Long Run Crude Oil Price

Transcription

1 Bureau of Economic Geology, The University of Texas at Austin Forward, Backward, Sideways: Global Energy Redux AIChE Fuels Keynote, Spring Conference 2006 $70 Long Run Crude Oil Price $60 $50 Cushing, OK WTI Spot Price FOB (Dollars per Barrel) $40 $30 $20 $10 $0 Feb-89 Feb-90 Feb-91 Feb-92 Feb-93 Feb-94 Feb-95 Feb-96 Feb-97 Feb-98 Feb-99 Feb-00 Feb-01 Feb-02 Feb-03 Feb-04 Feb-05 Feb-06 Source: NYMEX CEE, BEG-UT Austin, 2 1

2 WSJ s Oil Price History Courtesy of Wall Street Journal Note: inflation adjusted high is daily close. CEE, BEG-UT Austin, 3 Current Inventories, Prices Source: U.S. EIA CEE, BEG-UT Austin, 4 2

3 Five Factors Impacting Oil MTBE conversion to the E word CEE, BEG-UT Austin, 5 Five Factors Impacting Oil MTBE conversion to the E word Growth in actual demand CEE, BEG-UT Austin, 6 3

4 The Asian Gulp Thousands b/d 25,000 20,000 15,000 10,000 5, As Asia s share grows, the region has a bigger impact. Asia Pacific % Asia % 30% 25% 20% 15% 10% 5% 0% Percent of World Source: BP Statistical Review of World Energy, 2005 CEE, BEG-UT Austin, 7 Five Factors Impacting Oil MTBE conversion to the E word Growth in actual demand Artificial demand created by pricing policies CEE, BEG-UT Austin, 8 4

5 How Artificial Demand is Created B $in > $out A $out > $in RESULTS Apparent demand is overstated ( artificial ) Price subsidies support artificial demand but discourage investment on supply side $energy < market CEE, BEG-UT Austin, 9 Five Factors Impacting Oil MTBE conversion to the E word Growth in actual demand Artificial demand created by pricing policies Supply side problems CEE, BEG-UT Austin, 10 5

6 Who s in Control? Concession 21% Iraq 10% National companies only (Saudi Arabia, Kuwait, Mexico) 35% Production sharing 12% Limited access - National companies 22% 1,032 billion barrels Source: IEA Global Investment Survey 2003 CEE, BEG-UT Austin, 11 Five Factors Impacting Oil MTBE conversion to the E word Growth in actual demand Artificial demand created by pricing policies Supply side problems Financial market speculation CEE, BEG-UT Austin, 12 6

7 Determining the Price of Oil RESULT: Crude oil is overpriced Financial Speculation = $15-20 Artificial demand = 10-20% Growth in demand *Political premium Finding and lifting cost (role of marginal producer) * Oil for economic development CEE, BEG-UT Austin, 13 Epilogue, Post AIChE (through May 28) International Energy Agency (IEA) adjusted global demand downward based on demand side response in reaction to prices China announced it is trying to remove barriers that prevent price signals from flowing through its economy Emerging market funds suffered significant declines combination of high commodity prices and inflation fears Gold prices increased significantly on inflation fears and US monetary policy reactions CEE, BEG-UT Austin, 14 7

8 Historical Natural Gas Prices $8 $7 $6 $5 Nominal Real $4 $3 $2 $1 $ Source: USEIA CEE, BEG-UT Austin, 15 Long Run Oil, Nat Gas Prices $/bl $70 $60 $50 $40 $30 $20 $10 Cushing, OK WTI Spot Price FOB (Dollars per Barrel) Henry Hub Spot Monthly Average Gas Price ($/MMBTU) $16 $14 $12 $10 $8 $6 $4 $2 $/MMBtu $0 Feb-89 Feb-90 Feb-91 Feb-92 Feb-93 Feb-94 Feb-95 Feb-96 Feb-97 Feb-98 Feb-99 Feb-00 Feb-01 Feb-02 Feb-03 Feb-04 Feb-05 Feb-06 $0 Source: NYMEX CEE, BEG-UT Austin, 16 8

9 Long Run Nat Gas Price $16 $14 $12 Henry Hub Spot Monthly Average Gas Price ($/MMBTU) Inferred Natural Gas Price (6:1) $10 $8 $6 Gas at discount to oil $4 $2 $0 Feb-89 Feb-90 Feb-91 Feb-92 Feb-93 Feb-94 Feb-95 Feb-96 Feb-97 Feb-98 Feb-99 Feb-00 Feb-01 Feb-02 Feb-03 Feb-04 Feb-05 Feb-06 Source: NYMEX CEE, BEG-UT Austin, Long Run, Actual Oil:Gas Price Ratio Feb-89 Feb-90 Feb-91 Feb-92 Feb-93 Feb-94 Feb-95 Feb-96 Feb-97 Feb-98 Feb-99 Feb-00 Feb-01 Feb-02 Feb-03 Feb-04 Feb-05 Feb-06 Source: NYMEX CEE, BEG-UT Austin, 18 9

10 Natural Gas Storage Total L48 Stocks: 4/14/06 1,761 Bcf vs. 1,336 Year Ago Source: U.S. EIA CEE, BEG-UT Austin, 19 Current Natural Gas Prices Recent pull from oil Source: U.S. EIA CEE, BEG-UT Austin, 20 10

11 U.S. Gas Resource Just in Time Development: Reality is Perception 1,800 1,400 1,700 1,200 1,600 1,000 BCF 1, Gas Rigs 1, ,300 1,200 Monthly Dry Gas Production 12 Month MA, Production Monthly Gas Rigs Jul-87 Jul-88 Jul-89 Jul-90 Jul-91 Jul-92 Jul-93 Jul-94 Jul-95 Jul-96 Jul-97 Jul-98 Jul-99 Jul-00 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Source: U.S. EIA, Baker Hughes CEE, BEG-UT Austin, 21 Source: NPC Sec Update, 2005 CEE, BEG-UT Austin, 22 11

12 Impact of Prices, Demand Adjustment Source: NPC, 2003 CEE, BEG-UT Austin, 23 Temporary or long term adjustment? Regional differentiation? Strength in spite of historically high generation costs and excess capacity (air quality, etc) Source: NPC Sec Update, 2005 CEE, BEG-UT Austin, 24 12

13 Oil as Marginal Alternative for Power Generation Cushing, OK WTI Spot Price FOB (Dollars per Barrel) U.S. Gulf Coast No. 2 Heating Oil Spot Price FOB (Cents per Gallon 200 $/bl Cents/Gal /15/1989 2/15/1990 2/15/1991 2/15/1992 2/15/1993 2/15/1994 2/15/1995 2/15/1996 2/15/1997 2/15/1998 2/15/1999 2/15/2000 2/15/2001 2/15/2002 2/15/2003 2/15/2004 2/15/2005 2/15/2006 CEE, BEG-UT Austin, 25 Gas Peaks for Power Gen Remain Strong in Spite of Fuel Competition 900,000 3, ,000 2, ,000 Consumption, MMcf 600, , , , , , /15/2001 3/15/2001 Industrial Nat Gas Consumption (MMcf) Electric Power Consumption (MMcf) Actual Ratio, HO:Gas Prices (No. 2 Heating Oil) 5/15/2001 7/15/2001 9/15/ /15/2001 1/15/2002 3/15/2002 5/15/2002 7/15/2002 9/15/ /15/2002 1/15/2003 3/15/2003 5/15/2003 7/15/2003 9/15/ /15/2003 1/15/2004 3/15/2004 5/15/2004 7/15/2004 9/15/ /15/2004 1/15/2005 3/15/2005 5/15/2005 7/15/2005 9/15/ /15/2005 1/15/2006 2,000 1,500 1, CEE, BEG-UT Austin, 26 0 Actual Ratio, HO:Gas Prices 13

14 High Cost Gas Attracts LNG Proprietary Source CEE, BEG-UT Austin, 27 CEE, BEG-UT Austin, 28 14

15 GDP Growth and Energy Costs, Long Run View Real Energy Expenditures, $Millions $800,000 $600,000 $400,000 $200,000 $ energy costs are estimated. Real Energy Expenditures Real GDP (2000) Linear (Real GDP (2000)) Linear (Real Energy Expenditures) Sources: U.S. BEA, EIA $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $0 Real GDP ($ Billions) CEE, BEG-UT Austin, 29 Our energy/economy dilemma In the U.S., we are an $11 trillion economy (2000$) We produce 28% of world economic output We use 25% of the world s energy supply The U.S. is 43% of OECD energy and 33% of GDP The OECD nations use 59% of the world s energy supply and are 83% of world GDP We are a nation of roughly 290 million OECD population is roughly 1.1 billion World population is roughly 5 billion For the rest of the world to catch up to OECD will mean at least 2-3X amount of energy currently used is an energy/economy opportunity CEE, BEG-UT Austin, 30 15

16 Facilitating Commercial Frameworks (policy, regulatory, financial) Finding cost CO 2 from field production Potential for competing processes CO 2 from petrochem Market (includes bilateral contracts) CO 2 from power production CO 2 mitigation: Enhanced oil recovery Industrial (petrochem, food processing, etc) Sequestration (brines, other) CO 2 Value Chain Issues Cost of captured CO2 vs. field production Cost of transportation (feasibility, ROW, potential for conversion of existing ROW) Storage to mitigate interruptible CO2 supply (for commercial Basis produced vs. captured, distance from capture to injection Forward market for risk management Carbon credit system (if needed) Insurance, verification Re-capture of CO 2 from refining point sources (development of closed loop for petroleum) CEE, BEG-UT Austin, 31 16