a saturated crude oil market dries out - esai energy...

A Saturated Crude Oil Market Dries Out

Sarah EmersonESAI Energy, LLC

Energy Security Analysis, [email protected]

781‐245‐2036

Argus Americas Crude SummitJanuary 2016

Copyright @2016, ESAI Energy, LLC 1

ESAI Energy, LLC

• Energy Research and Forecasting Firm located just outside of Boston

• 30 years of Global Energy Market Analysis and Forecasting: Crude, Petroleum Products, Petrochemicals, E + P, Refining, Natural Gas, NGLs Alternative Fuels, Vehicle Technology, Geopolitics of Energy

• Clients include Majors, NOCs, Midstream/Logistics, Refiners, Traders, End Use Consumers, Automakers, Financial Institutions, National Governments

• ESAI Energy provides independent, holistic market analysis and does not advocate for particular groups

• Empirical Source Global Supply/Demand/Refining database by country, dating back to January 1978

• Global Expertise in Policy/Regulation, Asset Valuation, Refining/Petchem Investment feasibility, Expert Witness in Arbitration

2Copyright @2016, ESAI Energy, LLC

China’s oil use will slow down by 60% compared with 2000‐2015


Chinese Oil Demand Growth

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2000‐2015 2015‐2030

(000

b/d)

Total Oil demand Growth

Gasoline Diesel LPG Naphtha Jet/Kero Fuel Oil Other

Growth by Petroleum Product 2015 to 2030000 b/d


China Slows But Still Contributes

(3,000)

(2,000)

(1,000)

0

1,000

2,000

3,000

4,000

5,000

70 80 90 00 10 20

Annual Growth in Global Oil Demand000 b/d

China

Europe

US

ROW


Transport and Plastics


Tight Oil Bends But Does Not Break


‐

1,000

2,000

3,000

4,000

5,000

6,000

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

000 b/d

U.S. Crude and Condensate Production by Shale Basin

Woodford

Utica

Permian Shale

Niobrara

Mississippi Lime

Marcellus

Lower Monterey

Granite Wash

Eagle Ford

Barnett

Bakken

Production Outside of OPEC


(2,000)

(1,600)

(1,200)

(800)

(400)

0

400

800

1,200

1,600

2,000

2012 2013 2014 2015 2016 2017 2018 2019 2020

000 b/d Non‐OPEC Crude and Condensate Annual Growthby Region

OECD OIL SANDS FSU AFRICA LATIN AM MIDEAST OTHER ASIA Total

2017 Looks like the Year

• OPEC is already close to 32.0 mmb/d and Iran is increasing output.

• With a drop in non‐OPEC output in 2016 and little growth in 2107

• Call on OPEC could stabilize at 32.0 to 32.5

• Prices recover


2015 2016 2017 2018 2019 2020

OECD Sub Total 46.1 46.3 46.4 46.4 46.4 46.3Non‐OECD Subtotal 48.0 49.2 50.2 51.3 52.4 53.5Total 94.1 95.5 96.6 97.7 98.8 99.8annual delta (mmb/d) 2.1 1.4 1.2 1.1 1.0 1.0

Crude and Field Cond. 44.9 43.8 43.5 43.8 44.2 44.8Other Supply 13.8 14.1 14.5 15.1 15.6 16.0Total 58.7 57.9 58.1 59.0 59.8 60.8annual delta (mmb/d) 1.7 (0.8) 0.1 0.9 0.8 1.0

OPEC NGLs 6.0 6.2 6.3 6.5 6.6 6.7Call on OPEC Crude 29.3 31.4 32.3 32.3 32.4 32.3 Actual OPEC Crude 31.5 32.3

Global Oil Demand

Non‐OPEC Oil Supply

OPEC Oil Supply

Global Oil Balance Outlook in mmb/d


U.S. Crude Oil Exports in the Global Market

Factors that Shape U.S. Light Crude Exports

(1,000)

(800)

(600)

(400)

(200)

‐

200

400

600

800

1,000

2014 2015 2016 2017 2018 2019 2020

Light Crude Available for Export000 b/d

U.S. Ligth Crude Imports U.S. Light crude Exports to Canada

U.S. Light Crude/Cond Balance Light Crude for Export Beyond Canada


• Light Crude Imports

• Light crude Exports to Canada

• Internal Supply and Demand for Light crude

U.S. Crude Trade‐ Geographical Factors

Alaskan Crude Cheaper to Asia

Foreign Crude Replacing Alaskan Foreign Crude

Replacing Bakken

Eastern Canada Taking More Canadian and Bakken

Eagle Ford, Permian crude to Europe, Asia, Latin AmericaCopyright @2016, ESAI Energy, LLC 12

What Determines Foreign Demand for U.S. Crude?

Pricing:Quality DifferentialsArbitrage between Regions

Refiners Appetite:Refining KitProduct specificationsSubsidies, taxes, import fees, quotas

Availability:Supply of crudeQuality of crudeCost of transport


Global Crude Oil Quality 2014

Condensate

Light Very Sweet

Light Sweet

Light Sour

Medium Very Sweet

Medium Sweet

Medium Sour

Heavy Very Sweet

Heavy Sweet

Heavy Sour

Heavy Very Sour

Extra Heavy Very Sweet

Extra Heavy Sweet Extra Heavy Sour

Extra Heavy Very Sour

• 38% light/Cond• 41% Medium• 21% Heavy & Extra Heavy


Global Barrel 2014‐2020: Barbell Growth


(1,500) (1,000) (500) ‐ 500 1,000 1,500

CondensateLight Very Sweet

Light SweetLight Sour

Medium Very SweetMedium SweetMedium Sour

Heavy Very SweetHeavy SweetHeavy Sour

Heavy Very SourExtra Heavy Very Sweet

Extra Heavy SweetExtra Heavy Sour

Extra Heavy Very Sour

000 b/d

Global Change in Crude Oil Quality: 2014‐2020

Demand For Heavy End of Barrel Growing


‐1,000

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2015 2016 2017 2018 2019 2020

Cumulative Growth in CDU Capacity by Region 000 b/d

Asia

North America

Middle East

FSU

Europe

Latin America

Africa

‐1,000

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2015 2016 2017 2018 2019 2020

Cumulative Growth in Crude Demand by Quality 000 b/d

Extra Heavy

Heavy

Medium

Light

Condensate

Final Thoughts• Oil demand growth slowing down from the 2015 spike• Crude market will require dramatic reduction in supply to return to balance• US shale industry may be most at risk for significant rationalization and

production decline, but also most nimble and resilient over the long haul


• U.S. Exports of crude oil will depend on crude quality, refining appetite, price arbitrage and geography:

• Growing global demand for heavier end of barrel• Ample global light/condensate supply

• US will grow exports through quality balancing and geographic expediency , • Export light, import more medium or heavy? • Offset imports to East and West Coasts

• 2016 Wildcards: Greater than 50% probability• U.S. crude production will fall significantly• Terror attack on oil facility in Arab Gulf• Left of center President will Be elected in U.S.• Humanitarian crisis in an oil producing country

Thank You

a saturated crude oil market dries out - esai energy...

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