world oil and north american natural gas outlook november 2006
TRANSCRIPT
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GROPPE, LONG & LITTELL
OIL AND GAS ANALYSTS AND FORECASTERS
H E N R Y G R O P P E E .W . LO N G , JR . G E O R G E S . L ITTE LL
1111 BAGBY, SUITE 2330 PHONE (713) 658 -1193 W EBSITE www.groppelong.com HOUSTON, TEXAS 77002 FAX (713) 658 -1196 EMAIL gll@ groppelong.com
WORLD OIL AND NORTH AMERICAN NATURAL GAS OUTLOOK
November 2006
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PETROLEUM INDUSTRY FUNDAMENTALS
• Depletion is relentless.
• Explorationists seek largest and most profitable
deposits first.
• Production rises initially, peaks and irreversibly
declines.
• United States crude oil production rose 50
percent from 1945 to 1970, peaked and declined
almost 50 percent since.
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OIL SUMMARY CONCLUSIONS
• World crude oil production is peaking and will
decline irreversibly.
• Security and stability concerns are growing in
exporting countries – Saudi Arabia, Russia,
Venezuela, Iraq, Iran, Nigeria – which account for
over 40 percent of world crude oil supply.
• Liquids from the growing international natural gas
industry will supplement crude oil supplies.
• High prices are required to constrain consumption.
There is no such thing as scarcity and no such
thing as surplus. There is only price.
• 100,000 barrel per day supply change moves the
price $1 per barrel.
• Transportation is the dominant growing use for oil.
• High cost oil will be replaced with cheaper natural
gas and other substitutes in stationary fuel use in
developing economies as occurred in OECD
countries in the last oil crisis.
• The world oil industry will continue to operate
essentially at capacity with permanent major price
volatility.
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GAS SUMMARY CONCLUSIONS
• North American natural gas production has
already peaked.
• LNG imports will grow.
• Canadian imports will decline.
• Total supply will decline.
• High prices will drive substitution of lower cost
fuels in industrial and power generation use.
• Nuclear power expansion is the logical long-
term solution.
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4
0
25
50
75
100
125
150
175
200
Million BarrelsPer Day
Oil Equivalent
Petroleum 38%
Natural Gas 24%
Coal 24%
Renewables 8%
Nuclear 6%
Petroleum 41%
Natural Gas 23%
Coal 22%
Renewables 6%Nuclear 8%
World
UnitedStates
United States% of World Energy
Consumption
Petroleum
Natural Gas
Coal
Renewables
Nuclear
25%
23%
21%
18%
31%
United States % of
World Population 6%
Oil & Gas Texas % of
US World
Production 25 3
Consumption 17 4
WORLD AND UNITED STATES ENERGY CONSUMPTION
2003
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5
WORLD CRUDE OIL DISCOVERY RATES
0
10
20
30
40
50
60
70
80
90
100
1930 1940 1950 1960 1970 1980 1990 2000 2010
BillionBarrels
Annual Discovery
Annual Production
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UNITED STATES CRUDE OIL DISCOVERY RATELower 48 States Onshore
0
1
2
3
4
5
6
7
8
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
BillionBarrels
Oil fields larger than 100 million barrels
Annual Discovery
Annual Production
6
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CRUDE OIL PRICEWTI Or Equivalent
0
10
20
30
40
50
60
70
80
90
100
1870 1890 1910 1930 1950 1970 1990 2010 2030
2004 $Per Barrel
Era of Plenty & U.S. Control
Era of Scarcity &Price Rationing
$36 Average
$13 Average
Era of Transition& OPEC Control
U.S. ProductionPeaked
World ProductionPeaking
Price?
1870 1970 2004 2030
7
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WORLD CRUDE OIL PRODUCTION
0
10
20
30
40
50
60
70
1945 1955 1965 1975 1985 1995 2005 2015
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
Arabian Light Price(Right Scale)
Million BarrelsPer Day $/Barrel
Production(Left Scale)
Actual Forecast
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9
WORLD PETROLEUM PRODUCTION
0
10
20
30
40
50
60
70
80
90
100
110
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Million Barrels Per Day
78.0
36.0
25.5
Other Non-OPEC Crude Oil
Eastern Europe Crude Oil
OPEC Crude Oil
NGL ** 62.7
75.6Other *
* alcohols, coal liquefaction, and gas to liquids** condensate, natural gasoline, butanes, propane, and ethane
80.2
68.7
39.9
28.9
Actual Forecast
EIAForecast
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10
OIL EXPENDITURES RELATIVE TOGLOBAL ECONOMIC ACTIVITY
0
1
2
3
4
5
6
7
8
Percent ofGlobal Gross
DomesticProduct
Crises of 1970’s & 1980’s
OIL EXPENDITURES
Current at $60 per Barrel Oil
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WORLD PETROLEUM USE BY SECTOR
0
10
20
30
40
50
60
70
80
Million BarrelsPer Day
Transportation 51%
Residential & Commercial
10%
Industrial & Power 27%
12%Raw Material
WorldUnitedStates
Transportation 67%
Residential & Commercial
7%
Industrial & Power 10%
16%Raw Material
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UNITED STATES PETROLEUM PRODUCTION AND CONSUMPTION
Million Barrels Per Day
0
2
4
6
8
10
12
14
16
18
20
1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Production
Consumption
12
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0
50
100
150
200
250
300
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
OIL AND GAS IMPORT COSTBillions of Dollars
13
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14
0
100
200
300
400
2005 2010 2015 2020 2025
CHINA & INDIA PROJECTED ECONOMIC GROWTH
8% per yr
CumulativePercent
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0
10
20
30
40
50
60
70
80
90
100
110
120
ENERGY COSTENERGY CONSUMED FOR ENERGY PRODUCTION
Oil1970
Energy ConsumedPercent Of Gross
Energy Input
Oil1985
Oil FromOil SandsLNG
EthanolFrom Corn
Gas toLiquids
15
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U.S. NATURAL GAS CONSUMPTION,PRODUCTION AND PRICE
0
5
10
15
20
25
30
35
40
45
50
55
60
65
70
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
$0
$1
$2
$3
$4
$5
$6
$7
$8
$9
$10
Billion Cubic FeetPer Day $/MMBTU
Production
Consumption
Average Wellhead Price(Right Scale)
Imports& Other
Actual Forecast
LNG
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UNITED STATES NATURAL GAS PRODUCTION
17
0
5
10
15
20
25
30
35
40
45
1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Bcfd
Tight
CoalbedAssociated
Offshore
Onshore Lower 48 Conventional
(Non-Associated)
Price Controls
Section 29 Tax Credits
Actual Forecast
LNG
CanadianImports
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UNITED STATES NATURAL GASDRILLING AND PRODUCTION
18
0
2,500
5,000
7,500
10,000
12,500
15,000
17,500
20,000
22,500
25,000
27,500
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
0
1
2
3
4
5
6
7
8
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
$0
$1
$2
$3
$4
$5
$6
$7
$8
AverageWellhead
Price$/MMBTU
Gas WellCompletions
Gas Production
Bcfd
Total Production
Well Completions
AverageWellhead
Price
0
2,500
5,000
7,500
10,000
12,500
15,000
17,500
20,000
22,500
25,000
27,500
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
0
10
20
30
40
50
60
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UNITED STATES NATURAL GASDRILLING PRODUCTIVITY
19
0
100
200
300
400
500
600
700
800
900
1,000
1,100
1,200
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Average First YearProduction Per New Well - Mcfd
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20
UNITED STATES NATURAL GAS CONSUMPTIONBillion Cubic Feet Per Day
0
10
20
30
40
50
60
70
1973 1978 1983 1988 1993 1998 2003 2008 2013
$0
$1
$2
$3
$4
$5
$6
$7
$8
$9
$10Bcf/d
Residential & Commercial
Boiler Fuel & Other
46.9
60.8
42.0
24.3
Fuel Use Act
$/MMBTU
Average Wellhead Price(Right Scale)
59.6
21.7
Actual Forecast