oil macro - jan 2016 uoi
TRANSCRIPT
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Supply, demand, investments
What are the revoilution implicatiofor oil prices ?
North Dakota
January 11th, 2016
Alexandre AndlauerHead of oil & gas sectorAlphaValue
Founder and manager US OIL INVEST
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Co-aut
and sha
a
Alexandre ANDLAUER
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Supply
Demand
Oil companies strate
KEY FINDINGS
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Supply
Revoilution in progress
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Market share battle around the world
Biggest players in the
world have increasedtheir output, driven
by high capex in the
2012/2014 period.
Capex maintenance
in 2014 has been thehighest in a decade,
leading to higher
production from
mature fields
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Investments have been high
The 2.5tn cumulated capex is an absolute historical record, even when taking in
specific inflationary pressure which increased upstream costs by more than twice
Source: Leonardo Maugeri Report Havard Kennedy School
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Market share battle around the world
Supply is inelastic in the short term (at least above $40/bbl).
OPEC has been the major contributor of global supply growth in 2016.
Source: Oxford Institute for Energy Studies
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OPEC production: December 2015 data
OPEC quota ? What quota ?
Cartel has never really existed (only temporarily), but now it is clear in the market
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OPEC output 80% driven by Saudi Arabia (+0.8mbpd)and Iraq (+0.6mbpd) at end November 2015
Source: Oxford Institute for Energy Studies
Saudi Arabia has been producing consistently above
10mbpd in part to meet the increase in domestic demand
and to maintain market share in key markets
Despite the deteriorating sec
deteriorating finance, Iraq surprise
Iraqi output above the 4mbpd in an
revenues
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Saudi Arabia: No cut to expect before end 2016 (if one occurs
Saudi Arabias production will remain in the 10.2-10.5mbpd (0.3mbpd maintenanc
Cut in production unexpected as long as the impact is uncertain (stockpiles, China,
Production will rise to meet demand increase and market share (Asia vs. Russia)
Source: Oxford Institute for Energy Studies
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Saudi Arabias recent decision can create short-term instabilitbut long-term opportunity (for the country)
Source: Bloom
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Saudi Arabia Thatcher Revolution
Decision in 2016
- Riyadh-based Jadwa Investment Co. estimates that the Saudi budget for next ye
on a price of $40.3 a barrel for Saudi export crude or about $42.8 a barrel for Breproduction level of 10.2mbpd
- Increased oil prices at the pump by 50%, taxes could be next
- Privatisation in some parts of Saudi Aramco (downstream + petrochemical) on th
Ossified political structures are highly vulnerable precis
seek even partial reform. Any destabilisation in Saudi Aprovide the supply shock that clears the glut in oil and r
But in the long term
Warning global demand may face a Black Swan mean
pump as much as they can (by 2020) 12.5mbpd ?
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Iraqs growth to slow down
Iraqs rig count halved with government
facing serious fiscal pressures
Under fiscal pressures, the Iraqi
been forced to revise downward
target negotiating new plateaus
Source: Oxford Institute for Energy Studies
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Is Iran coming back to the market ?
Latest tensions between Riyadh and Tehran could have an impact of a further supply battle betw
BUT
Short-term potential is limited in our view for both countries (market has already integrated +5
ANDAttracting foreign investment will be more difficult after the diplomatic rift with Saudi Arabia. Region
all efforts made over the last months.
=
It already becomes clear that investments will be delayed and output un
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Is Iran coming back to the market ?
Source: Oxford Institute for Energ
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Venezuela: highest risk
As of October, Venezuela had $15bn in foreign reserves ($1
and was selling its gold holdings in order to be able to finan
With a CCC credit rating and a negative outlook, Venezu
markets is very limited.
Venezuela will not make it through 2016 without defaulting
in our opinion. Venezuela has $5.2bn of bonds and interest
months
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Russia: record production at 10.9mbpd in December
Production has continued to increase in 2015
The increase has be driven by small producers
Impact of tax changes, sanctions and rouble exchange rate key
Source: Oxford Institute for Energy studies
Russia: limited upside in the current environment battle with
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Russia: limited upside in the current environment, battle with China
- Focus on core asset and short-term results only
- Devaluation of the rouble has mirrored the decline in oil prices
(80% cost, 50% revenues in $). Benefit of the rouble for 2 years,
helps capex
- Strong market share battle in China
- Key concerns are:
- Specific limits on finance-raising for some companies
- The downgrade of Russian sovereign debt to junk status
Source: Oxford Institute for Energy studies
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Conclusion on OPEC & Russia and other producers
The cost of finance is increasing
Political instability and policy uncertainty will
not help to reach the potential
There will always be an inability to
implement large infrastructure projects in
some countries
Weak institution and bureaucratic delays will
not disappear
Source: Oxford Institute for Energy Studies
We see limited potential in OPEC countries + Russia. At the best by 2018 (mbpd)
Iraq: +0.5, Iran: +0.7, Saudi Arabia: +0.5, Libya: +0.3, Russia +0.3
Brazil, Norway, North Sea will have a limited impact
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Demand
Revoilution in progress
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Demand growth slows : but still above 1mbpd
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China and US to world demand growth
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The amount of energy consumed per unit of GDP, or the energy intensity
economy, has declined by 13% since 2005
EIAs 2015 Annual Energy Outlook: the administration expects energy ef
result in a 0.4% annual reduction in energy use per capita from 2013 thr
Efficiency impact back in 2017
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China doesnt need to grow in 2016 : +0.5mbpd
Demand will be driven by
(1)Stockpiling (+200kbpd in 2016)
(2)Independent refiners (+300kbpd in 2016)
(1) Stockpiling
- China will add petroleum reserves t
ultimate goal of stockpiling enough
worth of imports by 2020 (vs 29 toda- The country has currently 8 strategi
and may start 4 new (74mb)
Source: Oxford Institute for Energy studies
Chi d t d t i 2016 0 5 b d
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(2) Independent refiners: Teapot
- Teapots account for a 1/3rd of the nations
processing capacity- Demand is further expanding as the
government relaxes rules to allow imports by
private refiners to promote private
investment and boost the economy
- The three teapots with the biggest import
quotas have said theyll utilise their permitsthis year. 300kbpd looks like being
conservative regarding the speeches of the
three biggest refiners (Shandong Dongming
Petro-chemical, Panjin North Asphalt Fuel Co.
and Baota Petrochemical Group)
The economy will determ
consumption, but even wi
demand decrease, which loo
case, in 2016 Chinese demand
300kbpd
China doesnt need to grow in 2016 : +0.5mbpd
I di Af i
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India + Africa
Africa is one of the world's
continents with almost 1.2 billio
demand in 2020 is expected toby 2020, up from 3mbpd in 2000
be the main oil demand growth d
Oil i diffi lt t l i th h t / di t
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Oil is difficult to replace in the short / medium term
Consumption decrease may only be a fact of lower economy, motor efficiency and life
Renewables will have a limited impact until 2020, and a step by step process in a coup
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Oil companies strate
Revoilution in progress
Big Oil higher volatility shorter cycle lower prices : what is t
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Big Oil, higher volatility, shorter cycle, lower prices : what is t
2015 - First answer
2016-2018
Implementation of
new strategy
- Further Investment reduction + d
- Fully Leverage Technology
- Partnership and alliances
- Build a flexible responsive organis
- Focus on core asset - Re
- Improve productivity - D
More swap and share-based deals, non-
cash deals can mitigate oil price risk.
In 2015, M&A value of transaction fell by
22% to $143bn despite the Royal Dutch
Shell BG deal.
Chinese oil companies spent less than$5bn on acquisitions for the second
straight year.
Dividend to impact future production potential
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Dividend to impact future production potential
While the world E&P companies need to replace 35bn of o
every year to meet consumption needs, the companies wil
made investment decision that may result in only 5bn in
2016.
Big Oil companies bet on a $60/bbl on
their decisions. Further capex to come.
With the current cut ($50bn), $100bn
may miss still miss to stabilise debt.
Refining may no longer help.
From over investment to under investment
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From over investment to under investment
Globally spending on exploration and production
could fall by $100bn in 2016, after $200bn in2015
Capex maintenance in 2013/2014 helped to
support production growth, but forecast will be
revised down.
More than 1.5mbpd from listed companies have
cash cost above $40/bbl
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Conclusion
Revoilution in progress
Marginal cost before 2015 : $90/bbl
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Marginal cost before 2015 : $90/bbl
Source: JOSCO
Marginal cost after 2015: $70/bbl
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Marginal cost after 2015: $70/bbl
North American unconventional business has been the fastest reacting area so far.
Majors and international players lack exposure to this flexible investment.
Source: JOSCO
Market is rebalancing, slightly on the physical market, rapidly
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investment decision
mbpd 2015 2016e 2017e 2018e 2019e 2020e
Demand +1.8 +1.2 +1 +0.8 +0.8 +0.7
Supply +2.4 +0.2 +0.7 +0.8 +0.8 +0.7
Gap -0.3 -1 -0.3 -0.0 -0.0 0.0
Source: AlphaValue with our oil prices assumption
Each barrel counts in the market
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Each barrel counts in the market
2010/2014 average stockpiles were close to 2.7bn.
A 1mbpd drawdown over 365 days would decrease OECD stocks to below
average. We believe that in the very short term, this is a key determinant to
that oversupply concerns may disappear in one year.
Source: EIA - B
Bet on a $60/bbl in the long term. Upside will be a short-term b
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et o a $60/bb t e o g te Ups de be a s o t te b
Market is rebalancing, even more slightly (Emerging Markets) h i l k t idl th i t t d i i
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physical market, rapidly on the investment decision
mbpd 2015 2016e 2017e 2018e 2019e 2020e
Demand +1.8 +0.5 +0.7 +1.0 +0.9 +0.9
Supply +2.4 +0.2 +0.7 +0.8 +0.8 +0.8
Gap -0.3 -0.3 -0.0 -0.2 -0.1 -0.1
Source: AlphaValue with our oil prices assumption
Bet on a $60/bbl in the long term. Upside will be a short-term b
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g p
Key Conclusions
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There is no risk premium so far on the current oil prices (due to stockpiles an
appear suddenly (Saudi, Venezuela, Iraq, Algeria) but it is unpredictable.
After 2018, oil prices above $60/bbl will be a catalyst for the industry (excluding
again.
Oil demand may reach a plateau by 2025. At that time, only depletion of mat
need to be replaced: 3% or 3mbpd a year.
If there is a (big) upside for oil prices, it would be in 2020-2025 with the lack of
2015-2018 and India + Africa pushing to a triple-digit number. But betting on oil
is too difficult and unpredictable. Technology may all the time change the picture
Main risk is more on Demand than Supply in 2016. US consumption + Chin
determine the trend (again)
y
Th k !
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Thank you !
There is always a light
at the end of the tunnel
+ 33 6 20 12 30 00
mailto:[email protected]:[email protected]