in the oil equation

21 OPEC crude oil Proven reserves 891 billion barrels 78% of world figure Production > 3 million barrels a day ~ 4% of world figure Exports > 21 million barrels a day ~5% of world figure Cheaper to exploit than non-opec oil Increasing call on OPEC oil in coming years >5% world oil market projected for 225 1% 9% 8% 7% Proven Oil Reserves Crude Production 58.5 Proven Gas Reserves 51 Gas Marketed Rich in natural gas as well! 6% 5% 4% 3% 2% 1% % OPEC ME Rest OPEC Non OPEC BACK 21

22 Evolution of oil reserves in OPEC, , 8, 7, 6, 5, ( mill.barrels ) Reasons for sharp increase during the period : Change in motivation of Member Countries to publish reserves Reserves growth in old fields (applying best practice), Adjustments of the technical and economic conditions. Conservative initial estimates of field reserves 4, 3, 2, 1, Algeria Indonesia Iran, I.R. Iraq Kuwait Libya, S.P.A.J. Nigeria Qatar Saudi Arabia United Arab Emirates Venezuela Source: OPEC BACK 22

23 ( bill. barrels) 1,4 Oil reserves given by selected sources end 24 1,2 OPEC Non-OPEC 1, 3.7% 25.1% 22.3% 2.3% 22.7% 32.9% 21.6% % 74.9% 77.7% 79.7% 77.3% 67.1% 78.4% 2 OGJ BP World Oil ENI WEC IHSEnergy OPEC Note:OGJ data include non-conventional reserves for Canada Secretariat IHSEnergy data refer proven and probable liquids reserves 23

24 Oil resources in Iraq, (bn barrels) Potential* Proved Reserves Cumulative Production USGS Low USGS High Petrolog Associates * Potential = Growth + Undiscovered. Sources: Thomas Ahlbrandt, USGS; Tariq Shafiq, Oil & Gas Journal, September 25; OPEC Bulletin, April 1998; The Future of Oil and Gas Marketing 2-21, Iraq, March 1995.

25 Reserve appreciation: Ain Dar Shedgum/Arab-D 6 Reserves and production Billion barrels YEAR 197 (22 BSTB) YEAR 1986 (34 BSTB) Proven reserves Cumulative production YEAR 23 (41 BSTB) Year-end 23 Cum. Prod. = 26.9 BSTB 122% of 197 Orig. Res Source : Saudi Aramco BACK 25

26 26 Member Countries best practices Saudi Aramco example Sustainable performance Life-cycle economics Prudent reserve management Maximum hydrocarbon recovery Reservoir monitoring Low depletion rates Advanced diagnostics Cutting-edge technologies Development of reservoir models Excellence in health, safety and environment Maximize reserves Ensure reliable supply of oil Keep costs low

27 Venezuela Orinoco tar sands, bn barrels Cerro Negro Sincor Petrozuata Hamaca New technologies New projects Expansions Oil in Place ~1% recovery ~2% recovery ~25% recovery Sources: OPEC 27

28 World annual discovery and reserve growth versus annual liquid production 5 4 Reserve growth* Discovered reserves Annual production We add more than we produce: Between , the new discoveries were 138 bn bbl, and growth in existing fields was 175 bn bbl, while cumulative production totaled 236 bn bbl (133% replacement). billion barrels Source: Philip H. Stark and Kenneth Chew (IHSE), Energy and Development, Vol. 3, No. 2, 25. * By make a hypothetical equal distribution of global reserves growth over the period end BACK 28

29 Evolution of URR estimation (conventional) billion barrels Sources: Steve Andrews and Randy Udall, 23; Red color Campbell BACK 29

30 Conventional resource base is sufficient Resources are plentiful but prices can affect estimates Technology blurs distinction between conventional and non-conventional oil Resource base likely to continue to grow especially as non-conventional oil is included Broad agreement among international agencies on this idea,? bn barrels USGS estimates for oil resources 27% 27% 3% 25% 48% Cumulative production BACK 3

31 31 New Field Wildcats (NFW) per 1K km2 of Sedimentary basin N.F.W./1, km North America Russia & China World Western Europe South America ME, Africa, Asia Deep offshore Source: IFP.

32 Crude oil reserves and cumulative production, OPEC OECD ( bill. b ) ( bill. b ) Reserves Cum. Production Reserves Reserves 198 Cum. Production Reserves 24 Mexico revised down their reserves by 32 bn (SEC) Source: OPEC BACK 32

33 World oil supply: cumulative production and reserve growth Source : OPEC Thomas Ahlbrandt, USGS, Global Perspective on Petroleum Resources with a Middle East / North Africa Focus,

34 Unconventional Oil supply to 22 (mb/d) 8, 7, 6, 5, 4, 3, 2, 1, Canada (Bitumen + Synthethic) Bio Fuels Venezuela Synthetic Orinoco GTL Sources: CERI, CGES, OPEC, OIES 34

35 Energy technology in the oil equation 35 Technology & oil supply: Increase URR, including unconventional oil, Further reduce cost of non-opec oil, Technology & oil demand: Increased efficiency leading to longer resource availability Examples of very Promising Technologies: CO2 sequestration Status: technical feasibility demonstrated; Statoil has pilot project of the CO2 sequestration technology (>1-2 years). High potential impact Gasoline-based Fuel Cell- M/H Clean oil integrated gasification combined cycle (IGCC) pp ; M

36 CO 2 EOR Potential gigatonnes of CO 2 storage in EOR Projects (IEA estimate) Includes major basins in N. America, Europe, Middle East, Western Siberia More potential if Africa, Latin America, and Asia are included Win-win scenario of increasing oil supplies while storing large quantities of CO 2 EOR can provide financial incentive for early implementation of CO 2 capture technologies, thus helping to bring down the costs Revenue from EOR can help support infrastructure investments necessary to transport CO 2 to other geologic storage sites

37 The price of oil: distinguishing between nominal and real, (US$/b) 1 1 AverageSearching for Nominal new price level Real* to 8 */ inflation mobilize & exchange-rate sufficient adjusted. investments following the global restructuring, with? (Base: August 25=1, US$/b) 6 stronger demand to continue from 8 Searching for new price level emerging to mobilize DC sufficient & compensate for delay investments following the global in investment, restructuring, downstream with 4 stronger demand to continue from emerging DC & Most likely above the 2-23? price compensate for delay in investment, downstream band level (average 33$) i.e. > above Most likely above the price band level (average 33$) i.e. > above $4/b and $4/b below and current below levels current not levels not supported by fundamentals supported by fundamentals Average Nominal Real* */ inflation & exchange-rate adjusted. (Base: August 25=1, US$/b) 4 Jan-8 Jan-81 Jan-82 Jan-83 Jan-84 Jan-85 Jan-86 Jan-87 Jan-88 Jan-89 Jan-9 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan- Jan-1 Jan-2 Jan-3 Jan-4 Jan Jan-8 Jan-81 Jan-82 Jan-83 Jan-84 Jan-85 Jan-86 Jan-87 Jan-88 Jan-89 Jan-9 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan- Jan-1 Jan-2 Jan-3 Jan-4 Jan-5

38 Typical expansion cost by additional barrel Typical expansion cost by additional barrel 5, 45, 4, 35, 3, 25, 2, 15, 1, 5, $/boe Canada (HO) Non OPEC (marginal) Deepwater OPEC excl. Middle East OPEC Middle East

39 39