Trends in the oil and gas markets
Danske Markets oil and gas seminar Oslo, 12.06.12
Oil prices on a rollercoaster since the mid 2000s
Source: Reuters EcoWin
Medium term oil market drivers
• Pace of economic growth in the key consuming regions
− Outcome of Eurozone crisis
• Shape and reach of policies on energy and oil demand
• The Non-OPEC cost curve
• OPEC’s – effectively Saudi Arabia’s – market perceptions and output decisions to sustain a comfortable price level
• Geopolitical events potentially disrupting supply
Global oil market seen to add ~1 mill bbl/d per year to 2020
Sources: IEA (history), Statoil (outlook)
Transport sector energy efficiency improvements will dampen growth
Non-OPEC and OPEC production outlook
Sources: IEA (history), Statoil (outlook)
The US shale gas revolution has paved the way for rapid growth in tight oil supply
0 500 1000 1500 2000 2500 3000 3500
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Outlook for US tight oil production
(1000 bbl/d)
Other Eagle Ford Niobrara Bakken
0 10 20 30
1995 2005 2010 2011 2011
Estimated recoverable resources in the US Bakken
formation
(billion bbl)
Continental Resources N Dakota State
N Dakota IC
US Geological Survey
Source: Energy Policy Research Foundation Sources: US DOE EIA (history), Statoil (projection)
A selection of crude oil price outlooks
2011-USD/bbl
Source: IMF Working Paper 12/109: The future of Oil: Geology versus Technology (May 2012)
Sources: Recent bank & consultant evaluations compiled by Statoil
Gas: Regional gas prices have disconnected
Source: CERA
• The US gas market has also de-linked from the global oil market
0 1 2 3 4 5 6 7 8 9
Ratio of Brent oil price to Henry Hub gas price, energy equivalence basis, 2007-12
• Historically regional benchmark prices have tracked each other
• Since the beginning of 2010 they have disconnected
European demand down in 2011
• A mild winter compared to the previous one
• The Eurozone crisis depressed growth
• The ETS (European emission trading system) price declined, eroding the competitiveness of gas relative to coal
• Demand will recover if and when these drivers return to “normal”
• Policy and regulatory uncertainty breeds market uncertainty
• Oil linked pricing under pressure
Sources: Eurogas, Cedigaz
US prices have collapsed due to explosive gas production growth…
Source: US DOE EIA
Coinciding with more moderate (though accelerating) consumption growth
… that is, to the North American “shale gale”
In EIA’s Annual Energy Outlook 2012 the US becomes a net gas exporter by 2022
US gas supply to 2035 as seen by the US DOE EIA
The number of shales under development
or exploration is steadily increasing
Sources: US DOE EIA, ARI
Are today’s US gas prices sustainable?
• Not indefinitely, as the USD 2-2,50/MMBtu range is below long term marginal supply costs
• Producers have curtailed gas directed drilling and relocates to liquids plays
• There is talk about shut-ins – but also large overhang of drilled but uncompleted wells
Source: Baker Hughes
• Will demand raise to the occasion?
• Will prices stage a strong recovery?
• Not any time soon; the apparent shape of the long run marginal cost curve indicate low prices for a long time
Boosting demand for North American gas: No quick fixes
• Industrial demand: Picking up
• Residential and commercial gas demand: Limited growth potential
• US and Canadian LNG exports: Enjoy strong tailwinds; a dozen US projects totalling ~200 bcm/y of capacity have filed applications
• GTL, gas as a road transportation fuel: Niche interests
Pearl GTL plant Sabine Pass LNG terminal
• In the short-medium term, the power sector’s dispatching and investment decisions will be decisive
• Demand growth could be significant
Asia: Repercussions of Fukushima, plus robust new market growth
• All of Japan’s more than 50 nuclear reactors off line for safety inspections
• Unclear when they will be restarted
• Japanese LNG imports up 12% in in volume terms, ~50% in value terms, in 2011
Source: PIRA
• China’s and India’s LNG imports increased by 31% and 39% respectively in 2011
• Outlook is for robust growth to continue
• Barring a major set-back for the Chinese economy
LNG supply: Plateauing but set for further growth from around 2015
• Capacity has plateaued, but Australia will ensure further growth from around 2015 to 2018-20
• Then what?
• Many projects waiting in the wings with North America, East Africa and potentially the Eastern Mediterranean (Israel, Cyprus) likely to make splashes
Sources: Wood Mackenzie, PIRA, company announcements, press clippings
Summary
• The global oil market will in the medium term likely be characterized by
− Slowing growth in demand
• Eurozone crisis
• Limited firepower left to compensate for a European set-back
− Rapid growth in non-OPEC supply…
• …though at increasing supply costs
− Stagnant OPEC production
• Efforts to curtain output if prices fall below pain threshold
− High probability of episodes of political unrest driving price volatility
• The main regional gas markets will in the medium term likely be characterized by
− Oversupply in North America reflecting the
“shale gale”
• Though with prices recovering to a level consistent with long term marginal supply costs
− Tightness in Asia reflecting a period of stagnant LNG supply
• Though with prices coming down from today’s near oil parity level in response to a normalization of Japan’s energy situation, and as more LNG becomes available
− Volatility in the European gas market reflecting conflicting influences from the LNG market, renenwables and the carbon market, plus an uncertain economic outlook
Prepare for turbulence!
Trends in the oil and gas markets Ottar Skagen
Sr. Adviser
E-mail ottask@statoil.com Tel: +4700000000
www.statoil.com
