Oil and gas

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Oil and gas

• VI study tour by students from Russia
• Rachid Amui
• UNCTAD, Special Unit on Commodities
• Rachid.amui_at_unctad.org

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Outline

• Part 1
• Introduction to Oil and Gas formation, reserves
  distribution, production, trade flows
• Part 2
• Demand and supply
• Factors limiting expansion of supply capacity
• Overview of investments in the oil and gas sector
• Overview of Russia oil and gas
• Part 3
• UNCTAD and oil gas development

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Crude oil, natural gas How are they formed?

• Decomposing buried organic material over millions
  of years through the action of micro-organisms
• Overlying layers of sand and silt compress lower
  layers into sedimentary rock
• Heat and pressure at depth slowly converts buried
  organic material into petroleum
• Petroleum formed deposits may consist mainly of
  larger (heavy) hydrocarbons, which have the
  thick, nearly solid consistency of asphalt.
• As the petroleum matures, and as the breakdown of
  large molecules continues, successively lighter
  hydrocarbons are produced.
• In the final stages, most or all of the petroleum
  is broken down further into very simple, light,
  gaseous moleculesnatural gas.
• Some natural gas deposits may form from deposits
  of plant material buried in sediment without
  association oil

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World oil reserves - end of 2008
Data Source BP Statistical Review 2009
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Historical trend of oil reserves
Mid East Total 754.1bn bbls 102 thousand
million tonnes
Data Source BP
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World oil production
Data Source BP
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Oil production in Europe and Eurasia
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World gas reserves - end of 2008
Data Source BP
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Historical trend of gas reserves
Data Source BP
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World gas production
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Natural gas production in Europe and Eurasia
Data Source BP
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Peak oil
Source peak oil website
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Oil trade movements
Source BP
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Natural gas trade movements
Source BP
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Oil and gas pipelines in Europe
Source EIA
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Oil and gas pipelines to Europe
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Demand in oil and gas

• Oil demand in 2009 estimated at 85.0 mb/d (-1.4
  or -1.2 mb/d year-on-year) but expected to rise
  to 86.6 mb/d in 2010 (1.8 or 1.6 mb/d versus
  2009) to 120 mb/d in 2030
• gas demand expected to rise by 41 from 3.0
  trillion cubic metres in 2007 to 4.3 tcm in 2030
• world energy demand is projected to increase by
  over 40 between now and 2030.
• Non-OECD countries account for over 90 of demand
  - China and India alone for over half.

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Outlook for oil demand
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Source IEA Oil Market Report 2010
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Oil supply growth non-OPEC
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Source IEA Oil Market Report 2010
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Factors limiting expansion of supply capacity (1)

• Geographic and technological challenges eg.
  ultra deep waters very cold remote regions,
  undeveloped deserts
• Challenges in extracting hydrocarbons from
  complex reservoirs
• Declining production in certain regions
• Geopolitical issues causing slowdown of
  investment
• Resource nationalism and contract renegotiations
• OPEC output policies

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Factors limiting expansion of supply capacity (2)

• High operating costs and difficulty in finding
  and recovering hydrocarbons
• Economic uncertainty price volatility on
  investment -supply growth at slower pace to
  demand growth
• Cash flow contraints in host countries for
  investment
• A review of investment plans by oil companies
  because of the credit squeeze

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Overview of investment in the oil and gas sector
(1)

• Surge in capital investment in 2007 to 2008
• Falling oil and gas prices and volumes took a
  heavy toll on all producers cash flows
• Many national oil companies, which depend on
  hydrocarbons for most of their revenue, cut
  spending or delayed oil and gas projects as a
  result of falling prices in 2009 and downward
  revisions in expected profitability
• The International Energy Agency estimates that
  investment budgets for global upstream oil and
  gas sector fell by around 21.0 (or around USD
  100 billion) in 2009.

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Overview of investment in the oil and gas sector
(2)

• Between October 2008 and April 2009, over twenty
  large scale upstream oil and gas projects, valued
  at more than USD USD 170 billion were deferred
  indefinitely or cancelled (IEA) 2mb/d oil and
  1.0 bcf/d gas
• Another 35 oil and gas projects were delayed for
  at least 18 months 4.2mb/d and 2.3 bcf/d of two
  years
• Drop in upstream spending more pronounced in the
  regions with the highest development costs (eg.
  Oil sands in Canada) and in small projects
  dominated by smaller players

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Investment outlook for hydrocarbons (1)

• Large investments continue to be needed to meet
  growing demand in the medium to longer term, and
  to offset falling output in many consumer
  countries
• Demand uncertainty will complicate investors
  decision making
• Some NOCs have the necessary financial strength
  to fund their capital-intensive projects and have
  continued to spend in the present economic
  downturn.
• 2010 capex activity expected to rise, driven
  mainly by large National Oil Companies (NOCs)

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Investment outlook for hydrocarbons (2)

• The total capital expenditure by listed NOCs (for
  which data is publicly available) is expected to
  register a 16 growth to around 375 billion in
  2010 (GlobalData)
• GlobalData forecasts a 12 growth in the oil and
  gas sector capital expenditure in 2010 and
  expects the total capex of the leading listed oil
  and gas companies to exceed 798 billion.
• According to the WB, the projected needs for
  primary energy development in Europe from 2010 to
  2030 are estimated to be on the order of almost
  1.3 trillion in order to ensure the availability
  of oil, gas, and coal.

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Factors limiting new investment

• Surge of LNG coming into Europe mostly from Qatar
• Uncertainty in demand eg. US markets becoming
  self sufficient with Shale gas
• Price volatility
• Geopolitical and regulatory uncertainties
• Investment environment affected by legislative
  framework eg. an absence of a functioning
  framework for production-sharing agreements
  (PSAs).
• Environmental issues eg. Unconventional crude
  sector
• Government reluctance to allow foreign investors
  in the energy sector

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Overview of Russia gas

• Russia has the largest natural gas reserves in
  the world. - proven gas reserves in 2008
  estimated at 43.3tcm or 23.4 of the world total
  (BPStatistical Review)
• Russia is the second-largest consumer of gas in
  the world after US, consumed 420.2bn cu metres of
  gas in 2008 approx 13.9 of global consumption
  (the US consumed 22 of the global total
• Gas accounts for well over one-half of Russian
  total primary energy consumption, with a share in
  the total of 55 in 2008, according to BP
• Oil and gas sector makes up two-thirds of
  Russias export revenue and more than 20 of its
  GDP.
• Accounts for almost one-half of federal budget
  revenue

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Main players in Russia oil and gas

• Gazprom owns and controls Russia pipeline
  network
• Gazprom produces over 80 of national production
  and has monopoly on exports - provides about a
  quarter of the European Unions gas needs
• Gazprom provides about 8 of budget revenues
• Impact of the financial crisis has shrunk demand
  and Gazprom net income in 2009 expected to have
  fallen by 23
• Oil sector dominated by a a few firms, mostly
  private owned
• Rosneft the largest accounts for 20 of national
  output
• Rosneft looking to break Gazprom gas export
  monopoly control of Kovykta gas field (1.6trn)
  approx 1 of global gas reserves

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UNCTAD and oil and gas development

• Promote Public-Private dialogue and cooperation
• Provide a forum to exchange experiences and best
  practices on innovative financing mechanisms
• Provide/facilitate technical assistance that will
  improve the ability of banks to provide financing
  to small and medium enterprises
• Provide a forum to exchange experiences and best
  practices on local content development and also
  provide policy advice for local content
  development
• Give training on using market based tools to
  mitigate price risk exposure

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Oil and gas conferences
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Learning resources

• World Energy Outlook 2009 (IEA)
• Country Analysis Briefs - Energy Information
  Administration
• Price risk management UNCTAD training materials
• Statistics
• British Petroleum Statistical Review of World
  Energy 2009 http//www.bp.com/
• Energy Information Administration
  http//www.eia.doe.gov/
• International Energy Association
  http//www.iea.org/

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