Two oil imponderables: markets and politics

1
Two oil imponderablesmarkets and politics

• Bob Tippee, Editor, Oil Gas Journal
• PVF Roundtable
• Aug. 19, 2008

2
Background US energy politics

• Era of regulation 70s (30s for natural gas)
  through mid-80s
• Era of deregulation mid-80s through 2005
• Reregulation now

3
Characteristics of the eras

• Era of regulation
• Price and consumption controls
• Shortage
• Category cheating
• Era of deregulation
• Adequate supply
• Low prices most of the time
• Inattention to energy
• Policy tilt

4
The policy tilt

• Prices decontrolled
• Consumption decontrolled
• Domestic supply limits on
• Federal leasing, permitting restrictions
• Refinery construction

5
The global context

• Demand growing worldwide, too
• Supply expansion reaching limits
• Supply jolts of 2002, 2003, 2005

6
The reckoning
7
US gasoline and politics
8
New attention to energy

• Energy Policy Act of 2005 -- reregulation
• Bush in 2006 US addicted to oil
• Energy Independence and Security Act of 2007 --
  reregulation
• Continuing pressure on candidates, lawmakers to
  do something about high gasoline prices

9
Proposition
The market is beating politicians to the punch
with price relief.
10
OGJ annual forecasts

• Forecast Review
• Jan. 21, 2008
• Midyear Forecast
• July 14, 2008

Marilyn Radler, Senior Editor Economics Laura
Bell, Statistics Editor
11
High crude prices the reasons

• Fundamentals
• Demand rising faster than supply can expand
• Markets cushions thin
• Extraordinary forces
• Weak dollar
• Rush of scared money into commodities

12
World oil demand (MMb/d)
2009 87.7 (IEA July)
86.8 0.9
January 1.8
FSU 2.4 China 6.7 ME 4.6 LA 5.4
Source IEA except OGJ forecast for 08.
13
World demand observations

• OECD demand down 1
• Non-OECD demand up 3.3
• GDP growth in Non-OECD oil exporters
• Subsidies in Asia, Latin America, Middle East
• Lifting in much of Asia
• Staying in much of L. America, Middle East

14
World oil supply (MMb/d)
87.4 2.2
Stocks 0.6
Plus other biofuels. Source IEA
15
Non-OPEC supply (MMb/d)
2009 50.6 (IEA July)
50 N.C.
Source IEA Note Angola (1.7 MMb/d), Ecuador
(0.5 MMb/d) joined OPEC in 07.
16
Yearly change demand, non-OPEC supply (MMb/d)
Expected demand up 1.5 MMb/d in January
2009 (IEA July) Demand .800 Non-OPEC .600
Expected non-OPEC up 1.1 MMb/d in January
Source IEA. Note Angola, Ecuador joined OPEC in
2007.
17
Pressure on OPEC (MMb/d)

• Needed from OPEC in 08 32.3
• May OPEC crude (IEA) 32.3
• Group quota 29.67
• May OPEC capacity (IEA) 34.97
• Effective spare capacity (less Indonesia, Iraq,
  Nigeria, Venezuela) 1.95 (1.7 in July IEA)
• Stocks low

18
OPECs spare capacity (EIA)
19
OPEC production capacity in 08

• Saudi Arabia
• .200-.300 to 10.95
• Nigeria
• .200-.300 to 2.16
• Angola
• .170 to 2.05
• Algeria
• .050 to 1.45 via EOR

Change net of decline in MM b/d
Total OPEC 600 Mb/d to 35.6 MMb/d (End-07
fcast 35.8 MMb/d)
Plan to 12.5 MMb/d by end 09 Source IEA
20
Summary Global oil market

• Extraordinary forces waning
• Demand growth slowing
• Supply growth in prospect
• Cushions thickening

21
US product demand (MMb/d)
20.25 -2.2
20.7 N.C.
January -0.6
All product categories down
Note Before exports (1.55 MMb/d in 08). Source
EIA for 2004-07
22
Gasoline, distillate demand (MMb/d)
9.2 -1
Red line ULSD
4.18 -1
08 ULSD forecast assumes 80 of distillate
Source EIA for 2004-07
23
Gasoline, ethanol use (MMb/d)
9.2 -1
08 is mandate (587 Mb/d)
Source EIA
24
ULSD, biodiesel use (MMb/d)
3.34 13
Applied 80 factor to dist. demand
Source EIA
25
Industry oil imports (MMb/d)
Top numbers of total US demand
64.0
64.9
66.3
63.1
65.9
12.95 -3.6
Imports down .48 demand down .45 liquids output
up .06
Source EIA for 2004-07
26
US total liquids production (MMb/d)
6.97 1.2
Source EIA for 2004-07
27
US gas consumption (tcf)
23.86 3.5
Source EIA for 2004-07
28
Marketed gas production (tcf)
21.2 5
Source EIA for 2004-07
29
US gas imports (bcf)
4.2 -9.1
LNG 0.4 -51
Source EIA for 2004-07
30
Summary US oil market

• Oil demand down
• Gasoline demand down
• Diesel use rising supply a question
• Ethanol use growing (mandate)
• Oil production, refining capacity rising
• Gas production zooming

31
Energy proposals now

• OCS leasing off East Coast
• More subsidies for politically favored energy
  sources
• Heavy spending on alternative fuels
• All in framework of doing something about high
  gasoline prices

32
For more on Midyear Forecast
Midyear Forecast Review Webcast Go to
www.ogj.com Click More Webcasts in the Webcasts
area Select from list