Dr Thomas Kevin Swift

1
Energy EconomicsACC Energy Network Meeting (16
November 2005 )

• Dr Thomas Kevin Swift
• Chief Economist
• Senior Director, Economics Statistics
• American Chemistry Council

2
Its economics.
3
Rising Economic Growth Affects Energy Demand
P
S
2002 to mid-2005 Demand shifts as a result of
rising economic activity. Supply is constrained
P2
a
P1
D2
D1
O
Q
Q1
Q2
4
Hurricanes - A Restriction of Supply
P
S1
P3
Hurricanes Supply shifts GoM operations shut-in
along with gas processing plants, pipelines,
refineries, etc.
P2
c
D2 (short-run)
Q2
Q
O
5
Wheres the Economic Growth in 2004/06?
Change in GDP ()
Share of World GDP Growth ()
6
Survey of Macroeconomic Forecasters
Forecasters Expectations
Note Average response based on a survey of
forecasters made during week of 11-7-05
7
Oil
8
World Economic, Industrial and Oil Consumption
Growth
Change Year-over-Year
2004 is largest rise since 1976
Average growth in oil demand for last 30 years
1.1
9
Chinas Oil Demand Fuels Oil Price
Source EIA (11-05 Short-Term Energy Outlook,
National Bureau of Statistics (China)
10
Global Oil Supply/Demand Balance
Source EIA Short-Term Energy Outlook (11-05)
11
OPEC Oil Capacity and Production
Source EIA Short-Term Energy Outlook (11-05)
12
Tight Global Capacity Leaves Little Room for
Demand Growth
Source EIA Short-Term Energy Outlook (11-05)
13
EIA Oil Price Assumptions
/Barrel
EIA STEO
Source EIA Short-Term Energy Outlook (11-05)
14
Natural Gas
15
Natural Gas Consumption Trends By Sector
TCF
Source EIA Short-Term Energy Outlook (11-05)
16
Natural Gas Supply Trends By Source
TCF
Source EIA Short-Term Energy Outlook (11-05)
17
Natural Gas Prices
/million BTUs
Source EIA
18
Natural Gas Costs around the World(US per
million BTUs)
Baltics 2.70
UK 8.20
Russia 1.45
Poland 3.50
Canada 11.20
Belarus 1.70
Belgium 8.05
Ukraine 2.30
South Korea 5.25
USA 13.90
Turkey 2.65
Iran 1.25
Japan 5.25
North Africa 0.90
China 4.85
Kuwait 1.25
Qatar 0.85
Taiwan 5.15
Mexico 12.65
Oman 1.00
India 3.25
Saudi Arabia 0.75
Trinidad 1.60
Singapore 3.30
Indonesia 2.70
Bolivia 1.65
Australia 3.85
Argentina 1.60
Updated 26 October 2005
19
Natural Gas Rig Count
Source Baker-Hughes
20
Shut-in Offshore Gulf Natural Gas Production
Trading on Henry Hub suspended from 9/23
10/6 BCF/D Billion cubic feet per day, /MCF
Dollars per thousand cubic feet
Source EIA Short-Term Energy Outlook (11-05)
21
Working Gas in Underground Storage Compared with
the 5-Year Range
Billions of Cubic Feet (BCF)
Maximum Peak
Minimum Peak
5-Year (2000-04) Range
Source Energy Information Administration
22
Scenarios for 2005/06 Winter(in billions of
cubic feet (BCF) per day)
23
EIA Natural Gas Price Assumptions
/mm BTUs
EIA STEO
Source EIA Short-Term Energy Outlook (11-05)
24
Implications for Chemicals
25
Oil and Natural Gas Prices
Source EIA
26
Ratio of Oil to Natural Gas Prices A Proxy for
Gulf-Coast Petrochemical Competitiveness
Improving Competitiveness
Diminishing Competitiveness
Note Divide Oil (in /barrel) by natural gas
(/million BTUs)
27
Oil/Gas Ratio and US Balance of Trade in
Petrochemicals
Sources EIA,, Bureau of the Census
28
Effects of Higher Energy Prices

• A sustained 3.50/million BTU increase reduces
  US.
• Economic growth by 0.2
• Industrial output by 0.4
• Chemicals (excluding pharmaceuticals) output by
  0.8-1.4
• Basic chemicals (including plastics) output by
  1.5-3.5
• below baseline assumptions

• A sustained 10/barrel increase reduces US.
• Economic growth by 0.5-0.8
• Industrial output by 0.8-1.2
• Overall (excluding pharmaceuticals) output by
  0.8-1.0
• Basic chemicals (including plastics) output by
  1.3-3.3
• below baseline assumptions

29
Slower Growth for Chemicals (excluding
pharmaceuticals) from High Oil Prices
Based on 2004 average ETI price of 41.44 and EIA
STEO assumptions
30
Energy Summary

• Strong demand (with China and US driving demand)
• Supply constraints in refining and upstream
• Add in geopolitical uncertainty, low dollar, etc.
  - a recipe for high oil prices
• Russia now global 1 producer (during 1999-03
  added the equivalent of Kuwait 2/3rd of 2004
  incremental non-OPEC supply) ability to keep
  expanding?
• Saudi stability
• Demand in 2005 reverts to trend as global
  capacity grows
• Recent mild temperatures affecting markets
• Status of shut-in operations, gas processing and
  demand destruction
• Natural gas continues to present challenges (keep
  fingers crossed for this winter)
• Americans could be facing a difficult winter
• We need adequate and diverse supplies of natural
  gas
• Produce energy from more places and more sources
• Katrina and Rita time to rethink energy
  security