Upload
others
View
0
Download
0
Embed Size (px)
Citation preview
Plenary Session 1:
Oil markets: Investment and security challenges
in a world in transition
Background Paper
Bangkok | Thailand
The observations presented herein are meant as background for the dialogue at the 7th Asian
Ministerial Energy Roundtable. They have been prepared in collaboration with The Boston
Consulting Group and should not be interpreted as the opinion of the International Energy Forum
or The Boston Consulting Group on any given subject
Disclaimer
AMER7-Session -1-Oil-Market-Investments-2017-IEF.pptx 2
Copyr
ight
© 2
017 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Introduction
Market context Session objectives
Ministers are invited to review recent oil market
developments and the energy security
implications of:
• Three years of deferred investment in
conventional oil and gas production after the
price slump,
• Various transition pathways that will remain
reliant on the ready availability of sustainable
supplies of affordable hydrocarbons.
Strengthen policy cooperation and market
transparency among Asian oil market and clean
technology stakeholders, to mitigate risk along
energy transition pathways including enhancing
oil inventory data.
Energy markets and longer-term policy and
technology options are subject to growing
turbulence and uncertainty. This is, in part, a
consequence of a richly diverse range of opinion
as to the optimal pace and orientation of
transition, and differences in the energy policy
and market contexts of Asia’s interdependent
and globally interconnected economies.
Investment to compensate for decline rates in
the conventional fields has slowed for three
consecutive years. Unconventional supply
resilience, inventory build, and existing supply
may well prove too narrow a backbone to
shoulder demand growth expected to exceed
the 100 mb/d threshold by 2020.
Key question: How will Ministers help maintain oil market stability
in longer-term transition trajectories in Asia?
AMER7-Session -1-Oil-Market-Investments-2017-IEF.pptx 3
Copyr
ight
© 2
017 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Some technology step-changes and transition policy shifts
are already happening
Technology
Shale can now deliver more than 5 mmb/d
• Outside OPEC decisions, the most
responsive portion of supply
• Has increased Asian reliance on US imports
• Shale exists in many parts of the world, but
expensive to begin first production
Investment reduced, shifting
• Technology focus on lower cost solutions
• Shift towards shorter cycle projects
• Skew towards natural gas over oil
Impact
• More barrels can be delivered more quickly,
for less
• Changing region's energy security profile
Transition Policy
Reduced gasoline/diesel subsidies
• Increases demand elasticity
• Shift likely focus to alternative-fuel vehicles
Increased efficiency spending
• 2016: 21 bn additional spent in sector
• Asia accounted for 75% of increase
Push towards electric vehicles could upend
demand growth- and cause peak demand
• For now, largely prospective rather than real
– Country and company level goals made,
but details still being developed
• Most EVs and ICEs sold in Asia
Impact
• Limited to date
• Given big goals but unspecified policy, the
range of demand outcomes has widened
AMER7-Session -1-Oil-Market-Investments-2017-IEF.pptx 4
Copyr
ight
© 2
017 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Contents
How has investment responded to lower prices?
Technology: What are the risks associated with shale?
How are process and transition policies affecting demand?
Key questions and discussion
AMER7-Session -1-Oil-Market-Investments-2017-IEF.pptx 5
Copyr
ight
© 2
017 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Market context: Almost two years in a new price band
0
50
100
150
Jul 15Jan 12 Mar 13 May 14 Nov 17Sep 16
$/b
Rise of view that oil will
remain in "band" for the
foreseeable future
Sharp decline began
as supply overwhelmed
demand
Source: NYMEX, ICE, BCG CEI
WTI
Brent
AMER7-Session -1-Oil-Market-Investments-2017-IEF.pptx 6
Copyr
ight
© 2
017 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Supply increases from new projects
fall below demand growth post 2020
0
200
400
600
800
20152010200520001995
Upstream capital ($B)
North America
International
Beginning of
past 3 cyclical
inflections yoy
growth (%)
2003:
+10%
2010:
+11%
2017:
+9%
Upstream capex growth is increasingly
focused on North America
Historical demand growth
assumes $54/b Brent
A supply hole may be emerging as a resultUpstream investments fell by 44% in the 2 years from mid-2014
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
New project volume growth (mmb/d)
202020192018201720162015 20252024202320222021
OPEC
Non-OPEC
Note: Project volumes exclude tight oil. 2017 upstream capex figures are estimates. Project volumes are based on $54/bSource: Rystad Energy Ucube, Barclays, IEA
AMER7-Session -1-Oil-Market-Investments-2017-IEF.pptx 7
Copyr
ight
© 2
017 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
The absolute and relative level of hydrocarbon investments
has been falling since 2014
0
20
40
60
802,000
1,500
1,000
500
0
%USD 2016 ($B)
201620142012201020082006200420022000
Fossil fuel supply
Fossil fuel power generation
Renewables
Nuclear
Electricity networks
Fossil fuel share of supply investment (right)
AMER7-Session -1-Oil-Market-Investments-2017-IEF.pptx 8
Copyr
ight
© 2
017 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
.Source: IEA, Bloomberg, Rystad, BCG CEI analysis
Global decline at fastest
pace since 1992
Conventional projects
are becoming faster and smaller
0
1
2
3
4
5
0 100 200 300 400 500 600 700
Time to market (years)
Average size of sanctioned conventional resources (M Boe)
Other offshore
Global averageOnshore
Deepwater offshore
2016–172010–14
-6
-4
-2
0
An
nu
al d
eclin
e r
ate
201620112006200119961991
Decline rates are accelerating due to investment cuts...but in parallel, projects are getting smaller and faster to respond
AMER7-Session -1-Oil-Market-Investments-2017-IEF.pptx 9
Copyr
ight
© 2
017 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Contents
How has investment responded to lower prices?
Technology: What are the risks associated with shale?
How are process and transition policies affecting demand?
Key questions and discussion
AMER7-Session -1-Oil-Market-Investments-2017-IEF.pptx 10
Copyr
ight
© 2
017 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Shale is responsive- but is it big enough?US shale changes do not remove energy security risks
0
20
40
60
2006 2008 2010 2012 2014 2016 2018 2020 2022
MMb/d
Shale in context: A small part of global supply
Other Supply- all
production outside
US shale and
OPEC- big volumes,
slow response time
Shale: Rapid
growth, but flexible
volumes likely
insufficient to be
sole balancer
OPEC- the
traditional balancer
Shale production needed to drop ~40% in early 2015
to balance the market... Since then, it has grown
AMER7-Session -1-Oil-Market-Investments-2017-IEF.pptx 11
Copyr
ight
© 2
017 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Shale growth depends on the PermianSince the price fall, all net growth has come from the Permian
2.5
2.0
1.5
1.0
0.5
0.0
Sep-17May-17Jan-17Sep-16May-16Jan-16Sep-15May-15Jan-15Sep-14
Eagle Ford
Bakken
Permian
Others
mmb/d
Source: EIA Drilling Productivity Report, August 2017
12
Copyr
ight
© 2
017 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Note: Monthly production change for net production (top line) and gross production (top line growth plus change in monthly decline) Source: EIA drilling productivity report, BCG analysis
AMER7-Session -1-Oil-Market-Investments-2017-IEF.pptx
The pace of growth neared 2014 levels in mid 2017...but net production growth has to overcome severe declines
-150
0
150
300
600
450
Jan-
15
Jul-
15
Jan-
16
Jul-
16
Jul-
11
Jan-
12
Jan-
10
Jul-
10
-36
-67
Jul-
13
Jan-
14
Jul-
14
kb/d
Jul-
12
Jan-
13
Jan-
11
Jan-
17
May-
17
Monthly US shale production growth
Gross
production
Net
production
13
Copyr
ight
© 2
017 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
2,500
2,000
1,500
1,000
500
0
Sep-17May-17Jan-17Sep-16May-16Jan-16Sep-15May-15Jan-15Sep-14
Permian
Eagle Ford
Bakken
#
Note: DUC: Drilled but uncompleted wells. Graph rebases to October 2014, the beginning of the sharp price fall and activity Source: EIA DPR DUC report, Aug 2017, BCG CEI analysis
AMER7-Session -1-Oil-Market-Investments-2017-IEF.pptx
But concerns about shale are becoming more clearThe stock of drilled but uncompleted wells has risen continually since mid 2016
Drilled but uncompleted wells
AMER7-Session -1-Oil-Market-Investments-2017-IEF.pptx 14
Copyr
ight
© 2
017 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Concentration risks have risen with shaleUS Gulf exports now make up over 7% of global exports; 27 countries receive US crude
Source: EIA, BP statistical review 2017, BCG CEI
0
2
4
6
8
2
1
0
5
3
4
20072006
mmb/d
2005
%
2017201620092008 20112010 2015201420132012
Products
Crude Global
share
AMER7-Session -1-Oil-Market-Investments-2017-IEF.pptx 15
Copyr
ight
© 2
017 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Contents
How has investment responded to lower prices?
Technology: What are the risks associated with shale?
How are process and transition policies affecting demand?
Key questions and discussion
AMER7-Session -1-Oil-Market-Investments-2017-IEF.pptx 16
Copyr
ight
© 2
017 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
1780 1800 1820 1840 1860 1880 1900 1920 1940 1960 1980 2000 2020
1,000
800
600
400
200
0
PJ
Energy transitions: Surprises can happenBut large technology or policy shifts would be required to sharply reduce oil demand
Animal inputs into the US energy system
Note: Draft animal energy inputs in the United States (18,900 calories per animal per day)Source: US Energy Transitions, 1780-2010, Energies Journal
AMER7-Session -1-Oil-Market-Investments-2017-IEF.pptx 17
Copyr
ight
© 2
017 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
0
1
2
3
Jan
11
Jan
12
Jan
13
Jan
14
Jan
15
Jan
16
Jan
17
Jan
18
mmb/d
Regular upward demand revisions have
occurred during the price decline
But oil demand growth is accelerating in recent quartersDriven by a shift to larger vehicles and stronger GDP growth in many consumers
Source: IEA, BCG CEI
Quarter on Quarter, total annual oil demand growth
AMER7-Session -1-Oil-Market-Investments-2017-IEF.pptx 18
Copyr
ight
© 2
017 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
A long-term fuel demand shift is underwayEastward and up the barrel
Demand is trending eastward...
Shift to eastern demand firmly established
• Chinese growth fueled price rise in 2000's
• Non-OECD > OECD demand in 2013
Asia demand has more room to grow
• Population still expanding sharply
• GDP is quickly rising
Western demand will remain lackluster
• Many countries have reached peak demand
for particular fuels
• GDP growth is positive, but limited on fuel
• Efficiency measures in place
...and will move higher up the barrel
Policies, efficiency measures push demand
away from bottom of barrel
• Reduction in power generation demand
(crude, fuel oil or diesel)
• IMO sulfur content requirements (fuel oil)
• Cement demand in China (diesel)
• Slowing dieselization
• Increased standards
Demand growth emphasize skews
towards top of barrel
• LPG and naphtha into petrochemicals
• Jet fuel into increased passenger miles
• Gasoline into growing number of vehicles
(often larger vehicles)
AMER7-Session -1-Oil-Market-Investments-2017-IEF.pptx 19
Copyr
ight
© 2
017 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Electric Vehicle sales depend on purchase incentives
or improving availability of public chargers
0 2 4 6 8 10 12 14 16 18 20
0.3
0.2
0.1
0.0
Norway
ChinaNetherlands
United States
France
Canada
Japan
United Kingdom
GermanyItaly
Average purchase incentive
per vehicle ($K)
Note: Bubble area is proportional to EV share of all new car sales (e.g., 30% in Norway and 7% in the Netherlands). Incentives based on tax exemptions are estimatedfrom average sales pricesSource: BNFF (2017) "EV policies dataset"; marklines (2017), "Automotive industry platform vehicle …
Public chargers per electric car
AMER7-Session -1-Oil-Market-Investments-2017-IEF.pptx 20
Copyr
ight
© 2
017 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
80
100
120
2015
92.5
5.0
Freight
3.4
Passenger
vehicles
0.7
Power
Gen
103.4-1.6
Buildings
1.2
Steam
0.7
Aviation 2040Maritime
3.5
Other
0.5
Petchems
mmb/d
-2.5
But demand growth will be difficult to reverse without
substantial shifts and aggressive transition policies
Demand growth decomposition: 2015-2040
26% of total
demand
11.6% of
total demand
Growth is in areas where it is more
difficult to find alternative fuels
AMER7-Session -1-Oil-Market-Investments-2017-IEF.pptx 21
Copyr
ight
© 2
017 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Contents
How has investment responded to lower prices?
Technology: What are the risks associated with shale?
How are process and transition policies affecting demand?
Key questions and discussion
AMER7-Session -1-Oil-Market-Investments-2017-IEF.pptx 22
Copyr
ight
© 2
017 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Challenges of the new oil market environmentKey questions
1. What new policy measures will allow investment to move forward to avoid price spikes
in future?
• Reconsider tax and investment terms to redistribute risk with private and foreign
investors
• Enable cross border investment in the upstream and downstream sector among
consuming and producing countries to mitigate risk and diversify markets
• Enhance NOC-IOC cooperation to lock in efficiency gains achieved in the low oil
market environment
2. How does the shift to shorter cycle upstream oil investment and greater reliance
on financial market instruments influence oil market volatility?
3. How can ministers limit policy uncertainties associated with variable transition
pathways and market realities across Asian countries to ensure adequate investment
levels?
4. How can Ministers enhance oil market data transparency in Asian countries and
help improve data collection in the context of the Joint Organisations Data Initiative?
5. Does the price cycle of recent years put a fundamental stop to certain types of
development?
1
2
3
4
5
AMER7-Session -1-Oil-Market-Investments-2017-IEF.pptx 23
Copyr
ight
© 2
017 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Opportunities of the new oil market environment Key questions
1. What can Asian oil producers and consumers do to advance oil sector trade and
investment opportunities amongst themselves and enhance Asian oil market security?
2. How do consumer and producer country governments and industries create
win-win solutions in their quest for sustainability? Where do oil markets contribute to
transition?
3. How does the present oil market environment contribute to economic diversification
and sustainable development?
4. How can Asian Ministers use the IEF platform to enhance dialogue on the implications
of energy sector transition for national policy objectives and oil market security?
1
2
3
4