Oil Market in Transition: Implications and Outlook for Colombia II ACP Congress
Jason Bordoff
September 29, 2016
Bogota, Colombia
Colombia’s Oil Sector Turnaround a Success Story
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• Oil production in steady decline before 2003
• Global oil and gas investment was drying up
• Worsening domestic security situation deterred investment
• Foreign direct investment declined from $1.4B in 2000 to $300M in 2003
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2003
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2005
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2007
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2009
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2011
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12
2013
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2015
Oil Production in Colombia Million barrels per day
Regulatory Reforms of 2003 Helped Turn Oil Outlook Around
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• Ecopetrol’s transition from a state owned company to an independent integrated entity
• Creation of the an independent regulatory agency
• Shift from production sharing contracts to a concession-based regime
The results: • Production up from 530 kbpd in
2005 to 1 mbpd in 2015 • From 2009 to 2012, signed
contracts rose 50% • Exploration area rose 800%
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2015
Oil Production in Colombia Million barrels per day
Production Outlook Have Been Revised Down Since 2014
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2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
IEA (Jun 2014) IEA (Feb 2016) Wood MacKenzie (Aug 2016)
Source: EIA, Baker Hughes
Oil Production Outlook in Colombia Million barrels per day
US Shale Has Taken a Hit, But Still Been Resilient
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Source: EIA, Baker Hughes
Source: EIA, Baker Hughes
• US output down 1.2M b/d from 2015 peak; on pace to decline ~1.3M b/d by the end of Q3 ’16 • How sustainable are productivity and efficiency gains? How will access to capital influence
production? What price does it take to turn shale back on?
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US Crude Oil Production - LHS US Oil Rig Count - RHS
US Crude Oil Production and Oil-Directed Rig Count Million barrels per day, number of rotary rigs drilling
Projection
Shale Is No Longer High-Cost Production
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Cost Curve for Incremental Oil Production Volumes Through 2025 Breakeven in $ per barrels, cumulative peak production in thousand barrels per day
Source: Goldman Sachs
• Average shale breakevens down from of $80 in 2014 to $55 in 2016
• Goldman Sachs expects shale productivity gains to continue at 3%-10% per year through 2020
• Shale breakevens can fall below $50 by 2020
• Flatter cost curve means production can be added at the bottom (i.e. by low-cost OPEC producers) without much downward pressure on prices
Material Shale Growth Requires Higher Oil Price Than Today’s
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Cumulative North American Tight Liquids Production Growth in Various WTI Price Scenarios Million barrels per day
• Despite improving productivity, US shale needs $60+ oil price to grow materially
• Permian is an exceptional resource, but other major plays are declining (shale has steep base decline rates)
• Capital access will be key to future production scenarios (independents historically outspent cash-flow)
Source: Barclays Research
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Colombia
Mexico
Kazakhstan
Venezuela
China
Libya
Nigeria
US
Large Production Declines In Some Producers....
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Change of Crude Oil Production in Selected Producers Aug 2016 vs. Nov 2014, million barrels per day
Source: EIA
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May-1
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Sep-
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May-1
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Brent Spot Price $ per barrel
Source: IEA
... But Large Production Gains in Others
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Change of Crude Oil Production in Selected Producers Aug 2016 vs. Nov 2014, million barrels per day
Source: EIA
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May-1
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Brent Spot Price $ per barrel
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Canada
Azerbaijan
Brazil
Kuwait*
UAE
Iran
Iraq
Saudi Arabia*
* Kuwait and Saudi Arabia exclude Neutral Zone production
Source: IEA
Economies of Major Oil Producers Hit Hard By Oil Price Fall
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• OPEC: oil export revenues dropped from $1.2 trillion in 2012 to $500B in 2015, projected to drop to $320B in 2016 (IEA)
• Nigeria: GDP outlook pulled down by nearly 5 p.p. by oil price collapse
• Venezuela: GDP drop of 6% in ‘15 and at least 8% in ‘16
• Russia: GDP dropped 3.8% in ’15 due to sanctions and oil price
• Saudi Arabia: GDP growth slowing, reserves down by $182B in Jul ‘16 vs. Aug ‘14 peak
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IMF Forecast for 2015 (Oct 2014) IMF Forecast for 2016 (Oct 2014) IMF Estimate for 2015 (Latest - Apr 2016) IMF Forecast for 2016 (Latest - Apr 2016)
Real GDP Growth in Selected Oil Producing Countries Oct 2014 vs. Latest (Apr 2016) IMF Forecast, % change
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2010 2011 2012 2013 2014 2015 2016 2017
Algeria Angola Azerbaijan Iraq Kazakhstan Nigeria Qatar Saudi Arabia UAE Venezuela
Current Account Balance in Selected Oil Producing Countries % of GDP
Source: IMF
New Ways to Grow Colombia’s Oil and Gas Sector
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Technically Recoverable Shale Oil Resources in South America (million barrels) Argentina 27,000 Venezuela 13,400 Colombia 6,800 Brazil 5,300 Paraguay 3,700 Chile 2,300 Bolivia 600 Uruguay 600
Source: EIA, Advanced Resources International
Turnaround in US Natural Gas Outlook
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AEO 2005 US Net Natural Gas Imports Trillion cubic feet
AEO 2016 US Net Natural Gas Imports Trillion cubic feet
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2014
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2018
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Net Pipeline Imports Net LNG Imports
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Net LNG Imports Net Pipeline Imports
Source: EIA Annual Energy Outlook 2005 and 2016
Oil Import Dependence Dropped From 60% to 25%
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Jun 2016: 25%
2005-2006 average: 60%
US Net Oil Import Dependence Net import of crude oil and petroleum products divided by total consumption of crude oil and petroleum products
Source: EIA
US Crude Exports Rose Sharply After Export Ban Lifting
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Source: EIA
US Crude Oil Exports Thousand barrels per day
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Low Oil Prices Not as Much of Boon to US as Previously
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Estimated Cumulative Effect of a 10% Oil Price Shock on GDP Percent change in GDP; quarters after shock • Some boost to consumer spending
from lower fuel prices, but higher savings muted GDP impact
• Net benefit is smaller because the US is now a major oil producer—sharp drop in energy sector investment and employment proved a significant drag on GDP
• Lower net imports means less benefit from oil price falls—more consumer benefit comes at the expense of domestic producer revenue
• IMF: lower oil prices not as big stimulus if interest rates are in the zero bound
Source: White House Council of Economic Advisers
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1% Net Import Share 2% Net Import Share
Shale Production Is Controversial
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For more information contact Jason Bordoff Professor of Professional Practice in International and Public Affairs Founding Director, Center on Global Energy Policy Columbia University [email protected] (212) 851-0193
Thank you!