RICE GLOBAL E&C FORUM A HISTORIC SHIFT TO GOOD TIMES? Oil Pricing Outlook Alessandro Lanza, PhD Chief Economist, Eni 1 Houston, October 11, 2005
Summary Key factors in oil price dynamics Supply Refining Demand Financial markets Price outlook 2
Summary Key factors in oil price dynamics Supply Refining Demand Financial markets Price outlook 3
70 60 50 40 30 20 10 0 Free climbing NYMEX WTI 1986-2005 1st month - monthly average 4 $/barrel Jan-86 Jan-87 Jan-88 Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 2000-Sept 2005 Average: 34 dollars per barrel 1986-1999 Average: 19 dollars per barrel
Brent dated (Frequency Distribution, Daily Observations) Jul 1987- Dec 1999 Jul 1987- Sept 2005 600 600 500 500 400 400 days 300 300 200 200 100 100 0 <=10 15 20 25 30 35 40 dollars per barrel 0 <=10 15 20 25 30 35 40 dollars per barrel Source: own calculations on PLATT s data 5
World Oil Reserves 01/01/2005 (1,111 billion barrels) Rest of the World 15% United States Nigeria 3% 3% Libya 4% Russia 5% Venezuela 7% Saudi Arabia 24% Iran 11% Iraq 10% Kuwait 9% United Arab Emirates 9% OPEC*: 885 billion barrels (80%) IOC** (International Oil Companies): 52 billion barrels (5%) * OPEC countries: Algeria, Libya, Kuwait, Indonesia, Iran, Iraq, Nigeria, Qatar, Saudi Arabia, United Arab Emirates, Venezuela. 6 ** IOC: ExxonMobil, BP, Shell, Chevron, Total, ConocoPhillips, Eni, Repsol YPF
Key Factors Oil prices are by far higher than historical trend: short term or structural change? Oil prices are affected by a complex system of factors: fundamentals (supply, demand, stocks) political events financial market expectations environmental regulation weather climatechange 7
World Oil Demand 1986-2005 The numbers shown represent the yearly average growth rate for the 86-05 time frame 90 80 1,6% million barrels/day 70 60 50 40 30 20 10 0 1,4% 2,1% 1,3% 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Total demand OECD non OECD OECD excl. North America 8 Source: International Energy Agency; Eni Forecast.
Oil Pricing: the Time Horizon Short term spare capacity, stocks, OPEC s meeting outcomes, refining shortages, sabotages, strikes, weather, Medium term economic cycle, non OPEC supply, OPEC countries budget, investments, events in the Middle East, Long term demography, oil policy of Middle East producers, Kyoto Protocol, technology, 9
Summary Key factors in oil price dynamics Supply Refining Demand Financial markets Price outlook 10
Main Oil Producers World Oil Supply, 2004 (81.2 million barrels/day) Rest of the World 39% United Arab Emirates 3% Venezuela 4% Canada 4% Norway 4% China 4% Mexico 5% Iran 5% Saudi Arabia 12% Russia 11% United States 9% OPEC: 33 million barrels/day (41%) OCSE: 21 million barrels/day (26%) IOC: 13 million barrels/day (16%) 11 Source: Eni World Oil and Gas Review 2005.
World Oil Supply: OPEC and non OPEC 1986-2005 60 50 40 30 20 10 0 Source: International Energy Agency, Eni Forecast. 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 12 million barrels/day 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 non OPEC OPEC OPEC market share (right axis)
World Oil Supply change 9 8 7 CAGR 3,4% million barrels/day 6 5 4 3 2 1 CAGR 1,1% CAGR 2,3% CAGR 5,9% CAGR 1,8% 0-1 CAGR -0,9% -2 1999-2002 1999-2002 1999-2002 2002-2005 2002-2005 2002-2005 Total Supply non OPEC OPEC 13 Source: International Energy Agency; Eni Forecast.
World Oil Supply (year on year change) 1,8 1,6 1,4 million barrels/day 1,2 1,0 0,8 0,6 0,4 0,2 0,0 2006 2007 OPEC Former USSR other non OPEC 14 Source: Eni Forecast.
12 Production and Spare Capacity in OPEC Countries 10 million barrels/day 8 6 4 2 0 S. Arabia (1) (1) The figures include 50% of Neutral Zone Iran UAE Kuwait (1) Qatar Nigeria Lybia Algeria Indonesia Venezuela Iraq Production Spare Capacity 15
Summary Key factors in oil price dynamics Supply Refining Demand Financial markets Price outlook 16
WORLD SPARE REFINING CAPACITY 20 18 16 14 million barrels/day 12 10 8 6 4 2 0 1965 1970 1975 1980 1985 1990 1995 2000 2004 17
Refining Capacity (2004) North America 22% Developing Asia Pacific 14% Primary Capacity World: 86 million b/d Latin America 10% Industrialized Asia Pacific 13% Primary Capacity OCSE: 45 million b/d (52%) OPEC: 10 million b/d (11%) Western Europe 17% Central Europe 3% Africa 4% Central Asia 1% Middle East 8% North America 37% Eastern Europe 8% Conversion Capacity World: 33 million b/d Latin America 9% Western Europe 14% Developing Asia Pacific 17% Central Europe 2% Conversion Capacity OCSE: 21 million b/d (62%) OPEC: 2 million b/d (6%) Eastern Europe 3% Central Asia 1% Middle East 4% Africa 2% Industrialized Asia Pacific 11% 18 Source: Eni World Oil and Gas Review 2005.
Quality and production volume of main crudes Tapis (Malaysia) Brent (UK) WTI (USA) Oman Arab Light (S. Arabia) Oseberg (Norway) Forties (UK) Dubai (UAE) Urals Blend (Russia) Maya (Mexico) BCF17 (Venezuela) 19 Source: Eni World Oil and Gas Review 2005.
Crude production by quality (selected years, thousand barrels/day) 26 = 35 API > 1% Sulphur = 35 API < 0,5% Sulphur 26 = 35 API < 0,5% Sulphur < 26 API > 1% Sulphur 20 Source: Eni World Oil and Gas Review 2005.
World Refining Capacity 1993-2004 percent change Primary Capacity Conversion Capacity (FCC eqv.) World 14% 44% Developed Countries 11% 26% Transition Economies -16% 11% Developing Countries 35% 115% 21 Source: Eni World Oil and Gas Review 2005.
United States: the mismatch between refining capacity and oil products consumption 25-2,3-3,4-3,4-3,8 20 million barrels/day 15 10 5 0 1993 1996 2000 2004 Primary Capacity Consumption 22 Source: Eni World Oil and Gas Review 2005, Parpinelli-Tecnon
United States: the net oil products imports 100 90 80 70 million tons 60 50 40 30 20 10 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 gasoline middle distillate other products 23 Source: Eni World Oil and Gas Review 2005, Parpinelli-Tecnon
Summary Key factors in oil price dynamics Supply Refining Demand Financial markets Price outlook 24
World Oil Consumption, 2004 (82,5 million barrels/day) Consumption by area North America 28% Africa 3% Latin America 8% Middle East 7% Western Europe 18% Central Europe 2% Dev. Asia and the Pacific 16% Eastern Europe 4% Central Asia 1% Ind. Asia and the Pacific 13% Canada 3% South Korea 3% Brazil 3% Saudi Arabia 3% Main consumer countries India 3% Russia 3% Germany 3% Japan 7% China 8% United States 24% PVS: 28 million barrels/day (34%) Rest of the World 40% OCSE: 50 million barrels/day (60%) 25 Source: Eni World Oil and Gas Review 2005.
World Oil Demand (year on year change) 3,5 3,0 FORECAST 2,5 million barrels/day 2,0 1,5 1,0 0,5 0,0 1999 2000 2001 2002 2003 2004 2005 2006 2007 26 Source: International Energy Agency, Forecast Eni.
Where Oil Consumption grows Oil Consumption 1995-2004 (yearly average % change) Total demand 1,8% Total non-oecd Africa Middle East 3,1% 3,1% 3,1% Latin America 1,8% Non-OECD other Asia 4,4% Cina 7,6% Non-OECD Europe 1,5% FSU -2,0% Total OECD 1,1% OECD Pacific 0,2% OECD Europe OECD North America 0,9% 1,5% -4% -2% 0% 2% 4% 6% 8% 10% 27 Source: International Energy Agency.
China: Oil Demand and net Imports 8 7 6 Demand Net Imports million barrels/day 5 4 3 2 1 0-1 -2 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 28 Source: International Energy Agency; Eni Forecast.
China Oil Consumption: 1955-2005 (yearly percent change) 20% 15% 10% 5% 0% -5% -10% -15% -20% 1955 1965 1975 1985 1995 2005 The graph only considers a +/-20% change in oil consumption to better appreciate the trend during recent years. 29 Source: International Energy Agency; Eni Forecast.
World Oil Demand: OECD and non OECD (year on year change) 3,5 3,0 FORECAST 2,5 million barrels/day 2,0 1,5 1,0 0,5 0,0-0,5 1999 2001 2003 2005 2007 OECD Former USSR other non OECD 30 Source: International Energy Agency; Eni Forecast.
Summary Key factors in oil price dynamics Supply Refining Demand Financial markets Price outlook 31
Crude oil price daily volatility Futures 1 month NYMEX vs IPE 3,5% 3,0% NYMEX IPE 2,5% 2,0% 1,5% 1,0% 0,5% 0,0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 32
Non Commercial Net Long Positions and Crude Oil Price (2005, weekly data) 200 5th April 80 70 positions (thousands of contracts) 150 100 50 0 31th May 5th Jul 26th Jul 16th Aug 60 50 40 30 20 $/bl 10-50 0 heating oil crude unleaded gasoline WTI Cushing First Month 33 Source: Commodity Futures Trading Commission-Nymex, Platts.
Summary Key factors in oil price dynamics Supply Refining Demand Financial markets Price outlook 34
The price of crude oil: aiming at a long run equilibrium HIGH PRICE NON OPEC Producers Marginal Fields become competitive OPEC Producers OPEC share of production shrinks Consumer Countries Renewable energy becomes competitive Inflation and Recession Non OPEC share of production rises Public revenues fall and social tensions arise Oil Demand reduction Higher risk of supply disruptions from OPEC countries EQUILIBRIUM RANGE OF OIL PRICE LOW PRICE Non OPEC share of production falls Marginal Fields are abandoned Public and per-unit revenues fall, oil companies crisis OPEC market share and production rise but per-unit revenue falls Public revenues fall and social tensions arise Higher oil consumption Limited research and lower production from alternative energy sources More imports from cheaper but more politically unstable countries (OPEC) Higher Environmental impact General tendency to offset the lower price with higher environmental taxation: political tensions with producing countries Political tensions with producing countries, higher risk of supply disruption 35
Medium Term Oil Price Outlook In 2006 there are factors that could bring some downward pressure on oil prices: Opec capacity should increase more than production; Supply and Demand dynamics should significantly increase stocks for the fourth consecutive year. In the medium term, the recent high level of oil prices is expected to give new impulse to non OPEC supply and non conventional oil. On the demand side, the expected delayed reaction to high oil prices, will contribute to curb the oil price profile. 36
World Oil Stock change (Supply-Demand) 1 2,0 1,5 FORECAST 1,0 million barrels/day 0,5 0,0-0,5-1,0-1,5-2,0 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 1) Crude, feedstocks and products 37 Source: International Energy Agency, Forecast Eni.
Crude Oil Price, Brent dated 65 FORECAST 55 dollars per barrel 45 35 25 15 5 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 38 Source: Platt s, Eni Forecast.