Market Report Series Oil 2018 Spanish Energy Club, Madrid, 3 May 2018 Neil Atkinson, Head of Oil Industry and Markets Division Toril Bosoni, Senior Oil Market Analyst, Oil Industry and Markets Division
Robust global oil demand growth to 2023 1.8 16 1.6 1.4 1.2 1.0 0.8 0.6 0.4 02 0.2 0.0 World oil demand growth (y-o-y change) 2017 2018 2019 2020 2021 2022 2023 Rest of the world India China China and India account for almost half of world oil demand growth
China use of alternative fuels displacing oil 1 000 Gasoline displacement kb/d 8.000 Vehicles 100 7.000 90 6.000 80 70 5.000 60 4.000 50 3.000 40 2.000 30 20 1.000 10 0 0 2012 2013 2014 2015 2016 2017 China NGVs China Evs Gasoline displaced (Right) 800 700 600 500 400 300 200 100 0 1 000 Vehicles Diesel displacement kb/d 400 0 2012 2013 2014 2015 2016 2017 LNG trucks Electric buses Diesel displaced (Right) 350 300 250 200 150 100 50 12 times less buses and trucks having 4 times more impact than Electric cars and NGVs
Petrochemicals drive global oil demand growth to 2023 Feedstock requirements for new steam crackers 700 kb/d 600 500 400 300 200 Naphtha Ethane 100 0 US China Russia Others Petrochemical feedstocks (ethane and naphtha) responsible for 25% of global oil demand growth
Oil demand growth by product Oil demand growth by product And fuel oil breakdown (y-o-y y changes) 2.5 2.0 1.5 1.0 LPG & ethane Naphtha Motor gasoline Jet fuel & kerosene 0.5 Gasoil/diesel 0.0-0.5 05-1.0 2017 2018 2019 2020 2021 2022 2023 Residual fuel oil Other products Total products 3.0 2.5 LPG & ethane + naphtha + gasoline Jet fuel & kerosene + other 2.0 products 1.5 1.0 05 0.5 0.0-0.5-1.0-1.5-2.0 2017 2018 2019 2020 2021 2022 2023 Gasoil/diesel Inland FO New bunker ULSFO Bunker HSFO Total products Very large shift in demand in 2020 and following adjustments reflect IMO induced switch
Only limited uptick in global upstream spending Global oil and gas upstream capital spending 2012-2018 900 800 700 600 500 400 300 200 100 0 USD billion -25% -26% 2012 2013 2014 2015 2016 2017 2018* *Preliminary based on selection of investment updates Producers spend more on short cycle supply, especially US LTO. Investments in conventional fields remain depressed, but some signs of renewed interest in offshore.
With tight budgets, spending geared to short-cycle oil 12% 10% 8% 6% 4% 2% 0% Global 2000 2002 2004 2006 2008 2010 2012 2014 2016 Selected observed decline rates 15% 10% 5% 0% Offshore/Onshore 2000 2002 2004 2006 2008 2010 2012 2014 2016 20% 15% 10% 5% 0% Key countries 2000 2002 2004 2006 2008 2010 2012 2014 2016 World Non-OPEC OPEC Offshore Onshore Russia Norway Brazil Modest capex/opex injections can in many cases bring rapid results in terms of output.
Oil industry needs to replace one North Sea each year 0.0 Output loss from post-peak conventional crude oil fields -1.0 OPEC -2.0-3.0 Non-OPEC -4.0-5.0 2010 2011 2012 2013 2014 2015 2016 2017 Ageing oil fields lose more than 3 per year despite slowing decline rates.
Booming non-opec supply growth reshapes world oil market Changes in global oil supply capacity 2017-2023 4.0 3.0 2.0 10 1.0 0.0-1.0 US l Brazil Canada a Iraq Iran Norway Colombia Indonesia China Mexico Angola Venezuela more than covers demand growth for next three years. By 2023, non-opec supply grows by 5.2. OPEC oil capacity rises only 1.2 due to Venezuelan collapse and limited increases elsewhere.
Supply growth front loaded & restricted to LTO, other supply 2.5 2.0 1.5 1.0 0.5 0.0 Global liquids capacity growth Global oil supply capacity growth 2017-23 2017 2018 2019 2020 2021 2022 2023 Non-OPEC OPEC 8 6 4 2 0-2 OPEC Non-OPEC Total Biofuels Proc. gains Non-conv NGLs LTO Crude Global But will projects be brought forward? Projects sanctioned today tend to have shorter lead-time.
Higher oil prices unleash second wave of US supply 18 16 14 12 10 8 6 4 2 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 LTO Gulf of Mexico NGLs Alaska Other Total output reaches 17 by 2023 and could be even higher if prices rise.
Brazil, second largest source of supply growth to 2023 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Onshore Campos Basin Santos Basin Other crude NGLs Pre-salt increase offset declines in the onshore and Campos basin. Output up 1, to 3.75.
Canadian oil pipelines stretched to the limit 6 000 5 000 4 000 3 000 2 000 1 000 kb/d 0 2017 2018 2019 2020 2021 2022 2023 Keystone XL Trans Mountain Keystone Rangeland/Milk River Spectra Express Mainline Oil available for export Takeaway capacity to remain insufficient until 2021, forcing increase in rail exports.
North Sea renaissance as development costs drop by half North Sea oil supply North Sea annual change 4.0 3.5 3.0 2.5 300 250 200 150 100 kb/d 2.0 50 1.5 1.0 0.5 0-50 - 100-150 0.0 2015 2017 2019 2021 2023-200 2016 2017 2018 2019 2020 2021 2022 2023 Norway UK Offshore Other Number of projects sanctioned over past few years will lift supply to highest since 2010.
What s in store for Russia s oil production? Next generation oil projects (hl (shale, Arctic, deep water) require considerable financial ilsupport and advanced technologies, face considerable sanctions risk Domestic factors: tax and sector reform, increased horizontal drilling, import substitution Overseas factors: diversification, hedging with overseas reserve replacement 12 10 8 6 4 2 Russia oil supply Brownfields Greenfields NGLs 0 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Source: IEA Market Report Series: Oil 2018
Asian oil supply downtrend continues Asian oil supply Asia supply: Annual change 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 00 0.0 kb/d 200 100 0-100 - 200-300 - 400-500 2015 2017 2019 2021 2023 2016 2017 2018 2019 2020 2021 2022 2023 China India Indonesia Malaysia Thailand Vietnam Australia Others Declines ease as spending picks up modestly. Crude declines offset by CTL output in China.
US pipeline bottlenecks ease, export capacity more than doubles 0,0 Expected Texas pipeline deficit 5,1 US crude export capacity 4,6 0,1 4,1 0,2 3,6 3,1 0,3 2,6 2,1 0,4 2017 2018 2019 2020 2021 2022 2023 1,6 2017 2018 2019 2020 2021 2022 2023 New pipeline projects (Permian Express, EPIC) ease constraints. US export capacity rises to 4.9 by 2023. Corpus Christi solidifies position as largest US export hub.
US oil finds new markets Low-sulphur and petchem feedstocks US LTO first wave Low-sulphur, low residue f d feedstocks k US LTO second wave Refiners in Asia and Europe look for suitable crude oil to produce petrochemical feedstocks and low-sulphur fuels
China net crude oil imports double the US in 2023 Net crude oil imports 10 8 6 4 US China India 2 0 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Indian imports, too, surpass the US in 2023 as shale growth reduces US import dependence.
Most incremental crude exports come from non-opec Changes in net crude exports, 2017-23 Africa Angola Algeria Nigeria Egypt Libya Middle East Kuwait Oman Saudi UAE Iraq Latin America Venezuela Colombia Brazil FSU/Norway Kazakh Russia Norway North America Mexico Canada US -1.5-1.0-0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 US refining capacity has absorbed most of the first wave of the Shale. Second wave goes to exports.
Future crude oil slate perceptions Refiners need to invest into units to convert both very heavy and very light feedstocks.
Middle East wants to refine more oil 3.0 Refining capacity additions 3.0 Middle East capacity expansion 25 2.5 25 2.5 2.0 2.0 1.5 1.5 1.0 1.0 0.5 0.5 0.0 2005-11 2011-1717 2017-2323 China India Middle East 0.0 2005-11 2011-1717 2017-2323 Upstream Refining Middle East accounts for 30% of global refining capacity growth. International downstream expansion becomes a strategic objective for the region s NOCs.
Spare capacity cushion shrinks to lowest level since 2007 40,00 Global Oil Market Balance 36,00 32,00 28,00 24,00 20,00 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 OPEC Crude Capacity Call on OPEC Crude + Stock Ch. Supply/demand tighter at the end of the forecast
Key uncertainties Demand substitution, price subsidies/taxes OPEC/Non-OPEC production management Prices US LTO potential, midstream bottlenecks Investment strategies going g forward, dividend strategies, interest rates Cost inflation Geopolitical risk/sanctions/trade
Conclusions Robust world oil demand growth to 2023 driven mainly by petrochemicals. Non-OPEC output growth exceeds demand increase through 2020. US, Brazil, Canada, Norway dominate growth. New infrastructure investments relieve US export bottlenecks. US crude finds new markets as refiners seek light, low sulphur crude to meet petrochemical demand and IMO specifications. More upstream investment needed today to meet future demand and offset 3 of declines from mature oil fields each year. As spare capacity cushion shrinks, supply security concerns remain critical.