US CRUDE OIL AND THE INTERDEPENDENT SUPPLY CHAIN

Transcription

1 IHS ENERGY & IHS ECONOMICS AUGUST 2015 US CRUDE OIL AND THE INTERDEPENDENT SUPPLY CHAIN US oil market developments and assessing the economic impact of a US crude oil free trade policy Kurt Barrow Vice President Oil Markets & Downstream

2 Contents. U.S Crude Market Response. U.S Crude Oil Export Policy Unleashing the Supply Chain with Crude Exports 2

3 $/bbl Rigs US CRUDE OIL & INTERDEPENDENT SUPPLY CHAIN / AUGUST 2015 Oil prices have declined sharply creating a dramatic drop in oil drilling WTI Onshore oil rig count ,800 1,600 1,400 1, , Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan :1Q 2012:3Q 2013:1Q 2013:3Q 2014:1Q 2014:3Q 2015:1Q Source: IHS Source: IHS 3

4 US Energy Revival Application of horizontal drilling and hydraulicfracturingaccessing sourcerock First applied to gas plays now the US has one of the lowest gas prices globally Recently appliedtooilfields Complete reversal in energy outlook Crude production long assumed to be in decline has nearly doubled since 2008 Add pix here LNG import assumption now exports onebeenhasgasandoil Unconventional of the major contributors to the US economic recovery Estimated to have added nearly 1% to GDP on average over past six years 4

5 Million barrels per day The US has supplied most of the world s growth result of new applied technology and innovation Cumulative change in crude oil production from US CRUDE OIL & INTERDEPENDENT SUPPLY CHAIN / AUGUST United States total US tight oil only Canada Russia Saudi Arabia Tight oil Net change for rest of the world Note: Figures do not include OPEC condensate and OPEC/non-OPEC NGLs. The term North America in the title of this slide refers only to Canada and the United States. Source: IHS Energy 2014 IHS 5

6 The US has a new role in global crude markets the inadvertent swing supplier Historical market structure: OPEC as swing producer, non-opec at full utilization OPEC is on sideline at least for now High cost production will need to slow and accelerate to match demand US onshore tight oil is central to the rebalancing US CRUDE OIL & INTERDEPENDENT SUPPLY CHAIN / AUGUST 2015 Financial markets also important as the ultimate funders of high cost production We are in uncharted waters pace and magnitude of response and feedback loop unknown 6

7 Cost v 2014 US CRUDE OIL & INTERDEPENDENT SUPPLY CHAIN / AUGUST 2015 Capital Efficiency is keeping production from falling in face of lower prices Compared with 2014, IHS expects capital to be 65% more efficient at the start of 2016 than the start of 2015 due to compounding productivity and cost cuts. Trend in Horizontal Rig Count since October 10, 2014 Peak - by County Productivity Change in Total Production Efficiency of Capital 10% 0% -10% -20% -30% -40% -50% -60% Low productivity Medium productivity High productivity Productivity v % 95% 100% 105% 110% 115% 120% 125% 130% 50% 180% 190% 200% 210% 220% 230% 240% 250% 260% 60% 150% 158% 167% 175% 183% 192% 200% 208% 217% 70% 129% 136% 143% 150% 157% 164% 171% 179% 186% 80% 113% 119% 125% 131% 138% 144% 150% 156% 163% 90% 100% 106% 111% 117% 122% 128% 133% 139% 144% 100% 90% 95% 100% 105% 110% 115% 120% 125% 130% 110% 82% 86% 91% 95% 100% 105% 109% 114% 118% 120% 75% 79% 83% 88% 92% 96% 100% 104% 108% 7

8 Sum of peak bbl/d US CRUDE OIL & INTERDEPENDENT SUPPLY CHAIN / AUGUST 2015 Cost deflation puts much of the Eagle ford, Bakken and Permian at a WTI $60 or less breakeven WTI $/barrel breakeven ranges by quintile by play, 2014 volumes at 2015 cost structure 1,400,000 1,200,000 1,000, , , ,000 $50-$60/bbl $40-$50/bbl $50-$60/bbl $40-$50/bbl $30-$40/bbl $50-$60/bbl $30-$40/bbl $50-$60/bbl $40-$50/bbl $30-$40/bbl 200,000 $30-$40/bbl <$30/bbl <$30/bbl <$30/bbl 0 Bakken Eagle Ford Permian Horizontal Other Plays Less than $30 $30-$40 $40-$50 $50-$60 $60-$70 $70-$80 $80-$90 $90-$100 $100-$110 $110-$120 $120+ 8

9 Debt repayment schedule, $MM US CRUDE OIL & INTERDEPENDENT SUPPLY CHAIN / AUGUST 2015 Great Wall of Debt IHS 18,000 E&P company coverage list debt repayment schedule 16,000 14,000 12,000 10,000 8,000 Small E&P's Mid-sized E&P's Large E&P's 6,000 4,000 2,000 Source: IHS Heavy debt repayment burden in 2017 & beyond If prices don t turnaround 9

10 Impairments (asset write downs) are rising quickly 10

11 WTI, $/bbl Henry Hub, $/mcf US CRUDE OIL & INTERDEPENDENT SUPPLY CHAIN / AUGUST 2015 More impairments coming unless prices rebound SEC benchmark pricing $100 $5.00 $90 $4.50 $80 $4.00 $70 $3.50 $60 $3.00 $50 $2.50 $ Q 15 2Q 15 E 3Q 15 E 4Q 15 E $2.00 WTI Henry Hub Source: IHS 11

12 Outlook Expect low crude prices to remain rest of this year and in 2016 Need two quarters below $45 WTI (HIS base case forecast) Rig count projected to drop further from ~600 to ~400 Will add further pressure to state oil revenues Expect notable increase in mergers, bankruptcies and layoffs Consumers receive lower gasoline prices Past 2016, prices expected to increase notably but remain under $100 on average 12

13 Contents. U.S Crude Market Response. U.S Crude Oil Export Policy Unleashing the Supply Chain with Crude Exports 13

14 IHS Crude Export Decision (first study) Oil industries Gridlocked by export policy and refining system Large economic impact from capital intensive business Benefits*: Jobs of 394, ,000 more per year Lower gasoline price by 8 12 cents per gallon Add $86 $170b to GDP per year Cumulative government revenue of $1.3 $2.8b Broad state-level benefits All states benefit, not just producing states One-quarter of benefits in non-producing states * Range based on base and potential crude oil production cases 14

15 Gasoline pricing implications Added US crude production increases global supply Reduces global oil prices which are closely linked to US gasoline Gasoline is freely traded imported and exported Analysis is clear crude exports lower gasoline prices 15

16 Contents. U.S Crude Market Response. U.S Crude Oil Export Policy Unleashing the Supply Chain with Crude Exports 16

17 Unleashing the Supply Chain (second study) The Supply Chain impact is less well understood but affects the entire country This study builds on macroeconomic impact of changing US policy Examines the impact on an intricate and interdependent supply chain that supports the oil industry and has made the scale-up of tight oil production possible The analysis quantifies granular impact 60 separate supply chain industries impact at the congressional district level 17

18 Supply chain employment impacts Employment distribution in 2017: US crude oil export supply chain (percent, difference free trade vs. restricted trade) Supply Chain jobs of 124,000 to 240,000* Source: IHS Economics * On average over 15 years for base and potential production cases 18

19 What is the crude oil supply chain? US CRUDE OIL & INTERDEPENDENT SUPPLY CHAIN / AUGUST

20 Supply Chain Examined: The Wellpad (post-drilling) On-Site Wellpad Equipment 20

21 Supply Chain Examined: The pumping unit Frac Unit/Truck Overview Typical Equipment Description A frac truck is the central piece of equipment at wellsite The unit is highly specialized and assembled from three primary components: pump, transmission, and engine Frac Pump Transmission Engine 21

22 Supply Chain Examined: Manufacturing of frac truck components Engine Pumps Transmission 22

23 Many industries participate in crude oil supply chain Employment share by core group ( average, difference free trade vs. restricted trade) Base Production US CRUDE OIL & INTERDEPENDENT SUPPLY CHAIN / AUGUST 2015 Professional, financial, and other services 20% Industrial equipment and machinery 26% Direct suppliers such as construction and well services witness largest impact Materials 21% Logistics 4% Information technology 8% Construction and well services 21% Indirect suppliers such as information technology and finance emerge as major contributors of additional jobs, value added to GDP, and labor income Source: IHS Average number of workers: 123,577 23

24 Oil and gas sector multiplier effects US CRUDE OIL & INTERDEPENDENT SUPPLY CHAIN / AUGUST 2015 The economic benefits of oil and gas activity throughout its extensive supply chain far exceed benefits to the industry itself. 3 supply chain jobs 1 production job 6 broader economy jobs Every new production job creates three jobs in the supply chain and another six jobs in the broader economy. 24

25 Free trade impacts on the supply chain Add $26 47b to GDP per year US CRUDE OIL & INTERDEPENDENT SUPPLY CHAIN / AUGUST 2015 Jobs of 124, ,000 more per year Labor income improves $158 $285 per year for each household Cumulative government revenue of $429 $868b Above supply chain impact represents roughly one-third of total impact for each category 25

26 Supply chain impact diversity Supply chain employment impact Base production ( average, difference free trade vs. restricted trade) US CRUDE OIL & INTERDEPENDENT SUPPLY CHAIN / AUGUST 2015 Texas Florida Professional, Financial, and Other Services 22% Logistics 5% Information Technology 4% Construction and Well Services 37% Professional, Financial, and Other Services 22% Information Technology 10% Construction and Well Services 1% Materials 5% Industrial Equipment & Machinery 16% Materials 16% Logistics 2% Industrial Equipment & Machinery 60% Source: IHS Supply chain average impact: 13,226 Peak impact : 32,279 (number of workers) Supply chain average impact: 6,138 Peak impact : 12,213 (number of workers) 26

27 Why now? US crude price remains low relative to global price Lower global oil prices have the effect of increasing rather than decreasing, as some might expect the impact of the export ban. Every $3 per barrel change in a $50 environment can have the same effect as a $10 change in a $100 environment Far-reaching macroeconomic benefits begin immediately 27

28 Further information Link to interactive data tool to access granular congressional district level information on impact of export policy decision Hardcopies available by request / 28