MIDDLE EAST ENERGY SITUATION AND OUTLOOK IRAQ ENERGY FORUM 2017

Transcription

1 MIDDLE EAST ENERGY SITUATION AND OUTLOOK IRAQ ENERGY FORUM

2 OVERVIEW OF GLOBAL ENERGY MARKETS 2

3 Energy exports/imports (million tonnes) SHIFTING DEMAND: NEW ORTHODOXIES 1. North America will become largely self-sufficient in oil But what about impact of low prices on shale? 2. OECD demand is in permanent decline But some recent revival, particularly in US 3. China is the key driver of demand Import growth driven by China and other emerging economies Saudi Arabia, Angola and Russia top crude suppliers to China 4. India is the bright spot for demand Yes, but still small compared to China US TO BECOME ENERGY EXPORTER SHARE OF GLOBAL DEMAND TO EMERGING MARKETS 40% 35% 30% 25% 20% 15% 10% 5% 0% US China India China Emerging excl. China Source: BP Energy Outlook

4 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Mb/d Mb/d WORLD LIQUID FUELS PRODUCTION AND CONSUMPTION BALANCE Implied stock change and balance (RHS) World liquid production World liquid consumption Global oil inventory builds in 2015 averaged 2.1 million b/d Inventory builds expected to slow to average 1.4 million b/d in 2016 and 0.4 million b/d in 2017 Balance reached around Q3-Q4 2017? Source: EIA 4

5 Jan 2013 Mar 2013 May 2013 Jul 2013 Sep 2013 Nov 2013 Jan 2014 Mar 2014 May 2014 Jul 2014 Sep 2014 Nov 2014 Jan 2015 Mar 2015 May 2015 Jul 2015 Sep 2015 Nov 2015 Jan 2016 Mar 2016 Crude oil production outage (Mbpd) Brent oil price ($/barrel) CONTINUING HIGH LEVEL OF SUPPLY DISRUPTION Iran Libya Nigeria Indonesia Iraq Kuwait Saudi Arabia Other Non-OPEC Brent Oil Price Source: EIA; Qamar research 5

6 OPEC DEBATE AND POLICIES 6

7 Price DYNAMICS OF INTRA-OPEC COMPETITION DEMAND SUPPLY High-cost producers enter OPEC cuts Supply, demand 7

8 OPEC CHALLENGES 1. Rise of shale production - higher prices will encourage shale to rebound 2. GCC production response - nobody willing to cut production 3. Return of Iran 4. Growing Iraq output SUPPLY RISE OF SHALE PRODUCTION As long as crude oil prices are around the breakeven range of US shale oil, then US oil production growth will be slow. Production will likely decline over the long term, which in turn will have a positive impact on oil prices. Source: Rystad Energy 8

9 VIEW ON OIL FROM OIL EXPORTING NATIONS 9

10 1/14 3/14 5/14 7/14 9/14 11/14 1/15 3/15 5/15 7/15 9/15 11/15 1/16 Oil-directed rigs CORE MIDDLE EAST OIL DRILLING REMAINS STEADY Yemen Saudi Arabia Qatar Oman Kuwait Iraq UAE 50 0 Source: Baker Hughes; OPEC 10

11 Liquids production (kbpd) ENERGY SUMMARY Iran s new upstream investment contract gets government approval Many other sanctions unrelated to the nuclear accord remain in effect Production of Mb/d in February 2017 compared with Mb/d in January 2016 Several MOUs with international energy companies (Shell, Saipem, Wintershall, Total ) Iran to start gas pipeline exports to Basra, Iraq (25 million cubic meters/day) Oman and Iran finalise gas pipeline route Strengthening energy ties with India and other Asian countries IRAN OIL PRODUCTION 5,000 4,000 3,000 2,000 1,000 Sanctions Relatively rapid recovery 0 Of which onshore Of which offshore Source: Qamar research 11

12 Fiscal Breakeven Oil Price BREAKEVEN OIL PRICE AND PRICE DECLINES MENA Oil Exporters $200 $180 $160 $140 $120 $100 $80 $60 $40 $20 $ Kuwait Qatar UAE Saudi Arabia Oman Bahrain Libya Iraq Algeria Iran Middle Eastern countries have the lowest price at $25 per barrel Source: IMF 12

13 LIKELY RESPONSES TO LOWER PRICES 1. Budget cuts white elephant projects 2. Drawing down foreign assets 3. Payment delays 4. Domestic & foreign debt issuance 5. Subsidy cuts 6. Privatisation of non-core assets 7. Taxation (introduction of 5% VAT in 2018) UNLIKELY RESPONSES 1. Cuts to security/defence spending 2. Cuts to planned oil & gas capacity expansion 3. Currency devaluation 4. Privatisation of crown jewel or strategic assets (but see Aramco!) RESPONSE DEPENDS ON POSITION Bahrain Kuwait Oman Qatar Saudi Arabia UAE Iran Iraq Fiscal reserves Budget breakeven Revenue diversification Subsidy reform Economic diversification Oil sector maturity 13

14 SUBSIDY REFORM FOR MENA EXPORTERS 1. UAE Diesel unsubsidised for some years Gasoline prices raised to world market levels in June 2015; adjusted monthly Electricity, water price rises in Dubai, Abu Dhabi 2. Saudi Arabia: Saudi Arabia cuts electricity, fuel, gas subsidies in Dec Qatar: hiked utility prices; Jan 14, Woqod announced a 30% hike in gas prices, causing unleaded petrol to reach $0.36/litre 4. Iran December 2010 reform largely eliminated subsidies for gasoline, diesel, natural gas, electricity, water Compensated by cash payments Little political opposition; largely successful at first But now undermined by falling value of rial; domestic inflation; non-payment of bills; government deficit 5. Bahrain, Oman: Increases in natural gas prices to industry Oman cut fuel subsidy in % opposed the move 6. Yemen: disastrous, hasty price increases led to collapse of the regime 7. Kuwait: Diesel, kerosene price rises introduced then withdrawn; Ministry of Finance proposed slashing fuel and electricity subsidies - expected to face stiff opposition in parliament 8. The others: Iraq, Algeria, Libya.? 14

15 ARAMCO IPO Idea floated by Prince Mohammed bin Salman Several trillion $ value? Probably not Listing up to 5% of stock within the next year Official value ~$2 trillion; our estimate (with tax cut) ~$1.4 trillion Many questions on valuation, listing location, disclosure (reserves) and politics Part of driving economic reform Diversification & growth, more than just revenues SAUDI ARABIA 15

16 CONCLUSIONS Global oil & gas competition Resource abundance Market rebalancing? Political obstacles OPEC Global economic shifts The pivot to Asia Middle East response Economic challenges and reform Threats to stability New opportunities 16

17 CONTACT DETAILS Robin Mills, Fellow, Iraq Energy Institute CEO, Qamar Energy, Dubai, UAE