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East of Suez Oil and Gas: THE RULES HAVE CHANGED
This presentation material contains confidential and privileged information. The dissemination, distribution, or copying by any means whatsoever without FGE’s prior written consent is strictly prohibited.
December 2014
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Who is FGE? For over 30 years, FGE has delivered strategic advice on the oil and gas markets to clients around the
world. The company was the first consulting firm to specialize in the downstream oil and gas markets with a focus on the East of Suez region.
Over the past decades, FGE has provided studies and advisory services to national governments, national oil and gas companies, major oil and gas companies, independent oil and gas companies, financial institutions, international and intergovernmental organizations, utilities, consultancies, and engineering design firms.
FGE’s global presence enables us to service clients around the world.
Please visit our website,
www. FGEnergy.com for more information.
Over 270 Clients Around the Globe
Beijing
Singapore Honolulu
Dubai
London
Main Offices
Rep/Branch Offices
Global/Asian Headquarters
Tokyo California
Melbourne
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Crude Prices: recent $40/bbl slump - back to 2010 levels
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• Crude prices have slumped to 4-year lows recently
• Various factors: US shale boom, weaker demand, Libya recovery and Saudi policy!
70
75
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115
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130
We
ekl
y av
era
ges,
$/b
bl
Dated Brent
Equities “flash crash”
LIBYA CRISIS
Commodities sell-off
IRAN TENSIONS
Euro-zone debt panic
Market over-optimism ISIS offensive
Saudi policy speculation
Libya problems again
www.FGEnergy.com Saudi Oil Output – Balancing the Market… Until Recently
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20
40
60
80
100
120
140
8
8.5
9
9.5
10
10.5
11
US$
/bb
l Dat
ed
Bre
nt
mm
b/d
Brent Price
Saudi Production
Libyan instability, Production drop Libyan recovery
Libyan revolution
Libyan recovery
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World Oil Demand – Quarterly & Annual Developments through 2015
Quarterly Changes in World Oil Demand through 2015 Annual Changes in Oil Demand by Region
• Our latest estimates show world demand growth y-on-y at only 0.3 mmb/d in Q3
• Q4 demand projected up 0.8 mmb/d, but mainly because Q4 last year was very mild
• Similarly, Q1/Q2 ‘15 demand growth exaggerated by mild weather in 2014 in Europe/Japan
• Downside to 2015 demand looking likely due to GDP – unless recent price drop has an impact
On the other hand, oil demand growth has been weak
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-1500
-1000
-500
0
500
1000
1500
2000
2500
2013 2014 2015 2016 2017 2018 2019 2020
N.America Iraq Libya Other Ex Saudi Crude Demand Growth Crude Supply Growth Ex Saudi
US Production Growth Pressures OPEC/Saudis • North American growth dominating until at least 2016
• Iraq and Libya set to boost supply by over 500 kb/d in 2015, further still in 2016
• Supply growth outstripping demand growth until at least 2017 if OPEC doesn’t cut
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0
2
4
6
8
10
12
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Call-on-Saudi crude assuming no cuts by other OPEC members Mmb/d
Crude Price Driver: Lower Call on Saudi Output
Saudi ‘Comfort Zone’
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• Saudi “comfort zone” is at 8.5-9.5 mb/d.
• Saudis unlikely to accept below-8 mb/d production level
2005 to September 2014 are actuals, forecasts in $2014 thereafter
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0
2
4
6
8
10
12
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Saudi expected crude availability (Mb/d)
Asia (China, South Korea, Japan) US S. Arabia + Bahrain Non refinery Available for other buyers
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Saudi crude export availability could be limited in future if production is curtailed to 8.0-8.5 Mb/d
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Current OECD on-land Company Stocks Outlook to Q1 2015
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62
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da
y su
pp
ly a
t en
d m
on
th
2008 2009 2010 2011
2012 2013 2014 2015
-120
-100
-80
-60
-40
-20
0
20
40
60
80
100
120
140
160
dif
fere
nce
(m
mb
)
vs year-ago vs 5-year average
Potential Stocks Outlook - OPEC output at current levels Stocks vs year-ago & vs 5-year average
• Our projections indicate that there will be small contra-seasonal stockbuild in Q4, vs big stock draw last year. This trend is expected to continue and lead to a significant stock-build in Q1’15.
• Cut in OPEC output to 29.0-29.5 mmb/d needed in 2015 or non-OPEC drop of 1+ mmb/d
Contra-seasonal stock build in Q4 and expected to continue
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Long-Term Oil Price: A Range to Consider
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$20
$30
$40
$50
$60
$70
$80
$90
$100
$110
$120
$130
$140
US$/bbl Brent (2005 – 2030)
CEILING – US$120/bbl
FLOOR– US$80/bbl
2005 to October 2014 are actuals, forecasts in $2014 thereafter
$50
$70
$90
$110
$130
US$/bbl Brent (2014-2015)
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Tight oil production expected to grow despite low oil prices
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0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
mm
b/d
Bakken Eagle Ford Permian
Woodford Niobrara Granite Wash / Mississippi / Other
Federal developments Total tight Oil High Case Total tight Oil at $70 (18m Hedging)
• US Tight Oil Growth protected in 2015 by inertia of current drilling activity
• 2016 output growth at risk as weaker prices expectations start feeding in
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Shut-In Supplies: now 3.5 mmb/d (+3 mmb/d at risk in Iraq)
Libya Uprising
Libya protests recently took total supply outages to over 3.5 mmb/d
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0
0.5
1
1.5
2
2.5
3
3.5
4
mm
b/d
Iran Yemen China Syria Brazil South Sudan UK Nigeria Libya Iraq/KRG
Iran Sanctions
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• US • Under construction – 34.95 mmtpa • Announced* – >260 mmtpa
• Canada • Announced* – >310 mmtpa
• Russia • Under construction – 16.5 mmtpa • Announced – 63.9 mmtpa
• East Africa • Announced – up to 32.5 mmtpa**
“New Frontiers” of Supply – Big Bonanza?
*Capacity per DOE authorization to FTA countries for US, NEB authorization for Canada.
*Mozambique project partners’ original plan includes up to 50 mmtpa but 20 mmtpa landed + 2.5 mmtpa FLNG in 1st phase. Tanzania is 10 mmtpa.
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150
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250
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350
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
mm
t
Likely East Africa Exports to Asia*
Likely Canada Exports to Asia
Likely US Exports to Asia
Likely East of Suez Supply CapacityTargeting Asia Pacific
Asia+ME Demand
2014: Supply required from West of Suez
East of Suez LNG Market Pressure Points East of Suez Liquefaction Supply and LNG Demand
Base case scenarios (JKTIC + New Markets + Middle East) *Only Mozambique for now
Market softens. Uncompetitive projects fail to materialize.
Australian ramp up. US supplies start.
Canadian and East African projects add to supplies.
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Likely US LNG Export Projects
Around 75-80 mmtpa of US LNG export capacity expected to come online by 2025
Regulatory ProcessSabine Pass LNG
(T1-4)
Freeport LNG
(T1-2)
Cameron LNG
(T1-3)
Dominion Cove
Point
Golden Pass
LNG
Southern LNG
Company (Elba
Island)
Corpus Christi
LNG
Lake Charles
Exports/Trunkline LNG
(TLNG) Exports1
Sabine Pass LNG
Expansion (T5-6)
Freeport LNG
(T3)
FERC Application
(20)
(8.8)
(14.95)
(5.75)
Filed FERC
Application
(15.6)
Filed FERC
Application
(2.5)
Filed FERC
Application
(15)
Filed FERC Application
(16.4)
Filed FERC
Application
(10)
(4.4)
FERC Approval O O O O O
DOE Authorization to
Export LNG to FTA
Countries*
(16);
Pending Approval
(4)
(10.2)
(12)
(7.82)
(15.6)
(4)
(15)
(15)
(10)
(10.2)
DOE Authorization to
Export LNG to non-
FTA Countries*
(16)
(10.2)
(12)
(5.75)
Under DOE
Review
(15.6)
Under DOE
Review
(4)
Under DOE
Review
(15)
(15)
Under DOE
Review
(10)
(3)
Deals Announced /
Offtake Secured
* Total export volumes submitted to DOE, mmtpa.1 DOE approved Lake Charles LNG Exports and Trunkline LNG Export's applications of combined 15 mmtpa exports to FTA countries from the Lake Charles terminal. Volumes are non-additive and only for maximizing optionality to expand customer base for LNG exports from the Lake Charles terminal.
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Long-Term Oil vs. Hub Indexation—Which is Better?
Projected Oil- and Hub-Linked LNG Prices Delivered to Asia
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Henry Hub
Shrinkage + Other
Liquefaction
Japan
UK
Boil off
Transport
Boil off
Transport
Henry Hub
Shrinkage + Other
Boil off
Transport
Boil off
Transport
Normal Market Long Market
$4.50
15%
$3.50
$1.00
$3.00 $3.00
$1.00
$4.50
15%
$9.68 $6.18
$11.68 $8.18
Global Gas Price Pressures and Outlook
New Pricing Paradigms Ahead
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Supply Factors
Diversions from Middle East/Atlantic Basin projects originally designed to supply US/Europe
European re-loads—to balance take or pay volumes, storage, profitability
Uncommitted volumes from existing projects
Uncertainty about nuclear power in Japan
China—increasing seasonality
Magnets of the Americas— Mexico, Brazil, Argentina, indigenous production and hydropower shortfalls
Opportunistic at relatively low prices, e.g., India
Balancing the Market—A Bigger Role for ST/MT-Term Deals
Demand Factors
Uncertainty means increasing preference for shorter terms!
Short-Term and Mid-Term drivers…
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Asian Demand: Moderating into Steady Growth
-3.0%
-1.0%
1.0%
3.0%
5.0%
7.0%
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800
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1,200
1,400
1,600
1,800
2,000
Asia Pacific Product Demand Growth (kb/d)
Demand growth (%) (right axis)
Demand growth (kb/d) (left axis)
Average Annual Growth (kb/d)
2013 2014 2015-17 average
2018-20 average
China 335 248 286 295
India 54 92 143 128
Japan (218) (96) (111) (52)
S Korea 4 97 58 15
Rest of Asia
173 137 165 157
Total 348 478 540 542
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Refinery Closures: Potential Realized? Japan Leads Refinery Closures in Asia Over 2009-2020
Potential Closures
Confirmed Closures
0100200300400500600700800900
100011001200
Japan
kb/d
0100200300400500600700800900
100011001200
Australia
kb/d
0100200300400500600700800900
100011001200
Others
kb/d
Closures (2009-2014)
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Without China…
With China...
East of Suez Net CDU Capacity vs. Demand Growth
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400
800
1,200
1,600kb/d
-400
0
400
800
kb/d
Incremental CDU Capacity Incremental Refined Products Demand
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Singapore Oil Product Cracks
-$20
-$15
-$10
-$5
$0
$5
$10
$15
$20
$25
$30
Differentials, US$/bbl
Diesel, 0.05% S Kerojet (DPK) Mogas (92 RONC) Naphtha HSFO (380 cSt)
Singapore spot vs. Dubai FOB. Actual prices for 2013. Forecasts in $2014 thereafter.
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Projected Singapore Refining Margins for Dubai Crude
-$4
-$2
$0
$2
$4
$6
$8
$10
$12
$14
US$/bbl
Hydroskimming Residual catalytic cracking Hydrocracking
Actual prices for 2013. Forecasts in $2014 thereafter.
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