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Markets and Politics Bob Tippee Editor, Oil & Gas Journal PVF Roundtable General Assembly Meeting Aug. 18, 2009 Crude prices Oil prices track stock prices Source: KBC Market Services, Monthly Oil Market Outlook, Aug. 6, 2009 World oil demand (MMb/d) 83.9 -2.8% 86.3 -0.2% FR: 85.4

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markets and politics

Markets and Politics

Bob Tippee

Editor, Oil & Gas Journal

PVF Roundtable General Assembly Meeting

Aug. 18, 2009

oil prices track stock prices
Oil prices track stock prices

Source: KBC Market Services, Monthly Oil Market Outlook, Aug. 6, 2009

world oil demand mmb d
World oil demand (MMb/d)

83.9

-2.8%

86.3

-0.2%

FR: 85.4

Source: IEA

iea s demand view
IEA’s demand view

2009 vs. 2008

Million b/d

2008 vs. 2007

To 83.8 MMb/d for ‘09

Forecast month

Source: IEA Monthly Oil Market Report for each month indicated

world oil supply mmb d
World oil supply (MMb/d)

84.6

-2.2%

FR: 85.7

*Plus other biofuels. Source: IEA

non opec supply mmb d
Non-OPEC supply (MMb/d)

Source: IEA; Note: Includes OPEC members as of 1-1-09. Angola (1.7 MMb/d), Ecuador (0.5 MMb/d) joined OPEC in ’07. Indonesia withdrew from OPEC in ’08.

opec ngl mmb d
OPEC NGL (MMb/d)

5.2 +11%

2010:

6.1

Source: IEA

forcing balance mmb d
Forcing balance (MMb/d)

Source: IEA *OGJ assumption.

observations mmb d
Observations (MMb/d)
  • Call = 28.2
  • Quota = 24.85
  • Call - Iraq @ 2.4 = 25.8
  • June OPEC-11 crude = 26.12
opec s market view
OPEC’s market view

Source: OPEC Monthly Oil Market Report, January 2009

opec production oecd stocks
OPEC production/OECD stocks

Source: OPEC Monthly Oil Market Report, June 2009

the market a snapshot
The market: a snapshot
  • Demand will be down in ’09 – but the amount of expected decline is stabilizing
  • Cushions thick: stocks, p’n capacity
  • OPEC has tried to follow demand down with production cuts
  • Demand revival depends on economy
imf s world economic outlook
IMF’s World Economic Outlook*

Percent; quarter-over-quarter; annualized.

*Updated July 8, 2009.

the questions
The questions
  • What drives prices?
    • Fundamentals (supply and demand)
    • Investment flows
    • Currency fluctuations
  • Will OPEC wait too long to raise output?
    • Non-OPEC output?
    • Role of speculators?
us energy shares
US energy shares

Source: EIA for 2004-08

us product demand mmb d
US product demand (MMb/d)

18.76

-3.4%

18.73

-3.9%

Note: Before exports (1.76 in ’08; 1.85 in ’09). Source: EIA for 2004-08.

gasoline distillate demand mmb d
Gasoline, distillate demand (MMb/d)

9.01

+.02%

3.76

-4.7%

Source: EIA for 2004-08

gasoline ethanol use mmb d
Gasoline, ethanol use (MMb/d)

9.01

+0.2%

EISA mandate: 2.4 MMb/d in 2022 (all biofuels)

’09 is mandate (724 Mb/d)

Source: EIA for 2004-08

ulsd biodiesel use mmb d
ULSD, biodiesel use (MMb/d)

3.008

-6.2%

Applied 80% factor to dist. demand

’08 production: 44,500 b/d;

’08 consumption: 20,900 b/d

’22 mandate:

326,160 b/d

Source: EIA for 2006-08

industry oil imports mmb d
Industry oil imports (MMb/d)

65% of demand

12.15

-5.8%

Source: EIA for 2004-08

us refining
US refining

MMb/d

%

Source: EIA for 2004-08

us total liquids production mmb d
US total liquids production (MMb/d)

7.05 +4.6%

Source: EIA for 2004-08

us gas consumption tcf
US gas consumption (tcf)

22.75

-2.0%

Source: EIA for 2004-08

marketed gas production tcf
Marketed gas production (tcf)

21.23

-1.0%

21.2 +5%

Source: EIA for 2004-08

us gas imports tcf
US gas imports (tcf)

LNG 0.53

+50%

Source: EIA for 2004-08

us drilling completions
US drilling--completions

43,384 -16.7%

36,788

-29.4%

Source: API for 2004-08

us drilling rig count
US drilling – rig count

1,503

-19.5%

1,235

-33.9%

Source: Baker Hughes for 2004-08

renewables instead of oil 1
Renewables instead of oil – 1

From Treasury Department explanations of budget oil, gas provisions:

“The [measure or its result], like other oil and gas preferences the administration proposes to repeal, distorts markets by encouraging more investment in the oil and gas industry than would occur under a neutral system…”

renewables instead of oil 2
Renewables instead of oil – 2

“…To the extent the [measure or result] encourages overproduction of oil and gas, it is detrimental to long-term energy security and is also inconsistent with the administration’s policy of reducing carbon emissions and encouraging the use of renewable energy sources through a cap-and-trade program.”

closing the gap takes money
Closing the gap takes money

Source: US Energy Information Administration

arithmetic of subsidies 1
Oil & gas in 1981

38.1 x 1015 btu

$10.9 billion subsidies (percentage vs. cost depletion and expensing E&D costs)

Ethanol in 2007

550 x 1012 btu

$3.2 billion subsidies

Arithmetic of subsidies - 1

29¢/MMbtu

$5.82/MMbtu

Source: “Federal Financial Interventions and Subsidies in Energy Markets 2007,” Energy Information Administration, April 2008

arithmetic of subsidies 2
Oil & gas in 2007

30.57 x 1015 btu

$1.74 billion subsidies (various, mostly for small producers)

Ethanol in 2007

550 x 1012 btu

$3.2 billion subsidies

Arithmetic of subsidies - 2

$5.82/MMbtu

5.7¢/MMbtu

cost to displace oil and gas
Cost to displace oil and gas
  • By 5% from projected 2020 usage levels
  • Assuming $6/MMbtu subsidization of 2.93 quads of solar, wind, and biofuels
  • Requires subsidies totaling $17.6 billion

NOTE: 2007 subsidy levels: solar $7.16/MMbtu, wind $6.87/MMbtu (production), $5.82/MMbtu ethanol (consumption/blending)

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