THE OIL & GAS WORLD

A GLOBAL INDUSTRY &

MARKET OVERVIEW

Aalok Patwardhan

Contents

Black Gold – A brief history & evolution

Global Energy scenario

Oil Industry Scenario

Oil & Gas Markets

Setting up a new Oil &/or Gas field

India Highlights – Energy Scenario

Challenges & Opportunities

Learning tools

Unit Guide

Oil is Energy, Energy is Wealth & Wealth is everything!

Oil is Energy, Energy is Life & Life most definitely is

everything!

A brief history and key events in its evolution

https://www.youtube.com/watch?v=ZyQhJEi8fh

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‘Black Gold’

Key events in recent history

1951 to 1959 Nationalisation of the Iranian oil industry & OPEC

formation

1973 First oil price shock - Arab boycott of oil supplies to USA

because of Arab Israeli war; price rises from US$ 2.50 to US$ 10 per

bbl

1973 to 79 Nationalisation of the Iraqi, Kuwaiti & Saudi Arabian oil

industries

1979 Second oil price shock - Iranian revolution; price rises from

US$ 12 to US$ 30 per bbl

1991 Third oil shock - Gulf War (Kuwait); price rises from US$ 15 to

US$ 35

1999 Agreement between Saudi Arabia, Mexico and Venezuela

2003 Iraqi war; price rises from US$ 30 to US$ 70

2006 Oil Price crosses US $ 100

2008 Oil Price peaks at US $ 147

How much is consumed?

Where is it consumed?

Demand – Increasing thirst for energy

http://www.bp.com/en/global/corporate/about-

bp/energy-economics/statistical-review-of-world-

energy/2013-in-review.html

Global Energy Scenario

Primary energy world consumption

(mtoe)

Regional Energy consumption

(mtoe)

Primary energy consumption per capita

(toe)

Energy – Demand Growth

Energy – Demand Growth

Top Producers & global reserves

Production trends

Top Consumers & consumption patterns

Oil Industry Scenario

Top Oil Producers (bpd)

Oil Producing regions (bpd)

Proven Oil Reserves %

distribution

1993

2003

2013

Global Oil Reserves

Gross global (proven) reserves stand at

approximately 1.7 trillion barrels** - excluding Shale Oil estimates

OPEC – What is it?

Organization of Petroleum Exporting Countries (OPEC)

Mission:

to coordinate and unify the petroleum policies of its Member Countries

and ensure the stabilization of oil markets in order to secure an

efficient, economic and regular supply of petroleum to consumers, a

steady income to producers and a fair return on capital for those

investing in the petroleum industry.

Key Facts:

is a permanent, intergovernmental Organization, created at the

Baghdad Conference on September 10–14, 1960, by Iran, Iraq, Kuwait,

Saudi Arabia and Venezuela. Comprising of 12 Member Countries with

HQ in Vienna, Austria

80% of world production of the world's proved oil reserves are located

in OPEC Member Countries, with the bulk in the Middle East

OPEC's oil reserves currently stand at well above 1,190 billion barrels

(1.2 trillion barrels).

OPEC Oil Reserves – 2012

Oil Production – future trends

Oil Top 10 Consumers (mtoe)

Global Oil Production vs.

Consumption

Production (87

mbpd)

Consumption (91

mbpd)

Global Price Trends

Trade Flows

Big Players

Market Highlights

Oil & Gas Markets

Today’s Oil Price

Global Oil Prices – 1861 to

2014

Gas Prices – 2013 ($ per

MMBTU)

Global Oil trade flows 2013(m

tonnes)

Global Gas trade flows

2013(bcm)

The big players in Oil & Gas

The top 10

global players

control almost

60% of the

total daily oil

supply

Highlights

https://www.youtube.com/watch?v=p74Dgpr1EB0

Brent crude oil spot prices averaged $87/bbl in

October. Since July 2014, Prices have dropped by

over 25%

The global oil supply forecast for 2015 is 92.9 mbpd.

Saudi Arabia's production is still projected to decline

in 2015 below its current level of 9.5 million bbl/d to

avoid further downward pressure on oil prices.

Global oil prices are expected to hold at <$100/bbl in

the short term. However in the long term, demand

pressures and supply challenges will lead to a price

increase to over $120/bbl.

What happens when

a source of Oil & Gas

is discovered? How

is it set up?

The Operator finds a place to drill a well (Prospecting conducted by specialists)

Somehow the Operator finds a spot he thinks is likely to produce oil or gas.

The Operator Leases the Land (Through auctions, bids conducted by local government)

The Operator locates the Owners of the Land and arranges to Lease the Land for

purposes of drilling a well. This arrangement may require the Operator to pay the

Owners a monthly fee, plus an arrangement is made to pay them a percentage of the

proceeds of the revenue generated when the well starts producing oil or gas.

Formation of Partnership (Legal process, registration, incorporation)

Since the cost of drilling a well is quite expensive, the Operator decides to raise some

money from Investors to help defray the costs. For e.g. the Operator projects the well

will cost $300,000 to drill. He decides to solicit 30 Investors at $10,000 each.

Business Model – Process

Investors & Financing the operation (Banks, Big Oil Majors etc.)

Each Investor can send his entire $10,000, or it might be constructed such that each

Investor sends $5,000 and will be billed the remainder as expenses are acquired.

Commencement of Drilling & extraction operations (Operator & Downstream partner)

As the Operator begins to drill the well, he begins to accrue Expenses - Invoices are sent

to the Operator. These Expenses need to be Billed to each Investor for his fair share.

Production from Well - Begins to Produce Oil or Gas (Downstream Partner/Purchaser)

Now that the Well is producing oil or gas, the Operator begins to sell the product to a

Purchaser. The Purchaser send the Operator a Run Check periodically (fixed). This revenue

needs to be disbursed to each Investor for his fair share.

Business Model – Process

The new Producing Well (Asset) has multiple owners

> Royalty Owner - the folks that Own the Mineral Rights to the Land - usually

does not pay expenses but receives Revenue (State/National Oil Company,

Public Utility, Local Government etc.)

> Over Ride Owner (Investor) - does not own the Mineral Rights - usually

does not pay expenses but receives Revenue (Statutory body, Ministry,

State/National Oil Company etc.)

> Working Interest Owner - Pays Expenses and Receives Revenue from sale to

retailors, buyers etc. (Well Operator – BP, Chevron, Total etc.

Business Model – Process

Primary Energy overview 2013

India highlights

India – Energy highlights (2013)

In 2013, the share of India’s energy consumption met

by domestic sources fell to just below 59%, the lowest

on record

India’s primary energy consumption increased by

4.1% in 2013, lower than in 2012, but in line with

slowing economic growth. India accounted for 4.7% of

the world’s consumption.

Coal (54.5% of total consumption) remains the

dominant fuel and its share was the highest since

1993. Oil (29.5%) remained the second largest fuel,

with natural gas (7.8%) and non-fossil fuels (8.3%) far

behind.

Consumption growth was led by hydro (14.3%) followed by

renewables (8.3%) and then by coal (7.6%) - which still

provided the largest increment in volume terms. Oil grew

by a modest 1.2%, and nuclear by a very marginal 0.8%.

Natural gas (-12.2%) declined for a third consecutive year.

Over the last decade, coal consumption has more than

doubled. Oil consumption has grown by 50.5%, nuclear by

83.6%, hydro by 90.3%, natural gas by 74.2%, and

renewables by a factor of 8.7.

CO2 emissions from energy use increased by 4.4% in

2013, lower than the ten-year average, taking India’s share

of the world’s total to 5.5%. The increase was primarily

due to rising coal use.

India – Energy highlights (2013)

The stagnant production growth of coal (0.1%), oil

(+0.1%) and nuclear (0.8%), failed to offset the decline

in natural gas output (-16.3%).

Natural gas production declined for the third consecutive

year, while hydro, nuclear and renewables were at their

highest levels ever.

Coal (65.3% of total energy production) remained the

dominant fuel produced, followed by oil (12%) and

natural gas (8.6%). Non-fossil fuels combined made up

14.1%.

India produced 5.9% of the total global coal output, the

5th highest in the world, and consumed 8.5% of the

world’s total (3rd highest in the world).

India – Energy highlights (2013)

Refinery throughput reached a historical high of 4.5

Mb/d in 2013, an increase of 3.7%, and taking India’s

share in the world to 5.8%.

India’s energy production declined by 0.2%. India’s

production is 2.8% of the world’s total.

India’s net energy imports increased by 10.9%, taking

the share of domestic consumption met by imports to

over 40%.

India – Energy highlights (2013)

India – Energy snapshot

India – Oil & Gas

Oil: Consumption * Change y-o-y %

2013 % global share

Thousand barrels daily 2013 2012 of total

US 18,887 2.0% 19.9%China 10,756 3.8% 12.1%India 3,727 1.2% 4.2%Total World 91,331 1.4% 100.0%

Natural Gas: Consumption* Change 2013Y-o-Y % share

Billion cubic metres 2013 2012 of total

US 737.2 2.4% 22.2%China 161.6 10.8% 4.8%India 51.4 -12.2% 1.5%Total World 3,348 1.4% 100.0%

India accounts for 4.2

% of World Oil

Consumption & 1.01 %

of World Oil

Production

India accounts for 1.5

% of World Gas

Consumption

& 1.0 % of World Gas

Production

Characteristics & Challenges

Alternate & Renewable Energy

What’s next?

Challenges & Opportunities

Characteristics & Challenges

Large oil price increases can have more adverse

consequences on world economy. There is a

nonlinear relationship between oil prices and

economic outcomes, where large upward price

increases have a disproportionately negative

impact.

High prices leads to a ‘wealth shift’ from consumer

economies to producing economies & low prices

have a reverse ‘wealth shift’ effect.

Steep decline in prices leads to a reduced

production & stifling of investment in production,

technology as well as R&D.

Characterized by ever increasing demand and

simultaneously depleting reserves (supply).

Capital recovery (ROI) is extremely long and

commencement of recovery is dependent on price

variation.

Operating Margin is completely dependent on

variable Market prices and fixed operating costs.

Operator is unlikely to extend/expand/explore in

the event of a price drop.

Characteristics & Challenges

Alternate & Renewable Energy

High prices in Oil ensure a high operating

margin for the major companies. This margin

then funds further investment and research in

Alternate fuel & energy.

Lower prices in Oil leads to an almost

complete shut down of investment in Alternate

Energy. This is a paradoxical relationship and

will define the future energy scenario of the

world.

What’s next? Oil & Gas

Global Production (fossil fuels) will steadily

grow at roughly 1% over the next 25 years to

120 mbpd; or approximately 696 trillion BTUs.

Global consumption will grow at slightly over

1% pa over the next 25 years to reach 240+

quadrillion BTUs.

Note

1 million barrels = 5.8 trillion BTU (approximately)

1 quadrillion = 1000 trillion = 10^6 billion = 10^9 million

What’s Next? Oil & Gas

Natural Gas demand likely to increase in all

regions and across all sectors. This will be

led by greatest growth in production Shale

Gas, growing at (6.5% p.a.), providing nearly

half of the growth in global gas.

Global demand for natural gas will grow by

1.9% p.a.

Learning tools

Learning tools

Shale Oil Extraction

https://www.youtube.com/watch?v=x7wfx9IHtj

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Oil & Gas – Geo Energy Politics

https://www.youtube.com/watch?v=3HF1E11E

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Further reading on subject

www.bp.com

www.eia.gov

Unit Conversion guide

Units in Energy - Guide