investmentbankers to the e nergyindustry s immons & c ompany international colin welsh thursday,...
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Investment Bankersto the Energy Industry
SIMMONS & COMPANYINTERNATIONAL
Colin Welsh
Thursday, 27 October 2005
Chief Executive OfficerSimmons & Company International Limited
SIMMONS & COMPANYINTERNATIONAL
“Conventional Energy Wisdom” – Dec 2004
• Demand falls as energy costs rise
• Demand increases are due to Chinese growth which cannot be sustained
• There is no shortage of oil reserves, so why worry?
• Oil prices will inevitably fall back to $18-$20 per barrel historic averages
• Alternative energy sources will drive down the future price of oil
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Simmons View In 2004
• Demand is a “runaway train”
• Global energy production may be close to peaking
• There has been a paradigm shift in the pricing of energy (which the market has yet to recognise)
• Potential for physical shortages
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Where Were We In Dec 04?
WTI Oil Price, Spot And Forward
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Where To Next?
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Hurricanes Katrina & Rita
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U.S. Total Oil Production(Alaska & Lower States)
U.S. Total Oil Demand
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China Imports and Production
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OPEC Spare Capacity vs. Worldwide Demand
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Quality of Important Crude Types U.S. Crack Spreads
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Conclusion
• The principles of supply and demand dictate that lack of refinery capacity will result in an inability to satisfy the worlds increasing demands for refined products.
• So we can expect significantly higher refined product prices – US gasoline prices have risen by 30%, but more significantly we can expect physical shortages.
• That will be good news for investment in alternative energy and new technologies – unconventional oil, GTL, clean coal and natural gas.
• But it may be bad news for the world economy as spiralling transportation costs drive inflation and dampens demand.
• So predictions for next year:-– Continued high commodity prices,
– Very high petrol, diesel and heating oil prices,
– Record investment in the sector.
SIMMONS & COMPANYINTERNATIONAL
SIMMONS & COMPANYINTERNATIONAL
Investment Bankersto theEnergy
Industry