an international relations framework for understanding resources and energy commodities stephen...
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An international relations framework for understanding resources and energy commodities
Stephen Wilson
Resources and Energy Workshop Session 1: Commodity outlooks and forecasting
Canberra | 20 November 2015
energy & resources | economic analysis & strategy | commercial & policy advice
Resources and Energy Workshop 220 November 2015
OUTLINE—an international relations framework for understanding resources and energy commodities
• The commodity PRICE roller-coaster
• TRADE—setting the scene: Australia’s energy resources, minerals and metals exports
• Prices, export volumes and EXPORT REVENUES
• UNCERTAINTY: a striking example of widely divergent views
• FRAMEWORKS for making sense of all this uncertainty
• FUEL MIX | Coal | Gas | Oil
• LINKAGES between markets apparent from prices
• CONCLUDING comments
Resources and Energy Workshop 3
THE COMMODITY PRICE ROLLER-COASTER —iron ore and thermal coal
20 November 2015
1987: 1.45x
1995: 1.84x
1981: 2.45x
2004: 1.88x
2014: 0.67x
Iron ore
Thermal coal
Price ratio: coal / iron ore
Resources and Energy Workshop 420 November 2015
AUSTRALIA’S RECENT EXPORT GOODS TRADE —dominated by resources and energy to Asia
> 80% to Asia RoW
> 80% energy, mineral
resources and metals
Other goods
> 65%
Australia’s largest export partner by value is China, followed by Japan, Korea, Taiwan, and the ASEAN group of countries with India, south Asian and other small Asian countries bringing the total to over 80%
Australia’s largest export by value is iron ore, followed by thermal and metallurgical coal, then LNG, with other mineral ores and metals bringing the share to over 80%
by VALUE
15%
15% 5%
Coal 16%
Iron ore 26%
LNG 6%
Resources and Energy Workshop 5
1.5x
2x 1.33x
2x
0.5x
2x
2x
1.5x
1.33x
4-fold volume increase8-fold nominal price increase
2-fold volume increase
Prices halved …and still falling
Iron ore
20 November 2015
PRICE-QUANTITY TRAJECTORY —Australian iron ore
Resources and Energy Workshop 620 November 2015
REVENUE EVOLUTION —Australian iron ore through the price cycle
20052010
2015
Dec 2008
Dec 2007
Mar 2011
Dec 2009Jun 2015
calendar year 2011
US$ 57 Bfiscal year 2014/15
US$ 51 Bcal year 2000
US$ 4.4 B
Resources and Energy Workshop 7
small volume
increase
4-fold nominal price increase
large volume increase
Prices more than halved
20 November 2015
PRICE-QUANTITY TRAJECTORY —Australian thermal coal as an example
Dec 2008
Mar 2004
Jun 2015
Jun 1988
Thermal coal
Resources and Energy Workshop 820 November 2015
1995
Jun 2015
2000
2005
20102015
Source: export prices and quantities from OCE, cost curve estimates from AME
PRICE-QUANTITY TRAJECTORY —Australian thermal coal as an example
fiscal year 2011/12 US$ 17.2 B
fiscal year 2014/15
US$ 13.4 Bcalendar year 2003 US$ 2.6 B
JPU benchmark
EUV: all exports
Sep 1984
Multiplying export tonnes by prices shows the extent to which expanded production has offset price volatility
Resources and Energy Workshop 9
fiscal year 2011/12 AU$ 16.7 Bfiscal year 2014/15
AU$ 16.0 Bcalendar year 2003 AU$ 3.9 B
20 November 2015
PRICE-QUANTITY TRAJECTORY —Australian thermal coal as an example
EUV: all exports
Source: export prices and quantities from OCE
Converting from US to Australian dollars shows the extent to which ForEx movement have dampened the price and revenue volatility
Resources and Energy Workshop 10
• China currently produces and consumes half of the world’s coal • Coal is Australia’s second-largest export by value • China’s coal statistics were recently revised by an amount larger than Australia’s exports • There is no consensus among forecasters on future Chinese coal demand • Some projections appear to reflect what the forecasters would like to happen • Sound frameworks and rigorous models can reduce the range of possible outcomes
20 November 2015
•
Official NBS thermal coal data (known to be under-stated)
Official NBS data thermal + coking coal
WoodMac
Policies: • current• new • 450 ppm
Consulting clients
Selling coal
Oil and gas prospects
Environmentalism
OECD politicians
CERA
NATURAL BIAS TO
KEY ISSUE: CHINA’S FUTURE COAL DEMAND —published projections diverge enormously
Resources and Energy Workshop 1120 November 2015
geostrategic & military
economic& financial
informational& technological
political &diplomatic
cultural &linguistic
‘hard’
‘soft’
informalformal
TRADE
THE FIVE VERTICES OF INTERNATIONAL POWER —energy and energy issues are woven throughout
e.g. P
aris
CoP cl
imate
negoti
ations
e.g.
protecting
sea lanes for
oil tankers
Resources and Energy Workshop 12
ENERGY POLICY IS DEEPLY INTERWOVEN with the five vertices of power and the affairs of state
intellectualcapital
naturalcapital
humancapital
financialcapital
socialcapital
infrastructuretransport
TRADEcommunications
networks & media
DEFENCE
INDUSTRYTREASURY & FINANCE
ARTS, SPORTS
& TOURISM
FOREIGN AFFAIRS
MONEY & BANKING
IMMIGRATION
TRANSPORT & COMMUNICATION
SECURITY & JUSTICE
ENERGY NATURAL RESOURCES & ENVIRONMENT
exchange of ideas and
understanding
industrial networks corporate knowledge
research
education
demographics
military secrets trade secrets
intellectual propertypatents
taxes and subsidies
negotiation and compromise
energy security
Resources and Energy Workshop 13
THE ENERGY POLICY TRILEMMA AND SCENARIOStrading off security, affordability and sustainability
20 November 2015
Emissions
minimise
Cost
minimise
Security
maximise
AC
BD
Ref
The Trilemma can be used as a prism to differentiate energy policy and market scenarios
Competing objectives
Tension
Trade-offs
Resources and Energy Workshop 14
United States Europe
20 November 2015
India Australia
Japan
China
THE FUEL MIX—SELECTED COUNTRIES 2013 —the primary energy mix, final energy and electricity
OILGASCOAL NUCLEAR HYDRO WIND, SOLAR, GEOTHERMALBIOMASS & WASTE
PRIMARYFINAL
ELECTRICITY
Source: IEA energy statistics
2010 2013
Resources and Energy Workshop 1520 November 2015
FUEL PRICES normalised in energy terms—selected international oil, gas coal prices
15
10
Resources and Energy Workshop 1620 November 2015
CRUDE OIL—THE KEY TO COMMODITY MARKETS international trade is almost half of global demand
Mbpd Mbpd
OECD
OPEC
OECD
> 40 Mbpd
PRODUCTION CONSUMPTIONTRADE
China
United States
United States
Saudi Arabia
Russia
IndiaASEAN
Other Asia Pacific
China
Brazil
European Union
Australia
OPEC
LON
G c
ount
ries SH
ORT countries
Resources and Energy Workshop 17
COAL AND OIL PRICES —tend to be remarkable correlated
20 November 2015
50
50
• Prices have consistently reverted to one barrel of Brent crude oil per tonne of Newcastle benchmark coal
• The coal price slide since 2011 pre-saged the oil price collapse of 2014
• Prices move away from the correlation line from time to time, but within limits
Weekly spot price data from 2000-15
lower bound for coal prices orupper bound for oil prices relative to each other
upper bound for coal prices or lower bound for oil prices relative to each other
GFC
Resources and Energy Workshop 1820 November 2015
COAL —THE INTERNATIONAL SEABORNE MARKET plays a balancing role in global demand
China
United States
Europe and EurasiaRussia
South AfricaAustraliaIndonesia
India
China
United States
Europe and Eurasia
Japan, Korea, Taiwan
India
north > south domestic seaborne
international seaborne
PRODUCTION CONSUMPTIONEXPORTS IMPORTS
north/west > south/east domestic land-borne
and land-borne international trade
~ 1 Bt
TRADE
~ 1 Bt
1
2
3
4
5
6
7 Bt
1
2
3
4
5
6
7 Bt
Resources and Energy Workshop 19
CONCLUDING COMMENTS
An holistic view balancing competing environmental,
economic and security objectives—within a framework that
recognises the five vertices of international power—can be
very helpful in reducing the range of uncertainty associated
with the outlook for resources and energy commodities
20 November 2015
An international relations framework for understanding resources and energy commodities
Stephen Wilson
Resources and Energy Workshop Session 1: Commodity outlooks and forecasting
Canberra | 20 November 2015
energy & resources | economic analysis & strategy | commercial & policy advice
Resources and Energy Workshop 21
THE FUEL MIX—AUSTRALIA 2013 —the primary energy mix, final energy and electricity
20 November 2015
Primary 5.4 EJ
Final 3.4 EJ
Electricity 0.9 EJ 249 TWh
Resources and Energy Workshop 22
THE FUEL MIX—UNITED STATES 2013 —the primary energy mix, final energy and electricity
20 November 2015
Primary 91.6 EJ
Final 62.6 EJ
Electricity 15.4 EJ 4 287 TWh
Resources and Energy Workshop 23
THE FUEL MIX—EUROPEAN UNION 2013 —the primary energy mix, final energy and electricity
20 November 2015
Primary 68.0 EJ
Final 47.7 EJ
Electricity 11.6 EJ 3 230 TWh
Resources and Energy Workshop 24
THE FUEL MIX—JAPAN 2013 —the primary energy mix, final energy and electricity
20 November 2015
Primary 19.0 EJ
Final 13.0 EJ
Electricity 3.7 EJ 1 038 TWh
Resources and Energy Workshop 25
THE FUEL MIX—JAPAN 2010 —the primary energy mix, final energy and electricity
20 November 2015
Primary 20.9 EJ
Final 13.0 EJ
Electricity 3.7 EJ 1 109 TWh
Resources and Energy Workshop 26
THE FUEL MIX—CHINA 2013 —the primary energy mix, final energy and electricity
20 November 2015
Primary 126.5 EJ
Final 76.0 EJ
Electricity 19.5 EJ 5 422 TWh
Resources and Energy Workshop 27
THE FUEL MIX—INDIA 2013 —the primary energy mix, final energy and electricity
20 November 2015
Primary 32.5 EJ
Final 22.1 EJ
Electricity 4.3 EJ 1 193 TWh
Resources and Energy Workshop
hydro
nuclear
coal
gas
oil
renewables
JAPAN’S FUEL MIX POLICY —greatest re-adjustment since the 1970s oil shocks
1973: 78% oil14% hydro
2010: 15% oil27% gas 23% coal26% nuclear 7% hydro
Sources: primary energy data: IEA | Oil prices: BP Statistical Review of World Energy | LNG prices: IMF online economic database | Coal prices: ABARE, GlobalCOAL
2008
28
coal
LNG
oil
1974 19
79
20 November 2015
Resources and Energy Workshop 2920 November 2015
CRUDE OIL—THE KEY TO COMMODITY MARKETS international trade is about half of global demand
Mbpd Mbpd
OECD
OPEC
OECD
> 40 Mbpd
PRODUCTION CONSUMPTIONTRADE
China
United States
United States
Saudi Arabia
Russia
IndiaASEAN
Other Asia Pacific
Russia
Saudi Arabia
Iran
IraqUAE
Kuwait
Rest of the Middle East
Iran
Rest of Eurasia
unreported production
China
Brazil
Brazil
European Union
Australia
Canada
Norway, UK & EU
Canada
Mexico
Mexico
OPECAfrica
Rest of AfricaRest of Eurasia
LON
G c
ount
ries SH
ORT countries
An international relations framework for understanding resources and energy commodities
Stephen Wilson
Resources and Energy Workshop Session 1: Commodity outlooks and forecasting
Canberra | 20 November 2015
energy & resources | economic analysis & strategy | commercial & policy advice