“the world oil outlook: from new reserves revolution to new ...antonio merino. repsol chief...
TRANSCRIPT
Antonio Merino. Repsol Chief Economist
“The World Oil Outlook: From new reserves revolution to new oil price uncertainties”
Fourth IEA-IEF-OPEC Symposium
on Energy Outlooks
Riyadh, January 2014
2
Disclaimer
The views and opinions expressed in this presentation are
those of Antonio Merino and do not necessarily reflect the
official policy or position of Repsol.
3
“It sometime almost seems as if the techniques of science
were more easily learnt than the thinking that shows us what
the problems are and how to approach them”
Hayek (1974).
4
• What do we know about oil price behavior since the 90’s?
• How will oil prices behave? The unconventional revolution:
surplus of resources? At what price?
• Two questions: new regulations and monetary policies
• Conclusions
Content
5
Content
• What do we know about oil price behavior since the 90’s?
• How will oil prices behave? The unconventional revolution:
surplus of resources? At what price?
• Two questions: new regulations and monetary policies
• Conclusions
6
What do we know about oil price behavior? Some stylized fact on past oil price behavior… Oil behaves differently!
CRB 85.6 206.8 2.4 82.0 73.0 0.9
CRB
Metals106.9 995.5 9.3 101.9 351.7 3.5
WTI 106.3 3402.1 32.0 95.3 1111.7 11.7
CRB 76.7 25.0 0.3 72.1 16.7 0.2
CRB
Metals94.2 120.3 1.3 87.9 80.3 0.9
WTI 94.5 411.3 4.4 83.1 253.8 3.1
Ratio
2013 / (1957-1970) 1957-1970 2013Ratio
2013 / (1957-1970)
NO
MIN
AL
DEF
LATE
D
US Dollar Deutsche Mark - Euro
1957-1970 2013
Source: Thomson Reuters Datastream and Repsol Economic Research Department
7 Source: Bloomberg and Economic Research Department
Changes in the Future Market Crude Oil Price Perspectives
What do we know about oil price behavior since the 90’s? Looking to the future curve what we see is a future marginal oil price around 90$? Is this shale oil’s future marginal price? Or is it only hedging?
10
30
50
70
90
110
130
150
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US
$ p
er
ba
rrel
Historic Price
@ 15/1/2014
@ 28/8/2013
@ 14/6/2012
@ 8/4/2011
@ 24/12/2008
@ 30/6/2008
@ 1/1/2003
Company Hedging
8 Source: EIA, NYMEX and Repsol Economic Research Department
Brent Crude Oil Price vs. OECD Petroleum Industry Stocks
A new price-inventory relationship has been established. Implicitly the new supply curve is indicating that we need higher prices to get more production, but what prices do we expect in the future?
What do we know about oil price behavior since the 90’s? After 2010: New relation explained by supply and demand balance at higher prices
0
20
40
60
80
100
120
140
2300 2400 2500 2600 2700 2800 2900
US
$/B
bl
Stocks in million barrels
Jan-11 → Dec-13
Apr-09 → Dec-10
Jul-04 → Mar-09
Jan-92 → Jun-04
9 Source: International Energy Agency (IEA) and Repsol Economic Research Department
Non-OPEC Supply Annual Growth
What do we know about oil price behavior since the 90’s? Right now, the key question seems to be how marginal price will evolve if more/less oil is needed. Can we draw any lesson from the past? Which type of price behavior?
1.16
0.98
0.73
-0.08
0.350.22
-0.21
0.93
1.24
0.14
0.59
1.42
1.72
20
02
20
03
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04
20
05
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06
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08
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09
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20
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20
14
Mill
ion b
arr
els
per
day
USA & Canada
+1.2+1.4+1.3+0.5+0.5+0.5
0
50
100
150
200
250
300
3502
01
2
20
13
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Cu
rren
t U
S$ p
er B
arre
l
EIA IEA OPEC
EIA 2007 IEA 2007 OPEC 2007
10 Source: EIA (AEO 2007 & 2013), IEA (WEO 2007 & 2013) and Repsol Economic Research Department
Official Energy Agencies price outlook changes
2020 144
2025 171
2030 205
2035 245
*Curren policies
WEO 2013*
What do we know about oil price behavior since the 90’s? What will happen to the future curve if the price forecast by the IEA or EIA is correct. Will we have a market reaction like in 2004-2009? Or will it be different this time
Content
11
• What do we know about oil price behavior since the 90’s?
• How will oil prices behave? The unconventional revolution:
surplus of resources? At what price?
• Two questions: new regulations and monetary policies
• Conclusions
12 Source: Goldman Sachs and Repsol Economic Research Department
Breakeven of non-plateau oil assets ( key for future production)
How will oil prices behave? The unconventional revolution Resources are there but marginal cost is moving up. Cost and depletion are key
13 Source: IEA (WEO 2013) and Repsol Economic Research Department
Typical production curve: Light Tight Oil (LTO) well vs. conventional oil well
How will oil prices behave? The unconventional revolution All the data point to a very rapid and continuous decline
LTO well initial production ~ 500 b/d
Anual decline rate:
1st year= 69%
2nd year= 39%
3rd year= 26%
4th year= 27%
5th year= 33%
0%
20%
40%
60%
80%
100%
1 3 5 7 9 11 13 15 17 19 21 23 25
% o
f m
ax. p
rod
uctio
n
Years
Conventional Well
Tight Oil Well
14 Source: North Dakota State Government and Repsol Economic Research Department
Total oil production, North Dakota
How will oil prices behave? The unconventional revolution And field decline implies an increasing investment to maintain production levels
0.0
0.1
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0.3
0.4
0.5
0.6
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0.8
0.9
1.0
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v-0
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v-0
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No
v-0
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No
v-0
3
No
v-0
4
No
v-0
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No
v-0
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No
v-0
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No
v-0
8
No
v-0
9
No
v-1
0
No
v-1
1
No
v-1
2
No
v-1
3
Mill
ion B
bl/d
1438 additionalwells
1777 addit. wells
1535 addit. wells
1279 addit. wells
15 Source: North Dakota State Government and Repsol Economic Research Department
Average active well production, North Dakota
How will oil prices behave? The unconventional revolution And field decline implies an increasing investment to maintain production levels
10
30
50
70
90
110
No
v-0
0
Ap
r-0
1
Sep-0
1
Fe
b-0
2
Ju
l-0
2
De
c-0
2
Ma
y-0
3
Oct-
03
Ma
r-0
4
Au
g-0
4
Ja
n-0
5
Ju
n-0
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No
v-0
5
Ap
r-0
6
Se
p-0
6
Fe
b-0
7
Ju
l-0
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De
c-0
7
Ma
y-0
8
Oct-
08
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r-0
9
Au
g-0
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n-1
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n-1
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No
v-1
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r-1
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p-1
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b-1
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l-1
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c-1
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y-1
3
Oct-
13
Bbl/d f
rom
avera
ge a
ctive w
ell
Lateral segments and fracturing stages improvements
Will improvementsrepeat?
How will oil prices behave? The unconventional revolution More wells are needed despite efficiency gains in production, so more equipment is needed to maintain plateau.
16
Producer Price Index (PPI) by components in the oil and gas sector
Source: BLS and Repsol Economic Research Department
0
50
100
150
200
250
300
350
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
Crude petroleum
Rotary oil and gas field drillingmachinery and equipment
Oil and gas field productionmachinery and equipment (exceptpumps)
Pipeline transportation of crude oil
índice (100 = 1985)Index
17
Metals price under three energy price scenarios
How will oil prices behave? The unconventional revolution According to any macro economic model, energy price increases translate into higher metal prices (steel and cooper). Higher oil price implies higher metal costs
Source: OEF and Repsol Economic Research Department
120
140
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240
260
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Index 2
005=
100
World metals price (Sce. 2)
World metals price (Sce. 1)
World metals price (Sce. B)
2020
Base (Index 2005=100) 180.3
Sce. 1: ↑ 1p.p. y/y change in energy prices (%) 187.8 (4.16%)
Sce. 2: ↑ 2p.p. y/y change in energy prices (%) 195.8 (8.56%)
World metals price
18 Source: Bloomberg and Economic Research Department
Free Cash Flow per Share
How will oil prices behave? The unconventional revolution Proxy evidence supporting the unconventional production costs hypothesis
-35
-30
-25
-20
-15
-10
-5
0
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03
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% F
CF
/S
Indep. Gas
Indep. Oil
Exxon
19
Return on Equity
How will oil prices behave? The unconventional revolution Proxy evidence supporting the unconventional production costs hypothesis
-60
-40
-20
0
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20
03
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% R
OE
Indep. Gas
Indep. Oil
Exxon
Source: Bloomberg and Economic Research Department
OECD46
OECD46
Rest Non-OECD31.4
Rest Non-OECD45.2
China9.3
China18.2
Non-OPEC51.8
Non-OPEC63.7
Rest OPEC11.1
Rest OPEC12.6
OPEC Gulf 23.8
OPEC Gulf 33.1
Demand 2010 Supply 2010 Demand 2035 Supply 2035
2035 = 109.4 Million Bbl/d
2010 = 86.7 Million Bbl/d
53%
47%
60%
40%
42%
58%
58%
42%
20 Source: Energy Information Administration (EIA, IEO 2013) and Repsol Economic Research Department de Repsol
EIA’s long terms perspectives of supply and demand balance
How will oil prices behave? The unconventional revolution Lets not forget we still need the OPEC, a cartel whose countries need high prices to maintain their high spending… Which is the equilibrium price for OPEC?
0.9 % yoy growth
So in my view marginal prices will move up and also we will look for additional marginal
production beyond conventional. In that case, OPEC production is the actual suspect
21
Crude Oil Price vs. Call on OPEC Crude
Source: US. Energy Information Administration (EIA) and Repsol Economic Research Department
How will oil prices behave? The unconventional revolution The OPEC answer to provide the marginal barrel in 7 year will be key. Will OPEC behavior be like during the period 2000-2004 or like during 2004-2009?
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0 20 40 60 80 100 120 140
Cal
l on
OP
EC c
rud
e +
Sto
ck c
h. (
Mill
ion
Bb
l/d
)
Brent Crude Oil Price (US$/Bbl)
Jan 2011 - Dec 2013
2H 2004 - Dec 2010
1994 - 1H 2004
22
Content
• What do we know about oil price behavior since the 90’s?
• How will oil prices behave? The unconventional revolution:
surplus of resources? At what price?
• Two questions: new regulations and monetary policies
• Conclusions
23 Source: Bloomberg and Repsol Economic Research Department
Two questions: new regulations and monetary policies It seems that regulation on both sides of the Atlantic is different, but it has its effects
100
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350
400
Ma
r-1
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n-1
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p-1
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r-1
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Jun-1
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Se
p-1
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De
c-1
3
Th
ou
sa
nd
positio
ns
Swaps dealers on Brent F&O long position
Swaps dealers on WTI F&O long position
123
4 5
1
2
1 ago-12 EMIR entry in to force
2 mar-13 ESMA and EBA issue RTS on certain provisions in EMIR
1 ago-11 Anti-manipultion in connection with swaps effective
2 ene-12 CFTC swap Data record keeping and reporting rules
3 may-12 Joint CFTC/SEC definition SD y MSP finalized
4 dic-12
5 mar-13 Category 1 mandatory clearing of IRS and CDX begins
1st deadline to file SD applications and SD reporting of IRS and index CDS to SDRs begins
24 Source: Thomson Reuters Datastream and Repsol Economic Research Department de Repsol
Brent
Two questions: new regulations and monetary policies Less co-movements since the implementation of QE4 in January
25
45
65
85
105
125
145Ja
n-0
8
Ap
r-0
8
Ju
l-0
8
Oct-
08
Ja
n-0
9
Ap
r-0
9
Ju
l-0
9
Oct-
09
Ja
n-1
0
Ap
r-1
0
Ju
l-1
0
Oct-
10
Ja
n-1
1
Ap
r-1
1
Ju
l-1
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Oct-
11
Ja
n-1
2
Ap
r-1
2
Ju
l-1
2
Oct-
12
Ja
n-1
3
Ap
r-1
3
Ju
l-1
3
Oct-
13
Ja
n-1
4
(ín
de
x 0
9:0
8=
100
)
Operation twist Expectations about the program announcement
Implementation of the program Brent
25 Source: Thomson Reuters Datastream and Repsol Economic Research Department de Repsol
Brent and S&P
Two questions: new regulations and monetary policies Less co-movements since the implementation of QE4 in January
25
45
65
85
105
125
145Jan-0
8
Apr-
08
Jul-0
8
Oct-
08
Jan-0
9
Apr-
09
Jul-0
9
Oct-
09
Jan-1
0
Apr-
10
Jul-1
0
Oct-
10
Jan-1
1
Apr-
11
Jul-1
1
Oct-
11
Jan-1
2
Apr-
12
Jul-1
2
Oct-
12
Jan-1
3
Apr-
13
Jul-1
3
Oct-
13
Jan-1
4
(índex 0
9:0
8=
100)
Operation twist Expectations about the program announcement
Implementation of the program Brent
S&P
26 Source: Thomson Reuters Datastream and Repsol Economic Research Department de Repsol
25
45
65
85
105
125
145Ja
n-0
8
Ap
r-0
8
Ju
l-0
8
Oct-
08
Ja
n-0
9
Ap
r-0
9
Jul-0
9
Oct-
09
Ja
n-1
0
Ap
r-1
0
Ju
l-1
0
Oct-
10
Ja
n-1
1
Ap
r-1
1
Ju
l-1
1
Oct-
11
Ja
n-1
2
Ap
r-1
2
Ju
l-1
2
Oct-
12
Ja
n-1
3
Ap
r-1
3
Ju
l-1
3
Oct-
13
Ja
n-1
4
(ín
de
x 0
9:0
8=
100
)
Operation twist Expectations about the program announcement
Implementation of the program Brent
S&P
Brent and S&P
Two questions: new regulations and monetary policies Less co-movements since the implementation of QE4 in January
EMIR
regulations
Uncertainties
regarding
Chinese
growth
27 Source: OEF and Repsol Economic Research Department de Repsol
Central Bank interventions rates
Two questions: new regulations and monetary policies And what will happen if interest rates come back to normal levels?
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
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97
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98
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99
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00
20
01
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02
20
03
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%
United States
United Kingdom
Japan
Eurozone
Content
28
• What do we know about oil price behavior since the 90’s?
• How will oil prices behave? The unconventional revolution:
surplus of resources? At what price?
• Two questions: new regulations and monetary policies
• Conclusions
29
Conclusions
In real terms oil is the only commodity that has multiplied its price since the 60’s. The
depreciation of the dollar has to be considered. In € terms the picture is slightly different
We have seen the more acute episode of price volatility during a period of financial turbulence
(2004-2009) For the time being the issue is marginal price of unconventional
When we see the decline rates and the need for more wells, marginal cost increases seem natural
even with efficiency gains
Moreover, In our view there is a clear relationship between oil price increases and metals price
increases. They feed on each other
I am of the view that in 5-10 years, OPEC will face important decisions because more OPEC oil
will be needed. Price uncertainties can come back., as in the period between 2004-2009. If that
not the case, real oil price will fall
Last but not least, there are two important issues not directly related with oil influencing price
outlook : Regulation of derivative markets and banks and the new monetary policy. One will limit
upside movements in normal times and the other support high prices
