world oil and north american natural gas outlook november 2006
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WORLD OIL AND NORTH AMERICAN NATURAL GAS OUTLOOK November 2006. 1. PETROLEUM INDUSTRY FUNDAMENTALS. Depletion is relentless. Explorationists seek largest and most profitable deposits first. Production rises initially, peaks and irreversibly declines. - PowerPoint PPT PresentationTRANSCRIPT
GROPPE, LONG & LITTELL
OIL AND GAS ANALYSTS AND FORECASTERS
H E N R Y G R O P P E E .W . LO N G , JR . G E O R G E S . L ITTE LL
1111 BAGBY, SUITE 2330 PHONE (713) 658 -1193 W EBSITE www.groppelong.com HOUSTON, TEXAS 77002 FAX (713) 658 -1196 EMAIL gll@ groppelong.com
WORLD OIL AND NORTH AMERICAN NATURAL GAS OUTLOOK
November 2006
PETROLEUM INDUSTRY FUNDAMENTALS
• Depletion is relentless.
• Explorationists seek largest and most profitable
deposits first.
• Production rises initially, peaks and irreversibly
declines.
• United States crude oil production rose 50
percent from 1945 to 1970, peaked and declined
almost 50 percent since.
1
OIL SUMMARY CONCLUSIONS
• World crude oil production is peaking and will
decline irreversibly.
• Security and stability concerns are growing in
exporting countries – Saudi Arabia, Russia,
Venezuela, Iraq, Iran, Nigeria – which account for
over 40 percent of world crude oil supply.
• Liquids from the growing international natural gas
industry will supplement crude oil supplies.
• High prices are required to constrain consumption.
There is no such thing as scarcity and no such
thing as surplus. There is only price.
• 100,000 barrel per day supply change moves the
price $1 per barrel.
• Transportation is the dominant growing use for oil.
• High cost oil will be replaced with cheaper natural
gas and other substitutes in stationary fuel use in
developing economies as occurred in OECD
countries in the last oil crisis.
• The world oil industry will continue to operate
essentially at capacity with permanent major price
volatility.
2
GAS SUMMARY CONCLUSIONS
• North American natural gas production has
already peaked.
• LNG imports will grow.
• Canadian imports will decline.
• Total supply will decline.
• High prices will drive substitution of lower cost
fuels in industrial and power generation use.
• Nuclear power expansion is the logical long-
term solution.
3
4
0
25
50
75
100
125
150
175
200
Million BarrelsPer Day
Oil Equivalent
Petroleum 38%
Natural Gas 24%
Coal 24%
Renewables 8%
Nuclear 6%
Petroleum 41%
Natural Gas 23%
Coal 22%
Renewables 6%Nuclear 8%
World
UnitedStates
United States% of World Energy
Consumption
Petroleum
Natural Gas
Coal
Renewables
Nuclear
25%
23%
21%
18%
31%
United States % of
World Population 6%
Oil & Gas Texas % of
US World
Production 25 3
Consumption 17 4
WORLD AND UNITED STATES ENERGY CONSUMPTION
2003
5
WORLD CRUDE OIL DISCOVERY RATES
0
10
20
30
40
50
60
70
80
90
100
1930 1940 1950 1960 1970 1980 1990 2000 2010
BillionBarrels
Annual Discovery
Annual Production
UNITED STATES CRUDE OIL DISCOVERY RATELower 48 States Onshore
0
1
2
3
4
5
6
7
8
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
BillionBarrels
Oil fields larger than 100 million barrels
Annual Discovery
Annual Production
6
CRUDE OIL PRICEWTI Or Equivalent
0
10
20
30
40
50
60
70
80
90
100
1870 1890 1910 1930 1950 1970 1990 2010 2030
2004 $Per Barrel
Era of Plenty & U.S. Control
Era of Scarcity &Price Rationing
$36 Average
$13 Average
Era of Transition& OPEC Control
U.S. ProductionPeaked
World ProductionPeaking
Price?
1870 1970 2004 2030
7
8
WORLD CRUDE OIL PRODUCTION
0
10
20
30
40
50
60
70
1945 1955 1965 1975 1985 1995 2005 2015
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
Arabian Light Price(Right Scale)
Million BarrelsPer Day $/Barrel
Production(Left Scale)
Actual Forecast
9
WORLD PETROLEUM PRODUCTION
0
10
20
30
40
50
60
70
80
90
100
110
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Million Barrels Per Day
78.0
36.0
25.5
Other Non-OPEC Crude Oil
Eastern Europe Crude Oil
OPEC Crude Oil
NGL ** 62.7
75.6Other *
* alcohols, coal liquefaction, and gas to liquids** condensate, natural gasoline, butanes, propane, and ethane
80.2
68.7
39.9
28.9
Actual Forecast
EIAForecast
10
OIL EXPENDITURES RELATIVE TOGLOBAL ECONOMIC ACTIVITY
0
1
2
3
4
5
6
7
8
Percent ofGlobal Gross
DomesticProduct
Crises of 1970’s & 1980’s
OIL EXPENDITURES
Current at $60 per Barrel Oil
WORLD PETROLEUM USE BY SECTOR
0
10
20
30
40
50
60
70
80
Million BarrelsPer Day
Transportation 51%
Residential & Commercial
10%
Industrial & Power 27%
12%Raw Material
WorldUnitedStates
Transportation 67%
Residential & Commercial
7%
Industrial & Power 10%
16%Raw Material
11
UNITED STATES PETROLEUM PRODUCTION AND CONSUMPTION
Million Barrels Per Day
0
2
4
6
8
10
12
14
16
18
20
1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Production
Consumption
12
0
50
100
150
200
250
300
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
OIL AND GAS IMPORT COSTBillions of Dollars
13
14
0
100
200
300
400
2005 2010 2015 2020 2025
CHINA & INDIA PROJECTED ECONOMIC GROWTH
8% per yr
CumulativePercent
0
10
20
30
40
50
60
70
80
90
100
110
120
ENERGY COSTENERGY CONSUMED FOR ENERGY PRODUCTION
Oil1970
Energy ConsumedPercent Of Gross
Energy Input
Oil1985
Oil FromOil SandsLNG
EthanolFrom Corn
Gas toLiquids
15
16
U.S. NATURAL GAS CONSUMPTION,PRODUCTION AND PRICE
0
5
10
15
20
25
30
35
40
45
50
55
60
65
70
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
$0
$1
$2
$3
$4
$5
$6
$7
$8
$9
$10
Billion Cubic FeetPer Day $/MMBTU
Production
Consumption
Average Wellhead Price(Right Scale)
Imports& Other
Actual Forecast
LNG
UNITED STATES NATURAL GAS PRODUCTION
17
0
5
10
15
20
25
30
35
40
45
1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Bcfd
Tight
CoalbedAssociated
Offshore
Onshore Lower 48 Conventional
(Non-Associated)
Price Controls
Section 29 Tax Credits
Actual Forecast
LNG
CanadianImports
UNITED STATES NATURAL GASDRILLING AND PRODUCTION
18
0
2,500
5,000
7,500
10,000
12,500
15,000
17,500
20,000
22,500
25,000
27,500
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
0
1
2
3
4
5
6
7
8
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
$0
$1
$2
$3
$4
$5
$6
$7
$8
AverageWellhead
Price$/MMBTU
Gas WellCompletions
Gas Production
Bcfd
Total Production
Well Completions
AverageWellhead
Price
0
2,500
5,000
7,500
10,000
12,500
15,000
17,500
20,000
22,500
25,000
27,500
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
0
10
20
30
40
50
60
UNITED STATES NATURAL GASDRILLING PRODUCTIVITY
19
0
100
200
300
400
500
600
700
800
900
1,000
1,100
1,200
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Average First YearProduction Per New Well - Mcfd
20
UNITED STATES NATURAL GAS CONSUMPTIONBillion Cubic Feet Per Day
0
10
20
30
40
50
60
70
1973 1978 1983 1988 1993 1998 2003 2008 2013
$0
$1
$2
$3
$4
$5
$6
$7
$8
$9
$10Bcf/d
Residential & Commercial
Boiler Fuel & Other
46.9
60.8
42.0
24.3
Fuel Use Act
$/MMBTU
Average Wellhead Price(Right Scale)
59.6
21.7
Actual Forecast